How will the CRA’s significant GST/HST update impact your dental and orthodontic practice?

A recent Federal Court of Appeal decision confirmed that GST/HST-registered dentists can claim input tax credits (ITCs) for expenses related to zero-rated orthodontic appliances. The court also confirmed that dentists are entitled to a pro-rated ITC for GST/HST payable on general expenses such as office overhead.

In October 2024, the Canada Revenue Agency (CRA) revoked a long-standing administrative directive, which allowed dentists to recover up to 35 percent of GST/HST paid on general expenses during the fiscal year. Dentists using an estimate were required to reconcile ITCs claimed during the year to their ITC entitlement based on actual results and reduce amounts claimed, if necessary. As of January 1, 2025, dentists must now follow the standard rules for claiming ITCs according to the Excise Tax Act. 

To navigate these changes, it is important for your dental practice to understand:

Acceptable methods and documentation for claiming ITCs

With the revoked directive, legislation requires dentists to document and apply a methodology that adequately supports their entitlement to ITCs. The method must be fair and reasonable, and used consistently throughout the year.

Recovery opportunities for orthodontic appliances

Due to a 2017 court case, there is a misconception that orthodontic appliances are part of a single and exempt supply of professional services. This misconception may be why some dentists do not claim ITCs on related inputs. For those practitioners, the recent Federal Court of Appeal decision presents a recovery opportunity, because it confirms orthodontic appliances are zero-rated.

Additional opportunities for ITC claims

Apart from orthodontic appliances (e.g., braces), supplies of artificial teeth, crowns, bridges, and dental implants may also give rise to ITCs.

Note: this is not an exhaustive list, and zero-rating is subject to conditions.

Opportunities for GST/HST refund claims

Some dental practices may be entitled to more than 35 percent of GST/HST payable on general expenses (subject to supporting evidence). Since most registrants have four years to claim an ITC, there could be substantial recovery opportunities.

Mitigating risks related to substantial ITC claims

The CRA investigates GST/HST refund claims and will deny ITCs that are not adequately supported. In this context, a well-documented ITC apportionment methodology is critically important.

How MNP can help

MNP’s Indirect Tax team can advise and support dental professionals on all matters related to GST/HST, particularly recoveries.

Our services include the technical analysis of products and services, the design and implementation of ITC allocation methods, recordkeeping, and compliance. We work with the CRA everyday while supporting clients through GST/HST audits, objections, and voluntary disclosures.