Under the GST/HST framework, the difference between a zero-rated supply and an exempt supply lies in both the rate charged and the supplier's ability to recover tax on inputs. A zero-rated supply is taxable at a rate of 0%, so no tax is charged to the customer, but the supplier can still claim input tax credits on related expenses. Examples include basic groceries, certain medical devices, and many exports.
An exempt supply, by contrast, is not subject to GST/HST at all, and the supplier cannot claim input tax credits on the inputs used to make it. Examples include most long-term residential rents, many financial services, most health-care services, and certain educational services. The distinction matters because misclassifying a supply affects both the tax charged to customers and the credits the business can recover, and it is a frequent source of GST/HST reassessments.