1.a.27 Dr O G owns and operates a private obstetrics practice, undertaking procedures in both public and private hospitals. Dr O G will be away for the delivery of one of his pregnant patients who he has been attending to during the course of her pregnancy. Dr O G enters into an arrangement with Dr Standin whereby Dr Standin performs the delivery at the hospital for Dr O G's patient. Dr Standin bills the patient in Dr O G's name and receives 80% of the fee charged to the patient -the remaining 20% goes to Dr O G.
For source of ATO view, refer to Part 3 of GSTR 2006/9 – Goods and services tax: supplies.
- Who is responsible for charging and collecting GST?
- What is/are the criterion(a) used in determining the liability for collecting and charging GST as between Doctors O G and Standin?
- What further information (if any) is required in order to determine GST liability?
- Does the name of the biller have a material impact on the GST status?
- What should Doctors O G and Standin do to ensure that the GST liability is appropriately clarified to the satisfaction of the ATO?
1. Who is responsible for charging and collecting GST?
Under the GST Act, the supplier of goods and services is liable to remit GST on supplies made.
The facts of each individual case, including any written or oral agreements and the surrounding circumstances, will determine the parties to the transaction, the supply made between the parties, the status of each supply and the liability for GST. The description given by the parties may not of itself be determinative.
The end supply may consist of a series of transactions which in themselves are individual supplies. The application of the GST Act must be considered in relation to each supply, in other words, on a supply by supply basis.
In the current situation, it is considered important to determine who is the supplier of the services to the patient, or whether a separate arrangement exists between Doctors O G and Standin in relation to providing the service to the patient.
In the present case, from the patient's perspective, she has received a medical service, ostensibly from Dr O G. However this does not dictate the GST status of the supply between Dr O G. and Dr Standin, which can only be determined by reference to the arrangements made between the Doctors. On the facts it appears that Dr Standin is not acting as agent for Dr O G. but is an independent sub-contractor, which is evidenced by the fact that Dr Standin receives 80% of the fee. Dr Standin would have to remit one-eleventh of this amount. It is a matter of contract between Dr Standin and Dr O G. whether the amount is grossed up to take into account GST. Dr O G. will be entitled to an input tax credit.
The fact that the patient didn’t have any arrangement with Dr Standin indicates that Dr Standin was not engaged by the patient to provide a service to her independent of Dr O G’s previous involvement during the course of the pregnancy. It is evident from the above that the name of the biller does not necessarily dictate the GST status of the supplies between the two doctors.
2. What is/are the criterion(a) used in determining the liability for collecting and charging GST as between Doctors O G and Standin?
Section 9-40 of the GST Act establishes that the supplier is liable to remit GST on any taxable supplies made.
As indicated in the answer in (a) above, the facts of each individual case, including any written or oral agreements and the surrounding circumstances, will determine the parties to the transaction, the supply made between the parties, the status of each supply and the liability for GST.
3. What further information (if any) is required in order to determine GST liability?
Reference should be made to the concepts in (a) and (b) above.
4. Does the name of the biller have a material impact on the GST status?
As indicated in (a) above, the name of the biller does not necessarily dictate the GST status of the supplies between the two Doctors.
The name of the biller will have material impact where it is evidence of the entity that is supplying the service to the patient (as opposed to performing the service) and evidence that the entity is entitled to seek recovery from the patient in their own name.
5. What should Doctors O G and Standin do to ensure that the GST liability is appropriately clarified to the satisfaction of the ATO?
Private binding rulings may be sought in relation to other situations.
Subject to their own advice, Doctors O G and Standin may wish to consider reducing their agreement to writing. The terms of the agreement could identify what supplies are contemplated, by whom each supply will be made, and to whom. However, it should be noted that any written agreement may be evidence of the factual situation but is not a replacement for the actual facts of the situation.