The Canada Revenue Agency’s (CRA) decision to revoke the administrative arrangement with the Canadian Dental Association marks a significant change for GST/HST registered dental practitioners.
For over 30 years, this arrangement allowed dentists to estimate their input tax credits (ITCs) based on a simplified 35% of total fees charged for orthodontic treatments. However, beginning January 1, 2025, dentists will be required to maintain more precise records and claim ITCs based on the actual usage of inputs in their commercial activities.
Under the new rules, dentists will need to maintain detailed records of their and ensure that they accurately reflect the inputs used in taxable versus exempt supplies. This change also emphasizes the importance of proper apportionment when claiming ITCs related to mixed-use supplies. The CRA has provided additional resources to assist practitioners in navigating these changes.
This change stems from recent court rulings that clarified the distinction between taxable and exempt supplies, indicating that orthodontic appliances and orthodontic services are separate entities. As a result, dentists will now need to apportion their ITCs accordingly and ensure compliance with the stricter rules outlined in the Excise Tax Act (ETA). The CRA has specified that practitioners must conduct reconciliations based on actual amounts charged rather than relying on estimates.
As the deadline approaches, it is crucial for dental practitioners to understand these new requirements and prepare adequately to adapt to the changes in their accounting and tax practices.
For more information on the general rules for claiming ITCs and methods for calculating ITCs, refer to the following publications:
- GST/HST Memorandum 8-1, General Eligibility Rules
- GST/HST Memorandum 8-3, Calculating Input Tax Credits
- Guide RC4022, General Information for GST/HST Registrants, under the heading Input tax credits.
