The tax is a 5% tax imposed on the supply of goods and services that are purchased in Canada, except certain items that are either "exempt" or "zero-rated":
• For tax-free — i.e., "zero-rated" — sales, GST is charged by suppliers at a rate of 0% so effectively there is no GST collected. However when a supplier makes a zero-rated supply, it is eligible to recover any GST paid on purchases used in producing the particular supply or service. This effectively removes the cascading tax from these particular goods and services.
o Common zero-rated items include basic groceries, prescription drugs, inward/outbound transportation and medical devices (GST/HST Memoranda Series ME-04-02-9801-E 4.2 Medical and Assistive Devices). Certain exports of goods and services are also zero-rated.
• For tax-exempt supplies, the supply is not subject to GST and suppliers do not charge tax on their exempt supplies. Furthermore, suppliers that make exempt supplies are not entitled to recover GST paid on inputs acquired for the purposes of making the exempt good or service. Tax-exempt items include long term residential rents, health and dental care, educational services, day-care services, legal aid services, and financial services.