What do changes to ITCs mean for dental practices?

Dental practitioners will need to calculate how much of their purchases are used in a commercial activity for fiscal years beginning after January 1, 2025. In addition, dental practitioners will also have to calculate and monitor whether assets are used for taxable activities or exempt activities, under the existing capital property rules. 

The CRA announced on October 25, 2024 that it’ll revoke the long-standing administrative arrangement with the Canadian Dental Association and its members. This arrangement currently allows GST/HST registrants to claim up to 35% of the tax paid on purchases as an input tax credit (ITC). This arrangement was intended to account for certain medical practitioners, such as dentists and orthodontists, who provide exempt services (i.e., dental procedures) and zero-rated products (i.e., dentures and orthodontic appliances, like braces). 

Without this administrative policy in place, dental and orthodontic practitioners must consider whether they have to repay some or all their previously claimed ITCs on capital property—which can be complex. In addition, this could make it more challenging to recover GST/HST paid on operational expenses. Dental practices will have to use a fair and reasonable approach to measuring the extent to which their inputs are used to make exempt and taxable (i.e., zero-rated) supplies. 

Background

This change came as a result of a case heard at the federal court of appeal, Dr. Kevin L. Davis Dentistry Professional Corporation case (2023 FCA 76). This case permitted the registrant to claim ITCs to the extent they were used in making zero-rated supplies of orthodontic appliances, even when provided with a supply of an exempt professional service. The CRA had previously taken the position that the registrant was engaged in making a single supply of an exempt medical service, which would mean no ITCs were permitted. 

Takeaway

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Disclaimer

The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.