GST/HST and QST Input Tax Credits for Dental Practices in Québec

If you run a dental or orthodontic practice, the way you claim input tax credits changed, and the change is easy to miss because nothing about your billing or your patients changed with it. The Canada Revenue Agency (CRA) revoked an administrative arrangement it had maintained with the Canadian Dental Association since 1991. The revocation was published in GST/HST Notice 339, Input Tax Credits Related to Dental Practices.

Most of what has been written about this is a tax alert: here is the rule, here is the date, speak to your advisor. This guide is the other half. It explains what actually has to happen in your books every month now that estimates are no longer allowed, because that is where the work landed.

What the old arrangement was

Orthodontic services are exempt supplies. Orthodontic appliances are zero-rated. That distinction matters enormously, because you can claim ITCs on inputs used to make zero-rated supplies and you cannot claim them on inputs used to make exempt supplies.

The practical problem is that an orthodontic patient is charged one fee covering both. Splitting that single fee between the exempt service and the zero-rated appliance, patient by patient, is tedious. So in 1991 the CRA and the Canadian Dental Association agreed on a shortcut: a dentist who was a GST/HST registrant could estimate that up to 35% of the total consideration charged for orthodontic treatments related to the appliance. The dentist used that percentage to set the extent of commercial activity for each reporting period, then reconciled against actual amounts at fiscal year-end so that ITCs were not overclaimed.

It was a guideline, not law. The CRA’s own notice is explicit that the arrangement was never binding on the courts — a point that turned out to matter.

Why the CRA revoked it

Two reasons, and they pull in opposite directions.

First, case law moved. In litigation involving a dentistry professional corporation — the Davis Dentistry line of cases — the Tax Court and then the Federal Court of Appeal accepted that a practice could claim ITCs in respect of orthodontic appliances supplied together with orthodontic services. The Supreme Court of Canada declined to hear a further appeal. The CRA takes the position that these precedents make the arrangement unnecessary.

Second, and more bluntly, the CRA states that the arrangement allowed ITCs to be claimed in a manner contrary to the input tax credit provisions of the Excise Tax Act. An estimate applied prospectively each reporting period is simply not how the Act says ITCs are determined.

So the shortcut is gone, and what replaces it is the ordinary statutory machinery that every other registrant has always used.

When this applies to your practice

The revocation takes effect on the first day of the registrant’s fiscal year that begins on or after January 1, 2025. Three consequences follow:

• If you were using the arrangement, you could continue using it until the end of the fiscal year you were in when the revocation was announced. After that, no.
• If you were never using the arrangement, you cannot now adopt it retroactively to clean up prior periods. The door closed in both directions.
• If your fiscal year is not the calendar year, your changeover date is not January 1. It is the first day of your first fiscal year beginning on or after that date. A practice with a June 30 year-end has a different transition date than a practice with a December 31 year-end, and the two should not copy each other’s approach.

What a dental practice actually supplies

Before you can apply the new rules you need an honest inventory of what your practice supplies, because the GST/HST treatment is not uniform. Broadly:

Exempt supplies are not commercial activity. Zero-rated and taxable supplies are. That single sentence drives every calculation below, and it is worth writing on a sticky note somewhere near whoever codes your purchase invoices.

The cosmetic category deserves attention because practices routinely under-identify it. Section 1.1 of Part II of Schedule V to the Excise Tax Act excludes from the health care exemption a supply that is a cosmetic service supply, or a supply in respect of one, where it is not made for medical or reconstructive purposes. Such a supply is taxable, not exempt. A practice that treats everything it does as exempt is not only misreporting output tax, it is also giving up ITCs it is entitled to claim.

The new rules, by type of input

With estimates off the table, you apply the standard tests. The test differs depending on what kind of input it is.

Operating expenses and services

For ordinary operating inputs — supplies, utilities, software subscriptions, professional fees, lab work:

• Used 90% or more in exempt activities: no ITC.
• Used 90% or more (substantially all) in commercial activities: ITC up to 100%.
• Used for both, outside those bounds: apportion on a fair and reasonable basis, used consistently.

