The Canada Revenue Agency (CRA) has issued GST/HST Notice 339 (the Notice), which announces the revocation of the CRA’s administrative 35 per cent arrangement (the Arrangement) with the Canadian Dental Association (CDA) and outlines the input tax credit (ITC) rules that GST/HST registrant dentists must now follow.
The CDA’s Arrangement
Established in 1991, the Arrangement allowed GST/HST registrant dentists to estimate what portion of the total fees charged for orthodontic treatments represented the supply of orthodontic appliances. This estimate could be up to 35 per cent of the total consideration for orthodontic treatments for each reporting period in a fiscal year. The estimated portion was used to determine the extent of the dentist’s commercial activity for GST/HST purposes during the reporting period.
According to the CRA, the Arrangement has become redundant due to recent legal precedents, which concluded that dentists are eligible to claim ITCs for supplies of orthodontic appliances provided in conjunction with orthodontic services. The Arrangement also allowed ITCs to be claimed in a way that was inconsistent with the provisions of the Excise Tax Act.
As a result, dentists will now be required to follow the same ITC rules as other GST/HST registrants. Dentists currently applying the Arrangement may continue to do so until the end of their current fiscal year. However, the revocation will apply to any fiscal year beginning on or after January 1, 2025.
ITC Rules to Follow Going Forward
GST/HST registrant dentists are eligible to claim ITCs for GST/HST paid or payable on their acquisitions of property and services, to the extent that these acquisitions are used in their commercial activities. Commercial activities include the provision of taxable cosmetic services and zero-rated sales of orthodontic appliances. However, exempt supplies, such as the provision of orthodontic services, are not considered commercial activities for GST/HST purposes.
Provided all other conditions for claiming ITCs are met, the following general ITC rules apply to GST/HST paid or payable by dentists on the acquisition of property and services:
- No ITC eligibility if the acquisition is of operating expenses and is used 90 per cent or more in exempt activities, such as the provision of orthodontic services.
- Full ITCs are generally available if the acquisition is of operating expenses and is used 90 per cent or more in taxable supplies for consideration, including zero-rated supplies of orthodontic appliances.
- ITCs must generally be apportioned if the acquisition is of operating expenses and is used for both taxable and exempt supplies.
- Full ITCs are generally available if the acquisition is of capital personal property (e.g., dental equipment) and used primarily (more than 50 per cent) in the dentist's commercial activities. No ITC eligibility if used 50 per cent or less in commercial activities.
- Full ITCs are generally available if the acquisition is of capital real property (e.g., a building used as a dentist's office) and used more than 90 per cent in the dentist’s commercial activities. No ITC eligibility if used 10 per cent or less in commercial activities. ITCs are available to the extent of use that is more than 10 per cent but less than 90 per cent use in commercial activities.
Present Day Impact
With the revocation of the CRA’s administrative arrangement with the CDA, GST/HST registrant dentists must now adhere to the standard ITC rules that apply to all registrants. By understanding and applying the appropriate guidelines for claiming ITCs, dentists can ensure compliance with the Excise Tax Act and avoid potential errors in tax reporting. As the changes take effect for fiscal years starting on or after January 1, 2025, it is crucial for dental practices to review their GST/HST customs and ensure they are aligned with the new requirements moving forward.
How Can We Help?
For assistance in understanding and applying these new GST/HST guidelines, please reach out to a member of our Indirect Tax Team.
This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.
