End of administrative agreement between the Canada Revenue Agency (“CRA”) and the Canadian Dental Association
Following the Supreme Court of Canada’s refusal to hear the Canada Revenue Agency’s (“CRA”) appeal of the Federal Court of Appeal’s decision in the case between the CRA and the office of dentist Dr. Kevin Davis, the CRA issuedGST/HST Notice 339 in October 2024, announcing the termination of its administrative agreement with the Canadian Dental Association.
As a reminder, this agreement allowed dentists registered for GST/HST to claim, for each reporting period within a given fiscal year, an estimated input tax credit (“ITC”) of up to 35% of the taxes paid on their expenses, to reflect the fact that they supplied both taxable goods (zero-rated orthodontic appliances) and exempt services (dental services). At the end of each fiscal year, dentists had to determine the actual extent to which they had exercised their taxable supplies (e.g. braces) during the year, in order to adjust their ITCs accordingly.
Agreement revoked as of January1
As of January1, 2025, however, this agreement has been revoked as no longer appropriate. This means that for any GST/HST-registered dentist whose fiscal year begins on or after January1, 2025, only the actual extent to which a good or service was acquired for consumption or use in commercial activities will be relied upon to calculate the recovery of taxes paid on expenses. Thus, a tax-registered dentist whose fiscal year begins before January1, 2025 can continue to use the previous estimated method until the end of that fiscal year.
This CRA decision puts dentists on the same footing as all registrants. They will therefore need to analyze their activities carefully to establish fair and reasonable allocation methods for determining a percentage of business use, for the purposes of recovering taxes paid on their operating and capital expenditures.
Reminder regarding GST/HST and QST files
In fact, we’d like to reiterate the rules applicable to a person’s obligation to register for GST/HST and QST. A company or individual will no longer qualify as a small supplier when the total taxable income earned in the four calendar quarters preceding a given quarter, or in a single calendar quarter, exceeds $30,000. This means that many dentists are required to register, since the definition of a taxable supply includes zero-rated supplies (taxable at 0%), such as braces.
This makes it all the more relevant for dentists who are tax-registered or required to be tax-registered to seize this unique opportunity to establish a method of recovering taxes paid in the course of their practice. They will no longer be limited to the 35% maximum previously allowed by the CRA.
Revenu Québec’s position ?
To date, Revenu Québec has not confirmed its position. However, given the principle of harmonizing the QST regime with the GST/HST, we can expect Revenu Québec to take a similar position regarding the claiming of input tax refunds.
We invite you to contact us with any questions you may have on this subject, and we’ll be happy to help you analyze opportunities for the recovery of certain taxes for dentists specializing in orthodontics.
An article from our consumption tax team
