On occasion, a dental supplier (be it K-Dental, Henry Schein, Patterson, Sinclair, etc.) will offer rebates to dentists. It’s not uncommon to see rebates as a percentage (e.g. 5% or 10%) off the overall purchase price for the equipment and/or supplies. So what happens when the dentist receives this amount? Should they include it as income and pay tax on it? Well, actually, yes. It would be considered income under the Income Tax Act, and it could affect their overall taxes owing (either by reducing the amount of expenses or increasing the amount of income).
Take the following example. In the case of David Lee Dean and Gordon Dean (Appellants) v. Her Majesty the Queen (Respondent), 2007 DTC 1161, two dentists purchased supplies from Ash Temple Limited and were given rebates. They deducted the full cost of the supplies from their income ($120,000) but didn’t include the rebates they received (calculated at 12% of the sundry dental supplies that were purchased). The rebates were designed to be equal to the monthly payment for the dental equipment and they were paid directly to the two dentists. This went on from 1998 through to 2001. During this time, the dentists never told their accountant of the agreement with Ash Temple Limited.
In 2002, the CRA commenced an audit and sought to have the rebates included as income for those years. The CRA also sought to have penalties added given the dentists’ failure to do so for those tax year. By failing to include the rebates, the taxpayers were effectively overstating their dental supply expenses (and paying less taxes as a result).
The Court agreed with the CRA. The Court held that, for the 1999, 2000 and 2001 tax years, the taxpayers were grossly negligent by overstating their dental supply expenses. The Court also imposed penalties on the taxpayer for failing to include the rebate income.
The moral of the story: make sure to include rebates from dental suppliers as income!
