A recent tax court victory for the Davis Dentistry Professional Corporation case has paved the way for dentists and orthodontists to qualify for HST refunds. This doesn’t mean everyone will be getting cheques from CRA, but those offices which have a significant orthodontic component and/or an in-house lab/CEREC/E4D may be able to get some money back.
There’s always been a lot of confusion with HST and dentistry. Common questions dentists ask are should I register for an HST account, do I charge my patients, and do I get back the HST I paid? The answer depends on the dental services you are providing.
Dental services generally fall into one of these HST categories:
- HST Exempt
- a. Fully taxable (13%)
- b. Zero rated (0%)
In general, the vast majority of dental services are considered HST exempt. This means no need to register for HST account, no need to charge HST to patients and no HST refunds can be claimed on expenses.
Example of exempt services include diagnostic and radiology, cleanings, fillings, periodontics and endodontics, extractions and other services which are for medical or reconstructive purposes.
Dental offices that offer a significant amount (over $30,000 per year) of certain types of dental services would fall into the taxable category. Within the “taxable” category, HST may apply at a rate of 13% or a rate of 0% (“zero-rated”).
Examples of taxable services include “cosmetic dentistry” which are elective and not for medical and/or reconstructive purposes, teeth whitening and electric toothbrush sales. Where gross revenues from these types of services exceed $30,000 in a year, you would need charge 13% HST to your patients and you can also claim a refund on HST paid on expenses incurred to provide those taxable services.
In this category, you don’t charge HST to patients, but you can recover the HST paid on expenses related to those zero-rated services. Examples of zero-rated services include orthodontic appliances and lab work for artificial teeth crown/bridges/dentures/implants.
Zero-rated services have always been the most contentious with CRA. The primary reason being, services under this category result in no HST being charged and collected, but HST refunds being
provided (i.e., CRA gets $0 but has to refund you money). The contention dates back to 1998 when an administrative agreement among CRA, dentists and orthodontists was created setting out rules and guidelines for HST and dental offices. This was unchanged until 2004 when CRA provided an interpretation update making it more cumbersome to claim back HST on zero-rated services. Finally, in 2017, CRA went to court with Dr. Brian Hurd Dentistry Professional Corporation and won. The decision at that time was that dentists and orthodontists would not qualify for HST refunds. The reasoning was you could not separate the orthodontic appliance which was zero-rated from the orthodontic service which was HST exempt and therefore they both should be considered one HST exempt service and no refund can be claimed on HST exempt services.
The 2021 tax court case of Davis Dentistry Professional Corporation produced a drastically different decision. In this decision, the judge states the tax laws specifically lists orthodontic appliances as zero-rated and orthodontic services as HST exempt. As a result, there is no need to determine whether they should be separated or a single supply of services as was the case in 2017 decision involving Dr. Brian Hurd Dentistry Professional Corporation. Instead, it was the government’s intent and written in law that orthodontic appliances are zero rated and therefore eligible for the HST refund.
Moving forward, dentists and orthodontists should continue to apply for HST refunds where they provide ortho and/or in-house lab work. If you are considering buying a CEREC/E4D, register for an HST account prior to the purchase. There’s no guarantee that CRA will agree to pay the HST refund, but this case certainly can be used to support your claim.
This article was prepared by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP, Basil Nicastri*, CPA, CA and Eugene Chu, CPA, CA of DCY Professional Corporation Chartered Professional Accountants who are tax specialists* and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail firstname.lastname@example.org / email@example.com / firstname.lastname@example.org / email@example.com . Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas and is not intended to replace professional advice