3.a.6 A health fund has an arrangement where it pays a set amount to Hospital A, for the treatment and any necessary rehabilitation of a member patient. Hospital A carries out the patient's surgery. The patient is discharged from Hospital A and admitted to Hospital B, which provides specialist rehabilitation services to the patient. Hospital B charges Hospital A for the rehabilitation services. Are the services provided by Hospital B GST-free?

For source of ATO view, refer to:

• GSTD 2012/4 (formerly issue 3.a in this issues register)
• Part 3 of GSTR 2006/9 – Goods and services tax: supplies.

This question focuses on what supplies are made, the chain of supply, by whom and to whom. In every situation, the supplies made and the entity to which they are made, is determined by ascertaining the true character of the transaction. This involves looking at the arrangement between the parties and all the surrounding circumstances, the description given by the parties may not of itself be determinative. The situation referred to in the question, could give rise to transactions of various character.

Where the recipient of the supply is not the health fund, the actual treatment provided by Hospital A to individual members of the health fund who are admitted as patients of Hospital A, will be GST-free where the requirements of section 38-7, 38-10 or 38-20 are satisfied (for a discussion of these requirements, refer to Part 1.a., 1.b. and 2.a. of the Health Issues Log and GSTD 2012/4).

Similarly, where Hospital A is not the recipient of the supply by Hospital B and a nominated person admits himself or herself to Hospital B for rehabilitation services at the recommendation and expense of Hospital A, that treatment will be GST-free where the requirements of section 38-7, 38-10 or 38-20 are satisfied.

However, where the arrangements are such that Hospital A enters into a binding obligation with the health fund to be available and/or to provide or to arrange for all treatment needed by members of the health fund, the supply will be taxable where consideration exists and the requirements of section 9-5 are satisfied. Therefore any subcontracted services provided by Hospital A on behalf of the health fund will be taxable where the requirements of section 9-5 are met.

Further, pursuant to Hospital A’s contractual liability to the health fund, where Hospital A obtains an undertaking from Hospital B, that particular services will be available at Hospital B to nominated persons, the undertaking supplied by Hospital B will be taxable where consideration exists and the requirements of section 9-5 are satisfied.

This question provides only limited detail as to the arrangements between the parties and assumptions have been made in relation to these arrangements. The assumptions made may not cover all arrangements.