1 December 2004 GST/HST Ruling 56427 - XXXXX

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your facsimile letter XXXXX requesting general information about the entitlement by orthodontists to claim input tax credits under the Excise Tax Act ("ETA").

Medical practitioners who are licensed to practise the profession of dentistry and who specialize in orthodontics may provide their supplies in different ways. The tax status of these supplies under the ETA will depend on the facts of the particular situation.

For example, an orthodontist may make a supply of a dental service that is performed for cosmetic purposes and not for reconstructive purposes. This supply will be subject to the GST at 7% and to the HST at 15%.

A supply of a consultative, diagnostic, treatment or other health care service rendered by an orthodontist to an individual, other than a dental service that is performed for cosmetic purposes and not for medical or reconstructive purposes, will be exempt of the GST/HST under section 5 of Part II of Schedule V to the ETA. Generally, this supply is made for a single consideration.

An orthodontist may also make multiple supplies consisting of an exempt consultative, diagnostic, treatment or other health care service rendered to an individual and a zero-rated (taxable at 0%) supply of an orthodontic appliance. However, this will only be the case where the orthodontist identifies that separate supplies are being provided. Generally, this is indicated where consideration for the zero-rated supply of the orthodontic appliance is identified separately from the consideration for the exempt supply of the orthodontist's services.

Where an orthodontist makes taxable supplies as identified above, the orthodontist will be eligible to claim input tax credits for the GST/HST on purchases that are consumed or used in the making of taxable supplies and for the tax on overhead expenses to the extent that these expenses are related to the making of the taxable supplies, assuming all the conditions of section 169 of the ETA are met.

The method used by an orthodontist to determine the extent to which property or services are used in the course of commercial activities must be fair and reasonable in the circumstances and be used consistently throughout the year. It is a question of fact whether a particular method used by a registrant is fair and reasonable in the circumstances.

For administrative purposes, the Canada Revenue Agency ("CRA") accepts that orthodontists who claim input tax credits on a periodic basis can use an estimate of 35% of the cost to the patient of the orthodontic treatment to represent the 'consideration' for the supply of the orthodontic appliance. This administrative approach was formulated on the basis that this estimated amount is the maximum charge that can be made for an orthodontic appliance.

However, when actual figures are available (such as at year end), the orthodontist is required to ensure that the claim for input tax credits corresponds to actual taxable supplies rather than estimated figures.

Finally, for administrative purposes, the CRA has established that articles that are parts, accessories or attachments of an orthodontic appliance may be taxed at 7% or 15%. As noted previously, where these articles are inputs to a taxable supply, an input tax credit will be available.

Should you have any further questions, please do not hesitate to contact me at (613) 952-9590.

Yours truly,

Elaine Bonnah
Municipalities and Health Care Services Unit
Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate

2004/12/23 — RITS 56621 — [Application of the GST/HST on the Supply of XXXXX Baked Cracker Snack]