The GST/HST has a significant effect on dental practices across Canada. What are important implications of GST/HST and is there any way a practitioner can mitigate its effects or benefit from its application?
British Columbia (BC) transitioned from HST back to GST/PST on April 1, 2013. What effect did this change have on practitioners in BC?
GST/HST in Canada
GST/HST is a value added tax. GST is a federal tax and is set at 5%. If a province harmonized their sales tax (turned their sales tax into a value added tax), it is added to the GST to become HST. In July 2010, BC sales tax was turned into a 7% value added tax and was added to the 5% federal GST to result in a 12% HST.
GST/HST applies to the sale of most tangible property and most services. There are few exceptions; the supply of dental services is one of these exceptions. Most dental services are categorized as an “exempt supply”, meaning no GST/HST is collected from the patient on the supply of the service. At first glance this seems like a good thing, unfortunately, the status of an “exempt service” also means the practitioner does not get to claim an input tax credit (refund) for GST/HST paid on its expenses. GST/HST on large expenses like rent or the acquisition of equipment can be significant. The inability of a practitioner to claim an input tax credit for GST/HST increases the cost of doing business.
Cosmetic services and sales of goods outside basic dental treatment are considered a “taxable supply”. This means the practitioner must collect GST/HST from the patient if the practitioner is registered for GST/HST. The practitioner providing a taxable supply will be able to claim input tax credits to get a refund of the GST/HST paid with respect to the provision of those taxable supplies. Registration is only required when sales of taxable supplies is greater than $30,000 in a year.
The sale and rental of orthodontic appliances are a taxable supply but zero-rated, meaning the practitioner does not collect GST/HST (the tax rate is 0%). The practitioner can claim input tax credits on the portion of costs that relate to this particular practice area. Canadian tax authorities administratively accepted one-third of orthodontic services to be zero rated. This position allows recovery of one-third of all GST/HST associated with the orthodontic services. Laboratory services are fully zero-rated. With good records and appropriate billing procedures, any practice can recover a percentage of GST/HST paid. The proportion of lab bills to total dental billings can be applied to recover an equal proportion of GST/HST paid in the practice.
Dentistry is unique in that most practices can have a combination of exempt supplies and taxable supplies; zero rated supplies are less common. Property planning and business structures can reduce the cost of operating a dental practice by minimizing GST/HST cost.
If you are a dental practitioner and looking for guidance on tax and other issues, contact one of our trusted advisors here.