Capital personal property

Equipment — chairs, imaging, sterilization, computers — follows a different and more forgiving rule. The test is more than 50%:

• Used more than 50% in commercial activities: ITC up to 100%.
• Used 50% or less in commercial activities: no ITC.

Note what this means in practice: capital equipment is all-or-nothing around a 50% line, while operating expenses apportion. The same invoice coded to the wrong category produces a materially different answer.

Capital real property

If the practice owns its premises:

• Commercial use 10% or less: no ITC.
• Commercial use 90% or more: ITC up to 100%.
• Between those: generally apportioned.

There is an additional restriction for sole proprietors: no ITC is available if the property is used more than 50% for the personal use of the individual or a related individual.

The part most practices are not ready for

Read the CRA’s position carefully and the real impact becomes clear. The notice says the revocation should not change the total ITCs a dentist is eligible to claim in a fiscal year. It changes the timing and method.

That sounds reassuring. It is not, operationally. Under the old arrangement you could apply one number, 35%, all year and fix it once at year-end. One decision, twelve applications, one reconciliation. Under the new approach there is no number to apply. Each reporting period you have to claim based on what the inputs were actually used for in that period, without estimating.

So the compliance burden did not shrink. It moved — out of the year-end file and into the monthly close. If nobody has changed anything about how your books are kept, you are almost certainly still running on the old logic.

What has to change in your bookkeeping

1. Split revenue at the point of billing, not at year-end. Your chart of accounts needs separate revenue accounts for exempt services, zero-rated appliances, and taxable cosmetic work. If orthodontic billing lands in a single revenue account, there is no defensible basis for anything downstream. This is the foundational change and the one most practices skip.

2. Code purchases by use, not by vendor. A lab invoice, an equipment lease and a software subscription may each have a different commercial-use proportion. Vendor-based coding cannot capture that. Purchase coding has to carry a use attribute.

3. Decide how shared overhead is apportioned, write the method down, and apply it consistently. Rent, utilities, front-desk salaries and practice-management software serve exempt and commercial activity simultaneously. The Act requires a fair and reasonable method applied consistently throughout the year. A method documented in advance and applied every month is defensible. A percentage produced in June for the whole prior year is the thing the CRA just removed.

4. Separate capital from operating at the moment of entry. Because capital personal property turns on a 50% test and operating expenses apportion, miscoding a capital purchase as an expense changes the ITC outcome, not just the balance sheet.

5. Add an ITC review to the monthly close. Not the quarterly filing — the monthly close. Reviewing the apportionment when the period’s transactions are fresh is the only way to claim on actual eligibility without estimating.

A monthly close checklist

1. Reconcile bank and credit card accounts.
2. Confirm revenue is split across exempt, zero-rated and taxable accounts, and that nothing fell into a catch-all.
3. Review purchases coded to shared overhead and confirm the documented apportionment still reflects reality.
4. Confirm any capital additions were classified as capital and the commercial-use proportion documented.
5. Calculate the period’s ITCs from actual use, not a standing percentage.
6. File the working papers with the period. If the CRA asks in three years how you arrived at a figure, the answer should be a document, not a memory.

An illustrative example

These amounts are illustrative only; they are not a benchmark and your practice’s proportions will differ.

Suppose a practice has three categories of input in a month. A lab invoice relates entirely to appliances, which are zero-rated: it is used substantially all in commercial activity, so the ITC is available in full. A sterilization service relates entirely to exempt clinical services: no ITC. The practice-management software serves the whole practice, exempt and commercial alike, so it is apportioned on the documented method.

Under the old arrangement, all three would have been swept into a single 35% calculation. Under the new rules each is assessed on its own facts, and in this example two of the three produce a cleaner and more defensible answer than the blanket percentage would have.

This is the quiet upside. Practices with a high proportion of appliance and cosmetic work are sometimes better off under actual tracking than under a capped estimate. The CRA says the annual total should not change, but that is a statement about the arrangement working as intended — not a promise that your own prior estimates were accurate.

