7.a.15. Where an insurance provider makes payments directly to health service providers in relation to supplies to insured patients, is there any need for the insurance provider to withhold where an ABN is not provided by that health service provider?
Non-interpretative – straight application of the law.
Under the new pay as you go (PAYG) system, if a 'business' (an entity making supplies in the course or furtherance of an enterprise carried on in Australia) makes a supply to a second business and does not quote an Australian business number (ABN), the second business is required to withhold tax from the payment to the first business (section 12-190 in Schedule 1, Part 2-5 of the Taxation Administration Act 1953).
There are some exceptions from withholding for not supplying an ABN. These include:
- where the recipient is an individual and the payment is wholly of a private or domestic nature for that individual
- where the payment does not exceed $75, or
- where the whole of the payment is exempt income of the supplier (for example, the supplier is a charity).
Where an insurer makes a payment to the health service provider, the insurance company is generally making the payment on behalf of the patient to the health service provider for medical expenses incurred by the patient. There is no supply between the insurance company and the health provider in relation to the payment; the relevant supply occurs between the health service provider and the patient.
Generally, the supply to the patient would be private or domestic for the patient and there is no requirement for a withholding if no ABN is provided by the health provider.
It is only where the payment by the insurance provider is for a supply that is made to that insurance provider (and not payment for a supply to a patient) that there will be a requirement to receive an ABN and to withhold an amount if the ABN is not supplied.