3.a. '*Hospital treatment'
- Issue 3.a. below is an historical issue which was a public ruling prior to 1 July 2010. GSTD 2012/4External Link (the Determination) contains the current ATO view which applies from 26 March 2009. The current ATO view supersedes the view previously contained in issue 3.a. below which is now in history. For periods between 26 March 2009 and 1 July 2010 where an entity relied on the views expressed in issue 3.a. below and to the extent that those views conflict with the views expressed in the Determination, the entity is protected so that any underpaid net amount ceases to be payable or any amount overpaid by the Commissioner is taken to have been payable. See also the ATO view in Part 3 of GSTR 2006/9External Link – Goods and services tax: supplies.
A supply of *hospital treatment is GST-free pursuant to section 38-20(1) of the GST Act.
However, subsection 38-20(2) of the GST Act provides that a supply of hospital treatment is not GST-free to the extent that it relates to a supply of a professional service that, because of subsection 38-7(2), is not GST-free.
Section 195-1 of the GST Act defines 'hospital treatment' as having the same meaning as in the Private Health Insurance Act 2007 (PHI Act). From March 26 2009, 'hospital treatment' takes its meaning from the PHI Act. Prior to this date, it took its meaning from subsection 67(4) of the National Health Act 1953.
Section 121-5 of the PHI Act defines 'hospital treatment' as:
- Hospital treatment is treatment (including the provisions of goods and services) that:
- is intended to manage a disease, injury or condition, and
- is provided to a person
- by a person who is authorised by a *hospital to provide the treatment, or
- under the management or control of such a person; and
- is provided at a hospital, or
- is provided, or arranged, with the direct involvement of a hospital.
- Without limiting subsection (1), hospital treatment includes any other treatment or treatment included in a class of treatments, specified in the Private Health Insurance (Health Insurance Business) Rules for the purposes of this subsection.
- Without limiting subsection (1) or (2), the reference to treatment in those subsections includes a reference to any of, or any combination of, accommodation, nursing, medical, surgical, podiatric surgical, diagnostic, therapeutic, prosthetic, pharmacological, pathology or other services or goods intended to manage a disease, injury or condition.
- Despite subsections (1) and (2), treatment is not *hospital treatment if it is specified in, or is included in a class of treatments specified in, the Private Health Insurance (Health Insurance Business) Rules for the purposes of this subsection.
- A hospital is a facility for which a declaration under subsection (6) is in force.
- The Minister may, in writing
- declare that a facility is a *hospital; or
- revoke such a declaration.
- A declaration under subsection (6) that a facility is a *hospital must include either a statement that the hospital is a public hospital or a statement that the hospital is a private hospital.
Section 121-10 of the PHI Act defines 'general treatment' as:
- General treatment is treatment (including the provision of goods and services) that
As the definition of hospital treatment requires that the provision of treatment including goods and services be provided to a person for the management of a disease, injury or condition (a patient), hospital treatment will not include supplies to a hospital (including services of medical practitioners under visiting medical officer arrangements), supplies by a hospital or medical practitioner to an entity other than the patient. Where a health service is supplied to another business entity, such as a hospital, the liability of the hospital is not a liability that would be covered by a health insurance policy.
While the definition refers to ‘provided’ and ‘provision’, rather than supplied, it should be noted that this definition is contained in an Act other than the GST Act (that is, the Private Health Insurance Act 2007). The focus for GST purposes is what is supplied to patients and not what is supplied to other business entities but provided to patients.
In determining whether a supply is GST-free hospital treatment, the following issues need to be considered:
- The requirement to identify the recipient of the supply. Hospital treatment is only GST-free when supplied to a patient at a hospital or provided or arranged with the direct involvement of a hospital. Where a supply is made to an entity other than a patient, the supply will not be a supply of GST-free hospital treatment. Often, payments are made between businesses for the supply of professional services rather than for GST-free hospital treatment.
- Co-payments arise where a patient and another entity both contribute to the cost of a supply that has been made to that patient. However, the arrangements that have been entered into between the parties to a transaction may result in a variety of outcomes for GST purposes. It is necessary to determine to whom the supply is made and what the co-payment is for. A co-payment will be consideration for a GST-free supply if it is paid for a supply of hospital treatment to the patient. A co-payment will be consideration for a taxable supply, for example, where it is paid for a supply of professional services by a contracted health practitioner to a hospital in respect to services provided to a patient.
- In examining the ‘recipient of the supply’ issue and the co-payment issue, there may be more than one supply in the arrangement. It is necessary to identify the supplies with which any consideration has the relevant nexus.
