Zero-rated versus exempt foreign-client revenue

The practical difference

The customer's invoice may show no GST/HST in either case, which makes the categories easy to confuse. For the supplier, the categories affect the registration threshold, eligibility for input tax credits, and whether the activity is a commercial activity for GST/HST purposes.

No tax shown can also have a different explanation: the supply may be made outside Canada, or it may be a normally taxable supply made while the supplier remains an unregistered small supplier. Do not label either result zero-rated or exempt without reviewing the place-of-supply, registration, and classification rules.

Why many exported services can be zero-rated

Part V of Schedule VI contains several export provisions. CRA's general exported-services memorandum describes a rule that can zero-rate a service supplied to a non-resident person when none of the listed exclusions applies.

That is a conditions-based result, not a shortcut based on the client's mailing address. Some rules depend on regular GST/HST registration status, the recipient's residence, the person receiving the service, and the service's connection to Canadian property or activity.

Common facts that require closer review

CRA's exported-service materials contain multiple specific provisions and exclusions. A standard freelance label such as consulting, design, development, or marketing is not enough by itself to reach a conclusion.

• The recipient is an individual who is in Canada while dealing with the supplier or receiving the service.
• The service relates to Canadian real property or tangible property in Canada.
• The work is advisory, professional, consulting, agency, arranging, transportation, or telecommunications activity with a specific rule.
• The non-resident is registered under the regular GST/HST regime.
• The contract, economic recipient, payer, and actual user are different people.

Evidence matters

CRA says registrants relying on relevant export provisions should verify and obtain evidence that recipients are non-residents before zero-rating. Evidence can include the signed contract, the recipient's legal name and address, residence or registration-status documentation, correspondence, and facts about where and by whom the service is used.

A line on an invoice saying “zero-rated export” records the conclusion; it does not prove the conclusion. Preserve the facts and the review behind it.

Registration changes the operating duties

A small supplier making taxable supplies in Canada may be able to register voluntarily. Voluntary registration creates collection, filing, and remittance duties for applicable taxable supplies and generally requires remaining registered for at least one year. It may permit eligible input tax credits.

Do not choose voluntary registration solely because expenses contain GST/HST. Compare recoverable input tax credits with filing, invoicing, remittance, and recordkeeping duties.