26 May 2004 GST/HST Interpretation 52348 - Section 181.1 - Requirement for Written Notice

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:

Further to our recent telephone conversations, this letter explains the position of the

Canada Revenue Agency (CRA) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to supplies by medical practitioners who are licensed to practice the profession of dentistry. As you are aware, we recently issued an internal communiqué dealing with this issue.

The positions described below are currently under review. We propose to consult with interested parties. We will inform you of changes to these positions.

Interpretation Given

Supplies by medical practitioners who are licensed to practise the profession of dentistry (hereafter referred to as 'dentists') may be:

A) a supply of a dental service that is performed for cosmetic purposes and not for reconstructive purposes.

This supply is taxable at the rate of 7% or 15 %.

B) a supply of a consultative, diagnostic, treatment or other health care service rendered to an individual.

This supply is exempt. Generally, this supply is provided for a single consideration.

C) multiple supplies, consisting of

(i) an exempt dental service described in B above

and

(ii) a zero-rated supply of an orthodontic appliance and/or a zero-rated supply of artificial teeth.

This position is based on the rationale that the dentist identifies that two supplies are being provided. Generally, this is indicated where consideration for the supply of the orthodontic appliance (or artificial teeth) is identified separately from the consideration for the exempt supply of the dental service.

Input Tax Credits

Where a dentist is making taxable supplies (A or C above), the dentist is eligible to claim input tax credits (ITCs) as follows:

•   ITCs for tax on purchases that are used or consumed in the making of taxable supplies (cosmetic services, the supply of orthodontic appliances and artificial teeth);

•   ITCs for overhead expenses to the extent that these expenses are for taxable supplies.

Allocation of input tax credits

The method used by a person 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.

ITCs in respect of the supply of orthodontic appliances

For administrative purposes, the CRA accepts that dentists who claim ITCs 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 dentist is required to ensure that the claim for ITCs corresponds to actual taxable supplies rather than estimated figures.

Orthodontic articles

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.

Artificial teeth

The CRA considers 'artificial teeth' to be a manufactured good that is anatomical in nature and fabricated for use as a substitute for natural teeth. Where a manufactured good replaces 50% or more of a natural tooth, we will consider the manufactured good to be 'artificial teeth'. Note that the dental industry may use terms such as crowns, caps, partial crowns, etc. However, it is a question of fact whether a particular good meets the requirements set out above.

If you have any questions on this matter, please contact Tim Krawchuk at (613) 941-3268 or Suzanne Leclaire at (613) 954-4390.

Tim Krawchuk
Manager
Municipalities and Health Care Services Unit
Public Services Bodies and Governments Division

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