The respondent (Davis Dentistry) had claimed input tax credits (ITCs) on the basis that a portion of its supplies to each orthodontic patient was of a zero-rated supply of the orthodontic appliance, and that only the balance of what was supplied was an exempt healthcare service, whereas CRA had disallowed its ITC claims on the basis that under the single-supply doctrine as enunciated in O.A. Brown, there was a single supply of exempt orthodontic services. The Tax Court allowed the appeal on the basis that orthodontic appliances and orthodontic services were intended by Parliament to be separate supplies.
In dismissing the Crown’s appeal, Woods JA stated (at paras. 35, 37-39, and 42):
… Parliament’s intent must override O.A. Brown where legislative intent is clear as it is in the provisions applicable in this case. …
The particular circumstances of this case clearly call into question the application of O.A. Brown. Importantly, the applicable legislation (s. 11.1 of Part II of Schedule VI) is narrowly framed to describe a particular property, an orthodontic appliance. Further, the property has only one use – to move teeth or jaws. It is also relevant that the appliances provided to patients are almost invariably accompanied by orthodontic services. …
[T]he listing of orthodontic appliances in Schedule VI would have very limited application if the Crown’s position were correct.
In the case of a supply of orthodontic appliances and orthodontic services, which are typically supplied together, the fact that one has zero-rated status and the other has exempt status strongly suggests that this was intentional and that a supply of an orthodontic appliance is intended to be zero-rated even when accompanied by orthodontic services. …
It is highly unlikely that Parliament would explicitly provide that any supply of an orthodontic appliance is zero-rated if the intention is that the supply is restricted to the wholesale level.