1.a.13. What is the GST status of the provision of services by a medical practitioner (for example visiting medical officer) to a hospital patient?
For source of ATO view, refer to:
- Part 3 of GSTR 2006/9 – Goods and services tax: supplies
- GSTD 2012/4 – Goods and services tax: what is 'hospital treatment' for the purposes of section 38-20 of the A New Tax System (Goods and Services Tax) Act 1999?
It is understood there are a number of different arrangements that may be entered into between hospitals, medical practitioners and patients. Given this the following three arrangements are addressed:
- a medical practitioner is employed by a hospital or enters into a ‘voluntary agreement’ with the hospital and the hospital supplies those services to a patient
- a medical practitioner to whom (1) does not apply supplies services to a hospital and the hospital supplies those services to a patient
- a medical practitioner supplies services to a private patient in hospital.
The above arrangements focus upon the application of section 38-20 (hospital treatment) and section 38-7 (medical services).
The supply of the service by the hospital to the patient will be GST-free under section 38-20 where the necessary elements of that section are satisfied.
Where a medical practitioner who is an individual is employed by a hospital, it will not be a taxable supply from the medical practitioner to the hospital (section 9-20(2)(a)). To be a taxable supply, it is necessary for an enterprise to be undertaken and for the purposes of the GST Actan employee does not carry on an enterprise.
Where a medical practitioner performing work or services for a hospital is not a hospital employee, but is registered for GST and enters into a ‘voluntary agreement’ with the hospital, it will not be a taxable supply from the medical practitioner to the hospital (section 113-5). For this option to apply, it is necessary that the supply by the medical practitioner would have otherwise been a taxable supply and would have been a creditable acquisition by the hospital if not for the voluntary agreement.
A ‘voluntary agreement’ is a written agreement between an individual medical practitioner and a hospital. The hospital is required to withhold an amount from payments to the individual medical practitioner similar to withholdings made from wages to employees. To be able to enter into a ‘voluntary agreement’, it is necessary that the payments not be subject to any other type of withholding (for example payments made to employees are required to have amounts withheld). The ‘voluntary agreement’ must be in the approved form, must quote the ABN of the individual and must state that section 12-55 of Schedule 1 to the Taxation Administration Act 1953 (which is the section dealing with ‘voluntary agreements’) applies to the payments. Both parties to the agreement are required to keep a copy of the agreement while the agreement is in force and for five years after the last payment is made under the agreement. Because of the voluntary nature of this voluntary agreement, either party is able to terminate the agreement by giving notice to the other party in writing.
Where a medical practitioner (not being an employee or an individual who has entered into a voluntary agreement with the hospital) supplies services to a hospital and, as a result of that supply, services are provided to a patient, there will be two separate supplies:
- a supply from the hospital to the patient
- a supply from the medical practitioner to the hospital.
Under this arrangement, the supply by the 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 medical practitioner to the hospital, the hospital is the recipient of the supply. It is not considered that the supply by the medical practitioner to the hospital is ‘hospital treatment’ as defined in section 195-1. It is considered that ‘*hospital treatment’ for the purpose of the GST Act is that as defined in subsection 121-5(1) of the Private Health Insurance Act 2007 andonly relates to supplies made to patients. Further, the nature of the supply by the practitioner is not ‘appropriate treatment’ of the ‘*recipient of the supply’ under section 38-7 because the recipient of the supply is the hospital. The supply of services made to a hospital by the medical practitioner will represent an entity to entity transaction and, as such, it will be a taxable supply (assuming section 38-60(3) does not apply). However, this will generally have a neutral revenue impact, as the hospital will claim an input tax credit for the GST paid to the medical practitioner. Depending on the arrangement or framework, the medical practitioner may make a supply to both the hospital and the patient.
From 1 July 2012, where the hospital is an Australian government agency, the supply by the medical practitioner to the hospital may be GST-free under section 38-60(3).
Section 38-60(3) provides that if a supply (the underlying supply) by a health care provider to an individual (the patient) is either wholly or partly GST-free under Subdivision 38-B, then a supply of the service of making the underlying supply by the health care provider to the Australian government agency is GST-free to the same extent as the underlying supply.
For administrative ease, the parties may agree for the supply to the payer, or supplies of a kind that include that supply, not to be treated as GST-free (section 38-60(4)).
Where a medical practitioner supplies medical services to a patient in a hospital (for example as a private patient), the supply will be a GST-free supply from the medical practitioner to the patient under section 38-20 provided that all the necessary elements of section 38-20 are satisfied.