Dental Crowns And GST/HST Credits: A Dentist Wants To Have His Cake And Eat It Too

• Law Firm: Stikeman Elliott LLP
• Subject Matter: Tax, Income Tax, Sales Taxes: VAT, GST
• Author: Mr Jean-Guillaume Shooner and Vanessa Clusiau
• Published date: 03 February 2023

In an informal procedure¹ decision, Axelrod v. The King, rendered on December 12, 2022, the Tax Court of Canada dismissed the appeals of a dentist denying input tax credits ("ITCs") claimed in connection with certain expenses incurred in the course of his professional practice.

• The dispute arose when the Canada Revenue Agency ("CRA") disallowed ITCs claimed by Dr. Axelrod (the "Dentist") in 2013 and 2014 ("Audit Period") for harmonized sales tax ("HST") payable in respect of property or services acquired by him for consumption, use or supply in the course of his prosthodontic practice. These professional activities, which formed about one-third of the Dentist's overall professional practice, pertained to the supply of dental prostheses (such as dental bridges, implants, dentures, crowns, and significant tooth reconstructions, defined collectively as "Artificial Teeth") and related dental services to his patients.
• Likely based on its long-standing administrative position² applicable to orthodontists at the time in respect of supplies of orthodontic treatments, the CRA took the position that the Dentist's supplies of Artificial Teeth in connection with related dental services supplied to patients were multiple supplies of both exempt dental services and zero-rated supplies of Artificial Teeth, thereby denying a portion of the ITCs claimed by the Dentist in the course of his prosthodontic practice.
• Although supplies made by the Dentist in the course of his prosthodontic practice could be viewed as being similar to the overall supplies made by orthodontists, the Dentist appears to have taken a rather ambitious filing position that each procedure that had, as its ultimate purpose, the installation of an Artificial Tooth in a patient's mouth, was a single supply of an Artificial Tooth and that each such single supply was a zero-rated supply included in Schedule VI to the Excise Tax Act ("ETA"). HST registrants are generally eligible to claim ITCs for the tax paid or payable on goods or services acquired for consumption, use or supply in the course of making taxable or zero-rated supplies. Accordingly, the Dentist claimed ITCs on his taxable expenses based on the extent such expenses were incurred for consumption, use or supply in his prosthodontic practice.
• Based on a review of the existing case law, including the Tax Court decision in Hurd Dentistry³, and a detailed analysis of all elements comprising the Dentist's supplies relating to the preparation, fabrication and installation of Artificial Teeth, Justice Sommerfeldt concluded, in a manner similar to Justice Campbell's conclusion in Hurd Dentistry (also an informal procedure decision), that the supplies made by the Dentist to a patient should be characterized as single supplies of exempt dental services, rather than single zero-rated supplies of Artificial Teeth Accordingly, the Dentist was therefore not entitled to claim ITCs in connection with his prosthodontic practice.

Background

The Dentist carried on a general dentistry practice and was a HST registrant for purposes of Part IX of the ETA. During the Audit Period, about one-third of the Dentist's practice was related to prosthodontic procedures involving the supply of Artificial Teeth. The Dentist claimed ITCs in respect of HST paid for various expenses...