Whether or not a dentist can claim back any GST paid on their expenses has been subject to a lot of back and forth in recent years. The courts have ruled in seemingly contradictory ways on the topic, and as a result, the CRA has rescinded a long-standing administrative position. Here is where things stand and whether you might be able to recover some GST in your own practice.
The basics
A business with revenues that are GST-taxable generally must register and collect GST, and is entitled to recover from the government any GST paid on expenses (called Input Tax Credits – “ITCs”). For dentists, most of the practice revenue is exempt, with the exception of
- Lab and appliance revenues (zero-rated – meaning taxable, but at 0%)
- Cosmetic procedures
- Other sales of non-medical goods (like electric toothbrushes)
In the past, some dentists could claim ITCs on a pro-rated basis, using the ratio of their total taxable income (those items above) to their total practice income. Provided that ratio was at least 10%, the dentist would get back that ratio of the GST paid on their expenses each year.
ITCs – orthodontists
Orthodontists generally have higher appliance fees compared to generalists due to the nature of their work. In 2017, an orthodontist named Hurd went to Tax Court to defend his position regarding ITCs. Hurd had claimed ITCs on the basis that the service fee and the appliance fee were two separate streams of revenue – one exempt, and one taxable (at 0%). He argued this gave him the ability to claim ITCs at a much higher ratio because so much of his practice income was technically taxable, albeit at 0%. CRA took the other position, arguing that the provision of orthodontic services was inclusive of any dental appliances, thus making all of his fees exempt and denying the ITCs.
Hurd lost this case in 2017 and it was a gloomy day for orthodontists, who now saw they had perhaps lost the opportunity to claim back thousands of dollars in GST each year.
However, in 2021, a case called Davis was heard by the Tax Court. Davis was another orthodontist who was claiming ITCs on the basis that the appliance revenue was a separate sales stream than the exempt service revenue. CRA again denied the ITCs, and they wound up before a judge.
This time, the Court held that there were indeed two separate streams and Dr. Davis was entitled to ITCs related to the appliance fee portion of his revenue. CRA appealed this decision, but in 2023, the Appeal Court upheld it, setting the precedent that orthodontists could recover ITCs in this way.
The 35% rule – orthodontists
Up until the end of 2024, in order to streamline bookkeeping, CRA allowed orthodontists to estimate their ITCs on up to 35% of treatment fees on their monthly or regular GST filings, so long as they reconciled it to the actual calculation once a year.
Once the Davis decision was published, CRA rescinded this administrative policy (effective 2025), now requiring those practices to keep detailed records of their appliance fee revenues and claim only the actual ITCs on each return.
ITCs – general dentistry
The big question is how all of this applies to general dentistry, given that Davis was specific to an orthodontic practice. For the answer, we can look to another case, Axelrod, which occurred in 2022. In Axelrod, a prosthodontist was trying to defend that the revenue from artificial teeth (again, taxable but at 0%) was a separate sales stream than the service of installing them. This time, the court held that this was not the case, and that prosthodontic treatments were bundled with any lab included, and exempt from GST. Thus, Axelrod could not claim any ITCs.
So, despite the good result for orthodontists, the result for general dentists is not clear. CRA will likely take the narrower view that Davis does not apply to a general dentist. Dentists claiming ITCs should be ready for fact-based CRA challenges.
