GST Planning for Dentists and Other Medical Practitioners
The sale of most goods and services in Canada is subject to GST. Most businesses can claim Input Tax Credits (ITCs) to recover GST paid on goods or services purchased in relation to their commercial activities, passing the GST on to the consumer.
For certain industries, such as the medical profession, GST can be somewhat punitive. The reason is that many of the goods and services that medical professionals provide are so-called “exempt supplies”. ITCs cannot be claimed by businesses or professionals in relation to inputs for exempt supplies that they provide. The effect is that the GST is borne by the business instead of the ultimate consumer (e.g. the patient), which can be costly.
Taxable and Zero-Rated Supplies
Apart from certain sectors such as medicine, education, real estate, and financial services, most goods and services sold in Canada are “taxable supplies”. Taxable supplies are subject to GST, and an offsetting ITC can be claimed by the business supplying the goods or services. Some taxable supplies are zero-rated. These supplies are theoretically subject to GST, but at a rate of 0%. GST is not charged on these supplies, but the business can claim ITCs on GST incurred on goods or services purchased to provide these supplies.
As mentioned, most of the goods and services provided by medical professionals are exempt supplies, which is problematic because no ITCs can be claimed. This can be especially challenging for dentists, orthodontists, optometrists, and ophthalmologists, who must make significant capital expenditures for their practice. However, certain items are zero-rated. For example, in a dental practice, zero-rated supplies include orthodontic appliances, artificial teeth, and certain federally controlled drugs substances. ITCs can be claimed for goods and services purchased to make zero-rated supplies. Additionally, purely cosmetic procedures are taxable supplies, which are subject to ITC claims. These nuances in the GST legislation create some planning opportunities.
GST Planning for Medical Professionals
Using careful tax planning, medical professionals can maximize their income, and reduce the cost of doing business, by structuring their practices in a tax-efficient way using the GST rules. For example, it may be possible to segregate exempt supplies from taxable and zero-rated supplies in order to maximize ITC claims. You should consult an experienced tax lawyer or accountant to help you determine the best course of action based on the unique characteristics of your practice.
Invitation for Discussion:
If you would like to discuss this blog in greater detail, or any other tax matter, please do not hesitate to contact Robert Worthington or any one of the lawyers in the Tax & Estate Planning group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.