Although most massage therapists are supportive of becoming exempt from charging and remitting GST/HST, there has been some confusion about how tax exemption will affect your finances as a massage therapist.
Tax exemption will ensure that massage therapists are viewed equally to other regulated health professionals. As an integral part of health care teams, massage therapists need to be on a level playing field to other health care professionals. Tax exemption will also make massage therapy more accessible to patients, and help them to stretch their extended health benefits and limited funds farther.
The Canadian Massage Therapist Association (CMTA) will advocate to the federal government for tax exemption for massage therapists. CMTA will be focusing on how tax exemption will increase access to massage therapy for patients. However, we have prepared an overview of how GST/HST exemption might affect your practice financially, so that you have a greater understanding.
Some notes about the examples provided:
Input tax credits – Input tax credits are the sum of GST/HST you pay on any legitimate business expenses. If you are registered to collect and remit GST/HST, you can recover the GST/HST paid on these purchases.
Summary of Impact
For this example, we are using a scenario based in Ontario.
In Ontario, where the HST is 13%, there will be a maximum of a 3.13% increase in expenses as a percentage of sales, and a minimum of a 1.69% increase in expenses as a percentage of sales (again this is if the business breaks even; the calculations will be different based on how much profit the business makes).
This means the increase in expenses will actually be significantly lower than in a break-even scenario. However, there will be some small increase in expenses if you claim input tax credits.
Just because you can’t claim back the GST/HST on your expenses, doesn’t mean that there will be a negative impact on your income of 13%, the same as the GST/HST rate. That actual impact on your expenses will likely be much lower.
There are several variables to keep in mind that will likely minimize any negative financial impact on you including:
Non-Financial Factors to Consider
There are benefits of tax exemption for massage therapists that are not directly financial in nature that should be considered. These include:
The scenario outlined below illustrates how both taxable expenses and zero-rated expenses will change as a result of tax exemption, so we can take a look at how a massage therapist’s expenses might change overall after tax exemption. Keep in mind these examples are based on a scenario where the massage therapist breaks even, and almost all massage therapists will generate more income.
In this example, let’s say the clinic makes $580,000 from massage therapy treatments. The massage therapist makes $348,000 (or 60%), and the clinic owners make $232,000 (or 40%).
The massage therapist’s taxable expenses including rent, utilities, cleaning, linens, accounting, advertising, etc. while massage therapy is not tax exempt are $107, 500, because the massage therapist can claim input tax credits. Once massage therapy becomes tax exempt and massage therapists are no longer able to claim input tax credits, the taxable expenses would be $121,475.
The massage therapist’s tax exempt/zero-rated expenses including things like insurance, bank charges and credit card processing fees will remain the same regardless of whether or not massage therapy services become tax exempt. For this example, the massage therapists tax exempt/zero-rated expenses are $124,500.
This means, in the above scenario, the massage therapist’s overall expenses would be increased by $13,975.
In this example, the massage therapist would experience a 2.41% increase in expenses as a percentage of sales.