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New GST/HST Guidelines for Dentists and Orthodontists | Ghumans

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New GST/HST Guidelines for Dentists and Orthodontists: Navigating the Changes with Notice 339

The Canada Revenue Agency (CRA) has recently issued GST/HST Notice 339, introducing significant changes for dentists and orthodontists. This notice revokes the CRA’s longstanding 35 per cent arrangement with the Canadian Dental Association (CDA) and sets out new input tax credit (ITC) rules that GST/HST registrant dentists must now follow.

The CDA’s Arrangement: A Historical Perspective

Since its inception in 1991, the Arrangement allowed GST/HST registrant dentists to estimate up to 35 per cent of the total fees charged for orthodontic treatments as the supply of orthodontic appliances. This estimation was crucial for determining the extent of a dentist’s commercial activity for GST/HST purposes during each reporting period.

However, recent legal precedents have rendered this Arrangement obsolete. These rulings have clarified that dentists are eligible to claim ITCs for supplies of orthodontic appliances provided alongside orthodontic services. The previous method of claiming ITCs was found to be inconsistent with the provisions of the Excise Tax Act.

Transition to New ITC Rules

With the revocation of the Arrangement, dentists must now adhere to the same ITC rules as other GST/HST registrants. While dentists currently using the Arrangement can continue until the end of their current fiscal year, the new rules will apply to any fiscal year beginning on or after January 1, 2025.

Under the new guidelines, GST/HST registrant dentists can claim ITCs for GST/HST paid or payable on their acquisitions of property and services, provided these acquisitions are used in their commercial activities. Here are the key ITC rules to follow:

General ITC Rules

  • No ITC eligibility if the acquisition is of operating expenses and is used 90 per cent or more in exempt activities, such as providing 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.
  • Apportioned ITCs must be claimed 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 in commercial activities.

The Impact on Dental Practices

The revocation of the CRA’s administrative arrangement with the CDA means that GST/HST registrant dentists must now comply with the standard ITC rules applicable to all registrants. Understanding and applying these guidelines correctly is essential for ensuring compliance with the Excise Tax Act and avoiding potential errors in tax reporting. As these changes take effect for fiscal years starting on or after January 1, 2025, it is crucial for dental practices to review their GST/HST procedures and align them with the new requirements.

How We Can Assist

For help in understanding and implementing these new GST/HST guidelines, please reach out to our Team. We are here to support you through this transition and ensure your practice remains compliant.