Meaning of ‘directly related’

‘Directly related’ was considered in GSTR 2001/1 in relation to the supply of an education course. That Ruling explained at paragraphs 71 to 73:

‘71. ‘Directly related’ is not defined in the Act and therefore, takes on its ordinary meaning. The Macquarie Dictionary (3rd Edition) defines ‘directly’ to mean ‘in a direct line, way or manner; immediately; absolutely’. The term ‘related’ means ‘associated, connected or allied by nature’.

72. The phrase ‘directly related’ was considered in the context of being 'directly related to employment' for income tax purposes in FC of T v. Dixon (1952)86 CLR 540,at 553-554:

‘A direct relation may be regarded as one where the employment is the proximate cause of the payment, an indirect relation as one where the employment is a cause less proximate, or, indeed, only one contributory cause’.

73. Therefore, administrative services must be in a direct line or immediately associated or connected with the supply of the education course."

A similar test is appropriate for the purposes of subsection 38-20(3). The goods must be ‘in a direct line or immediately associated or connected with’ the supply of the GST-free hospital treatment. That is, the goods must be integral to, and provided solely for the purpose of, the GST-free hospital treatment and, whilst they may be used subsequent to the GST-free hospital treatment, can not be solely for use subsequent to the GST-free hospital treatment.

At times, a number of identical goods are supplied to a patient of a hospital, only some of which will be supplied for the purpose of providing the GST-free hospital treatment. The balance will not be directly related to the GST-free hospital treatment. Goods that are for consumption after the hospital treatment lose the direct connection with hospital treatment and will be indirectly related to, or one step removed from, the actual supply of hospital treatment.

For example, a hospital may supply a bandage to a patient as part of treating that patient. The supply of that bandage will be GST-free under subsection 38-20(3). However, if the hospital supplied ten bandages, the other nine bandages would be for use subsequent to the hospital treatment and would not be GST-free under subsection 38-20(3).

Goods which do not satisfy the requirements of subsection 38-20(3) will be GST-free where the requirements of another GST-free health provision are satisfied (for example, section 38-45 or section 38-50). For example, supplies of crutches and wheelchairs for use after receiving hospital treatment will be GST-free under subsection 38-45. Supplies to patients of prescription medicines for use after receiving hospital treatment will be GST-free under subsection 38-50.