- Interpretation of words and phrases in the definition of ‘*hospital treatment’.
Who is the recipient of the supply?
As with most of the GST health provisions (excluding sections 38-45 and 38-47), the supply of a health service is only GST-free when supplied to the individual requiring that treatment or specific health service. Therefore, it is necessary to determine the recipient of the supply of the services by the health service practitioner. Where a supply has been made to another business entity, the supply will not be GST-free under the health provisions (excluding sections 38-45 and 38-47).
In some sections, the requirement to identify the recipient of the supply is due to the specific wording in the section (for example ‘appropriate treatment of the recipient of the supply’) and in other sections it is due to the nature of the services themselves.
‘Hospital treatment’ is only GST-free to the patient - partly due to the nature of the services and partly due to the words of the section. Subsection 121-5(1) of the PHI Act specifies that it can only be provided to a person who requires treatment at a hospital or with the direct involvement of a hospital.
Services that are supplied by one business entity to a second business entity in order for that second business entity to supply services to a patient will not satisfy the requirements of the definition of ‘hospital treatment’. Supplies that will not satisfy the definition of ‘hospital treatment’ include:
- professional services that are supplied to a hospital by a relevant health service practitioner (only the supply by the hospital is capable of satisfying the definition of ‘hospital treatment’), and
- services that a hospital supplies to another business entity that the other entity on-supplies to a patient (only the supply by the other business entity is capable of satisfying the definition of ‘hospital treatment’).
In these circumstances, there will be two separate supplies:
- a supply from the first business entity (for example a relevant health service practitioner) to the second business entity (for example a hospital) being the supply of professional services, and
- a supply from the second business entity to the patient being the supply which is capable of satisfying the definition of ‘hospital treatment’.
Under this arrangement, the supply from that hospital to the patient will be GST-free under section 38-20 provided that all the necessary elements of section 38-20 are satisfied.
In relation to the supply by the relevant health service practitioner to the hospital, the hospital is the recipient of the supply. The supply by the relevant health service practitioner to the hospital is not ‘hospital treatment’. The supply of services made to a hospital by the relevant health service practitioner will represent a business to business transaction and, as such, it will generally be a taxable supply. However, this will have a neutral revenue impact, as the hospital will claim an input tax credit for the GST paid to the relevant health service practitioner.
The propositions set out in Part 3 of GSTR 2006/9 provide guidance on multi-party arrangements. To determine the recipient of a supply, it is necessary to examine the contractual relationship between the parties and whether there is a binding obligation to supply goods, services or some other thing by one business entity to another business entity or to someone else such as a patient.
The nature of the supply to the patient is examined separately to any supplies between business entities. Specifically, in the context of hospital treatment, refer to example 9 in GSTR 2006/9.
Co-payments by patients
Where a patient is required to make a co-payment to a health service practitioner (in addition to a payment that is being made by the payer to the health service practitioner), it will be necessary to determine whether that co-payment by the patient is for a supply by the payer to that patient or for a separate supply by the health service practitioner to that patient.
If the co-payment is for a separate supply by the health service practitioner to that patient, it will be separate to the supply between the payer and health service practitioner and the GST status will be determined independently of that other supply. For example, a hospital may contract with another business entity (the contractor) to make a supply to a patient. The contractor may be entitled to charge the patient a co-payment. The first supply between the hospital and the contractor will generally be a taxable supply (regardless of whether it is a grant or fee for service) and the second supply by the contractor to the patient will be a GST-free supply where it satisfies the requirements of the definition of ‘hospital treatment’.
If the co-payment is for a supply by the hospital to that patient, the consideration that the patient pays will be for the supply that has been made by the hospital to the patient but will also discharge part of the debt between the hospital and contractor. In this situation, it will be treated in the same manner as though the payment went from the patient to the hospital (and was consideration for that supply) and from the hospital to the contractor as part of the total amount paid by the hospital as consideration for the contractor’s supply. This ensures that all parties are correctly accounting for their respective supplies.
For example, a patient may engage a hospital to supply treatment. The hospital may engage a contractor to perform that treatment. Where the hospital requests the patient to pay the consideration directly to the contractor rather than to the hospital, the amount paid by the patient to the contractor is consideration for the supply by the hospital to the patient and is also consideration for the supply by the contractor to the hospital. The single payment discharges the liabilities for both supplies.
In some circumstances, the payment by the patient is less than the liability for the supply by the contractor to the hospital. In these cases, the hospital will also pay an amount to the contractor and the consideration for the contractor’s supply will be the total of the amount that the hospital pays and the amount that the patient pays (the co-payment).
