3.b.2. Where a cosmetic patient develops an infection or other medical problem, are the additional bed fees taxable or GST-free?
For source of ATO view, refer to GSTR 2001/8 - Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts.
This question focuses on whether fees charged for hospital treatment in connection with a service rendered for cosmetic reasons will change where a complication arises. This is relevant where a complication arises either during that supply of hospital treatment or where there is a subsequent readmission.
Subsection 38-20(2) provides that a supply of hospital treatment is not GST-free to the extent that it is related to a supply that is not GST-free because of subsection 38-7(2). Subsection 38-7(2) provides that a supply in relation to certain services will not be GST-free. This includes services in relation to tattoo removal and services rendered for cosmetic reasons for which a Medicare benefit is not payable. For the purposes of this question, only services rendered for cosmetic reasons are addressed.
The elements of subsection 38-20(2) are:
- It is a supply of hospital treatment
- is not GST-free to the extent (an apportionment may be required)
- that it is related (which requires a nexus), and
- to services rendered for cosmetic reasons for which a Medicare benefit is not payable.
In examining whether the additional bed fees are taxable or GST-free, it is necessary to determine whether the additional bed fee ‘relates’ to the services rendered for cosmetic reasons for which a Medicare benefit is not payable. Consequently, it is necessary to determine the scope of the term ‘relates’ as it appears in subsection 38-20(2).
The word ‘relates’ is a term of wide import and its meaning depends on the context in the particular Act in which the term appears. It should also be noted that the words ‘directly related’ appear in subsection 38-20(3) and, as such, the word ‘relates’ is broader than supplies that ‘directly relate’.
The section provides that hospital treatment is not GST-free ‘to the extent’ that it ‘relates’ to services rendered for cosmetic reasons for which a Medicare benefit is not payable. It is considered that this means that hospital treatment can be related to different supplies and only that part of the hospital treatment that relates to services rendered for cosmetic reasons for which a Medicare benefit is not payable will not be GST-free.
It is considered that supplies of hospital treatment that are directly related to the performance of a cosmetic procedure (for example theatre fees and nursing care in the theatre) and hospital treatment that is solely for the recovery from a cosmetic procedure will be encompassed in a supply that ‘relates’ to the supply of the cosmetic procedure that is not GST-free.
Additional hospital treatment that relates solely to a medical complication will be one step removed from the supply that relates to the supply of the cosmetic procedure that is not GST-free. It is considered that hospital treatment being supplied in this instance is more closely related to the medical complication than it is to the cosmetic procedure. Consequently, hospital treatment for the medical complication will be considered separately to the hospital treatment for the cosmetic procedure.
A supply in relation to the medical complication will be GST-free where the requirements of section 38-7 are satisfied.
Complication arises during the same period of hospitalisation
Where a medical complication arises during the same period of hospitalisation for the non GST-free supply and the complication requires hospitalisation, a portion of the hospital treatment will be related to the non GST-free supply and a portion will be related to the medical complication. On the assumption the medical complication is not in itself excluded by subsection 38-7(2), the portion of the hospital treatment that relates to the medical complication will be GST-free.
Complication arises after the period of hospitalisation
Where the medical complication arises after the period of hospitalisation for the supply that is not GST-free and the person needs to be readmitted, the hospital treatment that relates to the medical complication will be GST-free. This is on the assumption that the medical complication is not in itself excluded by subsection 38-7(2).
If the medical complication is one that is excluded by subsection 38-7(2), any additional hospital treatment will not be GST-free pursuant to subsection 38-20(2).
Apportionment where an admission is in relation to both a GST-free and a non GST-free procedure
Where apportionment is required it will need to be on a reasonable basis. A reasonable basis will be one which does not favour either the GST-free supply or the taxable supply over the other part of the supply.
The facts of each case must be taken into account to determine the appropriate method of apportionment. However, the appropriate method of apportionment of the hospital treatment should be determined by the hospital treatment that is necessary for each service.
GSTR 2001/8 provides information in relation to apportionment and apportionment methods for supplies that includes taxable and non-taxable parts and the application by way of examples.