Dentists are in an interesting position when it comes to GST. The services you offer lands you into one or more of three possible tax categories. The value of understanding this structure allows you the opportunity to recover some of the GST you pay on their purchases.
Most businesses can recover the GST they pay on business purchases because they sell GST taxable goods and services. Dentists, on the other hand, occupy a position where many of the services you perform are GST exempt, but some are considered.
A Quick GST Lesson
For GST, the term “supplies” refers to all types of goods and services. There are two types of supplies: taxable and exempt.
Businesses who make taxable supplies are required to collect tax on their sales. They can also claim the GST on their purchases against the GST they collected. Included in this category is cosmetic. To read about claiming back GST: ITC credits click here.
Businesses who make exempt supplies do not charge GST, but they cannot claim back GST on their purchases.
The most common types of exempt supplies are most educational services, insurance, legal aid, child care, and transit services. This category also includes most health, medical, and dental services performed by licensed physicians or dentists for medical reasons.
The Challenge of Varied Rates of Tax
For taxable supplies, there are two rates: the general rate is 5% and the other rate is 0%. It is possible for a business to have to collect tax of 0% on the taxable supplies it makes, and claim back the GST it had to pay on its purchases, even if it means they get a refund.
The most common zero-rated items are exports, prescription drugs, groceries, fish and agriculture. Included in this category is artificial teeth.
Application of GST to Dentists
As you can see, it is possible to have all three types of supply: exempt, taxable at 0%, and taxable at 5%, all within one dental practice.
If the total value of a dental practice’s taxable supplies (both zero-rated and general 5% rate) exceeds $30,000 in a rolling 12-month period, then you are required to register for GST and collect it at the appropriate rate. If less than $30,000, you have the option to voluntarily register.
Once a GST registrant, you must collect tax on all taxable supplies at the appropriate rate, and you will be able to claim back GST on those purchases made to provide taxable supplies. However, the GST you can claim back on purchases used partly for taxable and partly for exempt supplies, must be apportioned, using special apportioning rules.
Confused? We Can Help
GST as it applies to dentistry is complicated and every situation is going to be different. Fortunately, the GST rate is a relatively tame 5% in BC. Pacific Chartered Advisors LLP has its own in-house GST expert that can help you determine whether you should be registered and, if not, whether registering might be a good idea for you.