• Issue 3. Section 38-50 Drugs and medicinal preparations

    This issue is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

    Explanation

    Section 38-50 of the GST Act outlines the circumstances in which the supply of a drug or medicinal preparation will be GST-free.

    (1) supply of a drug or medicinal preparation is GST-free if the supply is on prescription and:

    1. under a State law or a Territory law in the State or Territory in which the supply takes place, supply of the drug or medicinal preparation is restricted, but may be supplied on prescription; or
    2. the drug or medicinal preparation is a pharmaceutical benefit (within the meaning of Part VII of the National Health Act 1953).

    Paragraph (a) covers drugs and medicines specified in Schedules 4 and 8 of the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP) that are only available on prescription. Many of these products were formerly labelled 'S4' and 'S8' medications. As at the 1 July 2000 it is compulsory to label these products as 'Prescription Medicine' and 'Controlled Drugs', respectively. These include such things as medication for arthritis or for the treatment of depression.

    Paragraph (b) covers Pharmaceutical Benefits Scheme (PBS) drugs and medicines supplied on prescription as a pharmaceutical benefit within the meaning of Part V11 of the National Health Act.

    (2) A supply of a drug or medicinal preparation is GST-free if, under a State law or a Territory law in the State or Territory in which it is supplied, the supply of the drug or medicinal preparation to an individual for private or domestic use or consumption is restricted but may be made by:

    1. a medical practitioner, dental practitioner, or pharmacist; or
    2. any other person permitted by or under that law to do so.

    This covers drugs and medicines that can only be supplied by a medical practitioner, dental practitioner or pharmacist. Many of these products were formerly labelled 'S2' and 'S3' medications. As at the 1 July 2000 it is compulsory to label these products as 'Pharmacy Medicine' and 'Pharmacy Only Medicine', respectively. These products include pain relief products, antihistamines for seasonal hay fever, insulin, asthma inhalers, tinea creams, day and night flu tablets, and medicated cough and cold products.

    (3) Subsection (2) does not cover the supply of a drug or medicinal preparation of a kind specified in the regulations.

    To date, no regulations have been released for the purposes of subsection 38-50(3).

    (4) A supply of a drug, medicine or other pharmaceutical item is GST-free if the supply is on prescription and:

    1. it is supplied as a pharmaceutical benefit (within the meaning of section 91 of the Veterans' Entitlements Act 1986); and
    2. it is supplied under an approved scheme (within the meaning of that section).

    This covers Repatriation Pharmaceutical Benefits Scheme (RPBS) drugs, medicines and other pharmaceutical items supplied under an approved scheme and on prescription as a pharmaceutical benefit within the meaning of section 91 of the Veterans' Entitlements Act 1986.

    (5) A supply of a drug or medicinal preparation is GST-free if:

    1. the drug or medicinal preparation is an analgesic that has a single active ingredient the supply of which as a drug or medicinal preparation would be GST-free under subsection (2) if it were supplied in a larger quantity; and
    2. the drug or medicinal preparation is of a kind the supply of which is declared by the Health Minister to be GST-free, by determination in writing.

    This subsection covers supplies of small packet analgesics containing aspirin or paracetamol and intended to be taken by mouth. Small packet analgesics are packets containing less than 25 tablets. For example, small packets of Panadol and Aspirin even where they are sold in supermarkets or general stores.

    (6) A supply of a drug or medicinal preparation is GST-free if :

    1. the drug or medicinal preparation is the subject of an approval under paragraph 19(1)(a) of the Therapeutic Good Act 1989, and any conditions to which the approval is subject have been complied with; or
    2. the drug or medicinal preparation is supplied under an authority under subsection 19(5) of the Act, and the supply is in accordance with any regulations made for the purposes of subsection 19(7) of that Act; or
    3. the drug or medicinal preparation is exempted from the operation of Part 3 of that Act under regulation 12A of the Therapeutic Goods Regulations.

    This subsection applies to supplies of drugs and medicinal preparations which are supplied under the Special Access Scheme (SAS). The SAS allows new drugs and medicinal preparations, which have not yet been approved for supply in Australia, to be supplied to patients who have life-threatening or other serious illnesses.

    (7) A supply of a drug or medicinal preparation is only GST-free if:

    1. the drug or medicinal preparation is for human use consumption; and
    2. the supply is to an individual for private or domestic use or consumption.

    Therefore, supplies of drugs by a wholesaler to a pharmacist will be taxable.

    Related Questions - The following questions explore what is within the concept of 'drugs and medicinal preparations for the purposes of section 38-50. None of the questions and answers should be read in isolation but rather as part of the whole of the information contained in this document.

    Date Issue

    26/02/01 06/06/2013 (u)

    3.a. What analgesics with a single active ingredient has the Health Minister, by determination in writing, declared to be GST-free?

    26/02/01

    3.b. Will the supply of 'over the counter' drugs and medicines by a pharmacist be subject to GST?

    26/02/01

    3.c. Will all drugs and medicines be GST-free if there is a prescription?

    26/02/01

    3.d. Where the GST Act requires that for a supply to be GST-free it must be made on prescription, does the Pharmacist need to actually dispense the drug or medicine or can they simply sight a prescription and supply the drug or medicine as an over the counter sale?

    26/02/01

    3.e. Are supplies of drugs by manufacturers and wholesalers GST-free?

    26/02/01

    3.f. What responsibility does a Pharmacist have in regard to subsection 38-50(7)?

    26/02/01 06/06/2013 (u)

    3.g. Some State legislation provides for certain products to be Schedule 2 SUSMP, and others not to be Scheduled at all. As a wholesaler we provide an indication of the tax treatment the pharmacist will apply to the product. Where the product is GST-free to consumers in five States but not in one, we could consider that product to be GST-free. What is the risk to us of doing that?

    26/02/01 06/06/2013 (u)

    3.h. It is understood that it is proposed to add drugs and medicines sold by Chinese Herbalists to Schedule 1 of the Standard for the Uniform Scheduling of Drugs and Poisons. If this proposal is undertaken, will supplies of such products be GST-free?

    26/02/01 06/06/2013 (u)

    3.i. Drugs and Medicines which are not on the Australian Register of Therapeutic Goods cannot be supplied in or exported from Australia. However, individuals can legally import most therapeutic goods for personal use under the Personal Import Scheme. This scheme allows for treatments to be imported for personal use in quantities that are no greater than three month's supply. Are these taxable importations?

      Last modified: 02 Apr 2014QC 16333