Why Mental Health Practitioners Could Get Extra Attention from the CRA 

If you’re a therapist or counsellor in Canada, you’ve probably noticed some changes in how the CRA handles your profession lately. Between new GST/HST exemptions and increased scrutiny on certain business practices, it’s worth understanding what’s putting mental health practitioners on the tax agency’s radar. 

GST/HST Exemption Changes for Therapy Services 

The biggest shift happened on June 20, 2024, when the CRA confirmed that psychotherapy and counselling therapy now qualify for exemption from GST/HST. This change means many practices need to make significant adjustments to how they handle taxes. 

If your services qualify for the exemption, you’ll need to stop charging GST/HST on those services immediately. Some practitioners can close their GST/HST accounts entirely, while others who offer mixed services (like workshops or consulting that remain taxable) need to split their billing between exempt and taxable supplies. 

Here’s the challenge: If you get this wrong, it can trigger GST/HST review letters or even full audits. The CRA is paying close attention to how practices implement these changes, making proper compliance more important than ever.  

Common Issues That Trigger CRA Reviews 

Several common issues in therapy practices tend to attract CRA scrutiny: 

Income Discrepancies: When your reported income doesn’t match your bank deposits, T-slips, or bookkeeping records, it creates questions. The CRA has sophisticated data-matching systems that can spot these inconsistencies quickly. 

Travel and Conference Expenses: High or inconsistent claims for travel, meals, or continuing professional development conferences often get scrutinized. The CRA expects to see detailed itineraries, conference agendas, and clear business purposes for these expenses. 

Vehicle Claims Without Proper Records: If you’re claiming vehicle expenses but don’t have detailed mileage logs, this increases your audit risk. The CRA expects contemporaneous records with trip purposes and odometer readings. Vague “mostly business use” claims are insufficient. 

Home Office Overclaims: With many therapists offering telehealth services, home office deductions are common. However, the you must use the space exclusively for business, and your calculations need to be reasonable and well-documented. 

GST/HST Filing Errors: Common mistakes include charging GST/HST on now-exempt services, missing registration requirements for non-exempt services, or frequent refund claims without proper supporting documentation. 

Repeated Business Losses: If your practice shows losses year after year, the CRA may question whether you have a reasonable expectation of profit. 

GST/HST Compliance After June 2024 

First, confirm whether your services qualify for the exemption. Licensed psychotherapists and counselling therapists providing direct therapeutic services are generally exempt, but the specifics matter. 

If all your services are exempt, stop charging GST/HST immediately and consider closing your GST/HST account. However, if you offer any taxable services like certain types of consulting, workshops, or sell products, keep your account open and charge GST/HST only on those taxable supplies. 

Make sure your invoices clearly distinguish between exempt and taxable services, and update your chart of accounts accordingly. Your GST/HST returns need to reflect this new reality accurately.

Documentation That Protects Your Practice 

Proper documentation helps ensure compliance. 

• Travel Records: Keep conference agendas, receipts, and notes about business purposes or client meetings 
• Vehicle Logs: Maintain a contemporaneous mileage log with trip purposes and odometer readings 
• Home Office: Document your space calculation with floor plans, exclusive-use evidence, and utility bill allocations 
• GST/HST Records: Ensure invoices show correct tax treatment and that your returns reconcile with your general ledger 

Simple Steps to Stay Compliant 

Use accounting software like Xero to clearly separate exempt therapy services from taxable services on your invoices and in your chart of accounts. Set up tax codes properly so your GST/HST returns automatically match your general ledger. 

Create a digital audit binder each year containing mileage logs, home office calculations, travel documentation, and GST/HST reconciliations. Do quarterly “reasonability checks” by comparing expense ratios and GST/HST refunds to previous periods. Large changes should be explained and supported before filing. 

Your Pre-Audit Checklist 

Before filing your returns, ask yourself: 

• Are you charging GST/HST correctly post-June 2024? 
• Do your bank deposits match your reported income? 
• Are your travel, vehicle, and home office claims properly documented? 
• Do your GST/HST returns align with your actual revenue mix? 
• If you’ve reported losses, can you demonstrate a reasonable expectation of profit? 

Stay proactive, not reactive. With the CRA’s increased focus on mental health practices due to recent changes, having your documentation and processes in order goes beyond good business practice. It’s essential protection for your practice. 

Take our self-assessment and get a Financial Wellness Blueprint to identify areas where your practice could be stronger financially and tax-wise.