3.e. Are supplies of drugs by manufacturers and wholesalers GST-free?
Non-interpretative – straight application of the law.
One of the elements required by section 38-50 for a supply of a drug or medicinal preparation to be GST-free is that the supply must be to an individual for private or domestic use or consumption.
Therefore, under section 38-50 supplies from a manufacturer to a wholesaler will be subject to GST, as will a supply from a wholesaler to a pharmacist.
In accordance with section 11-25, where the retailer or the wholesaler is registered, they will be entitled to an input tax credit for any creditable acquisition that they make, to the extent the creditable acquisition is used for a business purpose.
Section 11-5 states that you make a creditable acquisition when:
- you acquire anything solely or partly for a creditable purpose; and
- the supply of the thing to you is a taxable supply; and
- you provide, or are liable to provide, consideration for the supply; and
- you are registered, or required to be registered.
Accordingly, where the retailer or the wholesaler is registered for GST, they will be entitled to claim as an input tax credit the GST paid on stocks of drugs and medicines they buy, to the extent those stocks of drugs and medicines are used for a business purpose.
In limited circumstances, a supply of a drug or medicinal preparation may be GST-free under sections 38-45 and/or 38-47, as well as section 38-50. Reference should be made to the answer at issue 4.b. for guidance where more than one GST-free provision of the GST Act is applicable.