In the legal corridor of the Federal Court of Appeal “FCA”, there is an appeal of capital importance in matters of indirect tax. The common thread of tax ambiguity is now shorted to the case of Dr. Kevin L. Davis, an orthodontist in the greater Toronto area. At stake for the dentist, as well as for his colleagues who are members of the Canadian Dental Association (hereafter “CDA”), are cash flows that can reach up to 35% of the estimated/realized value of a orthodontic treatment.
The tax ambiguity in the Davis case is the characterization of the type of supply to be used, which can be characterized under excise tax law (hereinafter “law”), either as a single or multiple supply. In orthodontics, multiple supplies may give rise to input tax credits (hereinafter “ITCs”). ITCs are monetary credits, in GST/QST, that your dental professional may receive as a result of a service or purchases of orthodontic appliance goods (hereinafter “braces”).
Considering the historical context specific to dentists, how did we arrive at this dead end with the tax authorities?
The deal
In general, there may be a legal ambiguity when we are in the presence of a multiple supply. The ambiguity lies in the fact that the law qualifies, in a different way, the two stages necessary for the orthodontic service.
More specifically, the law in its schedules states that ITCs are not eligible on an orthodontic medical service. Then, with regard to the purchases of goods, which are necessary for the installation of pins, the law instructs us that these are eligible for refunds in terms of ITCs. When there are conflicting provisions of the law, it must be determined whether we can make them work together in a coherent way.
With this in mind, we witnessed in 1991 an administrative agreement between ADC and the Canada Revenue Agency (hereafter “CRA”). In this perspective, the two organizations in question have agreed to rectify the tax ambiguity and according to the passage of this agreement, ITCs are granted when the conditions of this agreement are met.
The benefit for orthodontists of joining it is the application of a discretionary percentage of a maximum of 35% to its orthodontic business activities. The function of the percentage is to single out and isolate the portion of ITCs that are refundable and those that are not. Basically, a dentist who specializes in orthodontics is authorized to collect an ITC up to a percentage of 35% of the total price of orthodontic treatment.
The alarm “
Considering the eloquent principle of the chicken and egg paradox with respect to multiple supplies, this imbroglio has created a difference of opinion between our two tax agencies, namely Revenu Québec (hereinafter “RQ”) and L ‘BOW.
As for RQ’s position, it has always been the same, and has been for several years. Moreover, despite the administrative agreement between ADC and ARC, RQ has always been of the opinion that an orthodontic medical service, as well as the placement of “braces” are simply a one-time supply of service. According to RQ’s line of fire, it is not possible for dentists to claim ITCs on their one-time supplies, as they are simply the continuation of a full orthodontic service.
Contemporaneously, after a few years, he had on the part of the ARC an awareness, a click and a complete revival of its position of a multiple supply in orthodontics. Taking a step back, The RCAF turned around and completely changed its tune. Consequently, the CRA ultimately aligned itself with RQ’s position which holds that an orthodontic service is indeed a single supply.
In the same vein, the auditors of the CRA have begun to apply, in a pan-Canadian manner, their new position, that of a single supply. To achieve this, they sent dues notices to several CDA members and thus, as you can imagine, a panic ensued in the dentistry community. In Quebec, unlike the other provinces, RQ did not seek to highlight the new position of the CRA.
At present, a jurisprudential process is necessary to reconcile and qualify the type of supply that dental professionals may use in the course of their practice. That said, how did we immigrate to this eventual end in indirect taxes?
The conducting wire
The trilogy relates to the Singer, Hurd and Davis cases and has the same common thread, namely that of clarification, qualification or not, of multiple supply in the context of medical practice in orthodontics.
In the case of Doctor James Singer, he was a dentist who provided artificial teeth. The issue of multiple supplies is also inseparable from dentists who make artificial teeth. In this case, Dr. Singer’s appeal was dismissed because he did not come to his own hearing. However, Justice Bowman ruled, obiter dictum, that the Minister was wrong to argue that the service of an artificial tooth fitting is ineligible for ITCs.
Yet, in the case of Dr. Brian Hurd, Judge Diane Campbell came to a devilishly opposite conclusion. According to her, braces and orthodontic medical service should be combined and provided together. That is to say, we are dealing with a single supply that is not eligible for monetary refunds in ITCs.
Finally, this brings us to the case of Dr. Kevin Davis in 2021. On the face of it, Dr. Davis did not follow the administrative policy suggested by ARC; this makes it possible to qualify the orthodontic service as a multiple supply. Admittedly, this opened the door for the auditors of the CRA and consequently, the Minister mentioned that he was of the opinion that we are in the presence of a single supply.
The Honorable Susan Wong completely rejected the single supply argument. According to her, the law is unequivocal, clear and precise. In addition, she even added that it was futile to use and consider jurisprudential tests in this proceeding.
In short, until further notice, the administrative agreement is applicable and respected by the tax authorities. That is, dentists may adhere to CRA administrative policy for claiming ITCs on their orthodontic services. As evaded in my introduction, the decision is under appeal and there may be a change in its administrative policy at any time.
