What is the difference between HST-exempt and zero-rated supplies in Ontario?

Both exempt and zero-rated supplies are sold without charging HST to the customer, but the business-side treatment is very different.

Zero-rated supplies — such as most basic groceries, prescription drugs, and exports — are technically taxable at a 0% rate. Because they are "taxable" supplies (at 0%), the seller can still claim input tax credits (ITCs) for the HST it paid on inputs used to make those supplies. This is a significant advantage.

Exempt supplies — including most residential rent, many health-care services, child care, and most educational services — are entirely outside the HST system. Suppliers of exempt supplies cannot register solely because of those revenues, cannot charge HST on them, and cannot claim ITCs for inputs used to make them. If you make both exempt and taxable supplies, you can only claim ITCs proportional to your taxable activities.

Understanding which category your services fall into affects whether registration makes financial sense and how to track your input costs. A tax professional can help you classify your supplies correctly.