The Québec layer

Two things make this different in Québec, and national commentary tends to skip both.

First, Revenu Québec administers the GST/HST in Québec, alongside the QST, under an agreement between the federal and Québec governments. Revenu Québec states that it does so in accordance with the rules set by the federal government. For a Québec practice this means both taxes run through the same provincial agency: your point of contact for a question or an audit is Revenu Québec, even though the rule being applied here comes from a CRA notice.

Second, the QST and the GST remain two separate taxes in Québec. Québec is not an HST province, so you charge GST and QST rather than a single harmonized tax, and the QST is calculated on the price excluding GST. Input tax refunds (ITRs) under the QST generally parallel input tax credits under the GST, but GST/HST Notice 339 is a CRA document about the GST/HST. Confirm the QST treatment with Revenu Québec rather than assuming the two systems move together automatically. We would rather tell you to verify one point than let you assume alignment on a position that affects every filing you make.

If your practice is incorporated under the rules applicable to dentists in Québec, note separately that the professional incorporation rules and the sales-tax rules are unrelated. Incorporating changes neither the exempt status of clinical services nor the ITC tests described above.

Common mistakes we see

• Still applying 35%. The most common one, and the easiest to find: look at whether a single percentage appears in the working papers for every period.
• One revenue account for everything. Without a revenue split there is no basis for an apportionment, and no way to demonstrate one.
• Treating all cosmetic work as exempt. This overstates exempt activity and understates the ITCs the practice can claim — an error that costs money rather than saving it.
• Apportioning once a year. The method may be set annually; the application cannot be.
• Assuming the year-end accountant is handling it. They are not, and reasonably so. Claiming on actual eligibility each reporting period is bookkeeping work, performed monthly, not a year-end adjustment.
• No written method. "Fair and reasonable" is defensible only if you can show what you did and that you did it consistently.

What to do now

1. Identify the first fiscal year of your practice that began on or after January 1, 2025. That is your changeover.
2. Check whether your filings since then still rely on a standing percentage. If they do, get advice on correcting them before the CRA or Revenu Québec raises it.
3. Restructure the chart of accounts to separate exempt, zero-rated and taxable revenue.
4. Write down your apportionment method for shared overhead, with the reasoning.
5. Move the ITC calculation into the monthly close.
6. Confirm the QST position with Revenu Québec.

Sources

• Canada Revenue Agency, GST/HST Notice 339, Input Tax Credits Related to Dental Practices — the 35% figure, the January 1, 2025 effective date, the transition rules and the 90% / 50% / 10% thresholds.
• Excise Tax Act — input tax credit provisions, exempt and zero-rated supply classifications.
• Federal Court of Appeal and Supreme Court of Canada proceedings in the Davis Dentistry matter — the case law the CRA cites as making the arrangement unnecessary.
• Revenu Québec — administration of the GST/HST in Québec and the QST input tax refund rules.

This guide is general information about a change in CRA administrative policy, current as of November 12, 2026. It is not tax advice for your practice. The application of these rules depends on your fiscal year, your mix of supplies and how your inputs are actually used.

Frequently asked questions

Sources

• CRA – GST/HST Notice 339, Input Tax Credits Related to Dental Practices
• Revenu Québec – Input tax credits (ITCs) and input tax refunds (ITRs)
• CRA – P-256, Qualifying Health Care Supplies (cosmetic service supplies excluded under s. 1.1, Part II, Schedule V)
• Revenu Québec – Basic rules for applying the GST/HST and QST
• Crowe Soberman – New GST/HST guidelines for dentists and orthodontists
• BDO Canada – CRA revokes administrative arrangement with the Canadian Dental Association

Keep reading

• GST/QST for Québec Small Businesses (2026): How It Works
• GST/QST Quick Method in Québec (2026): Rates, Election and Examples
• Should you incorporate your business in Québec? (2026 guide)
• Month-End Close Checklist for Small Businesses (2026)
• How Long to Keep Tax and Business Records in Québec and Canada
• How to pay less tax in Québec: 2026 year-end tax planning checklist