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Although most RMTs are supportive of becoming exempt from charging and remitting HST, there has been some confusion about how tax exemption will affect your finances as an RMT.

Tax exemption will ensure that massage therapists are viewed equally to other regulated health professionals. As an integral part of health care teams, RMTs 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.

As we support the Canadian Massage Therapist Alliance’s (CMTA) advocacy to the federal government for tax exemption for massage therapists, we will be focusing on how tax exemption will increase access to massage therapy for patients. However, we have prepared an overview of how HST exemption might affect your practice financially, so that you have a greater understanding.

Some notes about the examples provided:

• The example of revenue provided below is on a breakeven basis, meaning the example RMT business would not be making or losing any money. Most RMT businesses will make more money than simply breaking even, or there would be no purpose to remaining in business
• The splits provided in the example are 60% to the RMT, which is the most common, but not the only split possible and splits are not the only compensation model available.
• The income made by the “clinic owner” is not taken into consideration. What is considered is the taxable income after a split that would be required to cover expenses, and the example will show the way expenses might change once massage therapy becomes tax exempt.
• Please note that the expenses are only an estimate, and you should consult your accountant to discuss your specific situation.
•  The biggest financial impact of tax exemption for massage therapists will be the inability to use input tax credits, and a survey for RMTs across Canada in 2019 found that the majority of RMTs do not claim input tax credits.

Definition:

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 HST, you can recover the HST/GST paid on these purchases.

Summary of Impact

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 a significantly lower than they would be 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 HST on your expenses, that doesn’t mean that there will be a negative impact on your income of 13%, the same as the 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:

• How many of your business expenses are HST exempt, and which are zero rated (both HST exempt expenses and zero rated expenses wouldn’t be eligible for input tax credits)
• The positive impact that tax exemption may have on your income. Based on the experiences of other health professionals, your income may increase after tax exemption, because patients will be able to access more treatment for the same amount of money. This may encourage more people to book massage therapy treatments more frequently, and would match the experiences of some Naturopaths when they became HST exempt.
• A large percentage of many RMTs’ expenses are the costs paid to other RMTs that subcontract for them, and those costs would now be tax exempt.

Some Non-Financial factors to consider
There are benefits of tax exemption for RMTs that are not directly financial in nature that should be considered. These include:

• A reduction in the administrative and financial burden associated with calculating and remitting HST.
• Increased credibility as a health professional, as most other health professionals are already HST exempt.
• A more even playing field for RMTs across Canada. There might currently be a perception that some RMTs charge more, because not all RMTs are registered to collect/remit HST, and some RMTs include HST in their fees, while others add it on separately.
• Despite any minimal financial impact that tax exemption may have on an RMT’s practice, it’s important that RMTs focus on passing the savings from the HST they would have otherwise collected onto the public. The government will consider granting tax exemption to massage therapists if the focus is on how this will allow patients further access to essential healthcare. Our focus will be to advocate for tax exemption for massage therapists to ensure that more people can access the amazing benefits of massage therapy.

Example

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 an RMT’s expenses might change overall after tax exemption. Keep in mind these examples are based on a scenario where the RMT breaks even, and almost all RMTs will generate more income.

In this example, let’s say the clinic makes $580,000 from massage therapy treatments. The RMT makes $348,000 (or 60%), and the clinic owners make $232,000 (or 40%)

The RMT’s taxable expenses including rent, utilities, cleaning, linens, accounting, advertising, etc. while massage therapy is not tax exempt are $107, 500, because the RMT can claim input tax credits. Once massage therapy becomes tax exempt and RMTs are no longer able to claim input tax credits, the taxable expenses would be $121,475.

The RMT’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 RMTs tax exempt/zero rated expenses are $124,500.
This means in the above scenario, the RMT’s overall expenses would be increased by $13,975.

In this example, the RMT would experience a 2.41% increase in expenses as a percentage of sales

Conclusion

Although the COVID-19 pandemic has meant that many elements of the CMTA’s tax exemption campaign have been delayed, this remains a priority for the CMTA and all organizations that are a part of it, including the RMTAO. As massage therapy, like many industries, gradually moves towards a new normal and the government begins to consider other issues beyond the pandemic, the CMTA will be able to move forward with many elements of this campaign.

In order for this campaign to be successful, we need to demonstrate that we have the support of the majority of RMTs across Canada. We want to provide RMTs with as much information as possible about the impacts of tax exemption in order to ensure that there is an understanding of what this change will mean in practice.

We know that many RMTs are very supportive of this initiative as they want RMTs to be perceived as more equal partners in the health care landscape and want to do everything possible to make massage therapy more accessible to the public. However, we want to acknowledge the potential financial impact although it will likely be minimal for most RMTs. In speaking with other health professions, they have found that once they obtained tax exemption the financial impact on their practice was even smaller than they expected, as they experienced an increased demand from patients.

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