The nexus between consideration and a supply
The nexus between consideration and a supply has been previously addressed by the Commissioner (for example in GSTR 2001/4). GSTR 2001/4 states the following at paragraphs 81 and 91 to 93 and 96:
‘81. For a supply to be a taxable supply, it must be a supply for consideration. It will not be sufficient for there to be a supply and a payment. GST is not payable on supplies unless they are made for consideration, and the other tests in section 9-5 are satisfied. There must be a sufficient nexus between the supply and the payment. …
91. The references in the GST Act to ‘supply for consideration’ … underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.
92. … the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is ‘in connection with’, ‘in response to’ or ‘for the inducement’ of a supply.
93. … the test is whether there is a sufficient nexus between the supply and the payment made.
96. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.’
GSTR 2006/9, in particular paragraphs 104 to 108 and 180 relating to the nexus between supply and consideration, provide further guidance on how to identify and characterise supplies in the context of the transactions in which they are made.
Accordingly, in looking at a transaction that involves three entities, ascertaining the true character of the transaction is essential. Where one entity, in carrying on an enterprise, contracts another entity to do something and that other entity receives payment for doing that thing, there will be sufficient nexus between the consideration and the supply made to that entity as it will be ‘in connection with’, ‘in response to’ or ‘for the inducement’ of that supply.
Similarly, where a patient provides payment for goods or services that he or she receives, there will be sufficient nexus between the consideration and the supply made to that patient. The issue in such cases, which is addressed under the heading of ‘Co-payments by patients’, is in determining which of the other two entities is actually making the supply to him or her.
Interpretation of the definition of ‘hospital treatment’ in section 121-5 of the PHI Act for the purposes of section 38-20 of the GST Act
Meaning of 'treatment'
Thereference to treatment in subsection 121(3) of the PHI Act includes a reference to any of, or a combination of, accommodation, nursing, medical, surgical, podiatric surgical, diagnostic, therapeutic, prosthetic, pharmacological, pathology or other services or goods intended to manage a disease, injury or condition.
‘Accommodation’ is not defined in the Act. Accordingly, as it does not have a special or technical meaning, it will take on its ordinary meaning. The Macquarie Dictionary (3rd Edition) defines ‘accommodation’ to mean:
“1. the act of accommodating. 6. Lodging, or food and lodging”.
The Macquarie Dictionary (3rd Edition) defines ‘accommodate’ to mean:
“2. to provide with room and sometimes suitable food and entertainment”.
Accommodation, in a ‘hospital treatment’ context, is the provision of a room or lodging in connection with a hospital together with food as appropriate.
The definition of 'hospital treatment' also includes any other treatment or treatments specified in the Private Health Insurance (Health Insurance Business) Rules.
In addition to 'general treatment' being excluded from hospital treatment, the Private Health Insurance (Health Insurance Business) Rules may also specify classes of treatment that are excluded from being hospital treatment.
The Private Health Insurance (Health Insurance Business) Rules are amended from time to time and direct reference should be made to them.
Meaning of 'provided to a person by a person who is authorised by a hospital to provide treatment'.
The definition of hospital treatment requires that the treatment be provided to a person and the person providing the treatment must be permitted by the hospital to do so. As such, only goods and services that are provided to a person requiring treatment for the management of a disease, injury or condition, by a duly authorised person, will satisfy the definition. That is, only supplies made by a hospital to a patient will fall within the scope of the definition of hospital treatment. Supplies to a hospital, supplies by a hospital or medical practitioner to an entity other than the person requiring the treatment will not satisfy the definition of hospital treatment.
Any other services between health practitioners and patients need to be determined in accordance with sections 38-7, 38-10, 38-45, 38-47 and 38-50 of the GST Act, as applicable.
Meaning of ' under the management or control of such a person'.
This phrase still requires that the supply be a supply by the hospital but the person who is duly authorised by the hospital need not themselves perform the service, however the supply of goods or services must be performed under the management and control of the duly authorised person.
Meaning of 'provided at a hospital'
Pursuant to subsections 121-5(5) and (8) of the PHI Act, the services must be performed at a facility that is declared by the Minister to be a public or private hospital.
Meaning of 'provided, or arranged, with the direct involvement of a hospital'.
The provision of elements of an episode of hospital care outside the physical boundary of a hospital is included in the definition of hospital treatment as long as a hospital is involved in the delivery of the services. However, due to the requirement of paragraph 121-5(1)(b) of the PHI Act and as addressed earlier, the supply must actually be made by the hospital.
The following questions explore what is within the concept of ‘*hospital treatment’ for the purposes of section 38-20. 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.