ATO Interpretative Decision

ATO ID 2005/81 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn. The issue is covered in GSTR 2005/D8 making supplies and analysing multi-party arrangements.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a provider of health services, making a GST-free supply to a patient under subsection 38-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when:

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it supplies health services to a patient who attends the entity's practice because the entity is a preferred provider with the patient's health fund, and

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the agreement the entity has with the health fund does not require the entity to perform those services?

Decision

Yes, the entity is making a GST-free supply to the patient under subsection 38-10(1) of the GST Act when it supplies health services to a patient who attends the entity's practice because the entity is a preferred provider with the patient's health fund and the agreement the entity has with the health fund does not require the entity to perform those services.

Facts

The entity is a provider of health services. The entity supplies a health service to a patient who is attending the entity's practice because the entity is a preferred provider with the patient's health fund.

The health service is listed in the table in subsection 38-10(1) of the GST Act. The entity is a recognised professional as defined in section 195-1 of the GST Act in relation to the provision of that health service. The health service is generally accepted by the relevant health profession as being necessary for the appropriate treatment of the patient in their circumstances.

To become a preferred provider the entity entered into an agreement with the health fund that establishes the level of fees the preferred provider will charge the health fund in the event of a fund member receiving treatment from the entity. The agreement does not require the preferred provider to perform services in relation to health fund members.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Under subsection 38-10(1) of the GST Act, an entity makes a GST-free supply of health services if:

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the entity provides a service of a kind specified in the table in subsection 38-10(1) of the GST Act or of a kind specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations)

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the entity is a recognised professional in relation to the supply of services of that kind, and

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the supply would be generally accepted in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply.

The entity's is supplying a service of a kind specified in the table in subsection 38-10(1) of the GST Act and the entity is a recognised professional in relation to the supply. As such, the first two requirements under subsection 38-10(1) of the GST Act are satisfied.

The third requirement is that the supply must be generally accepted in the relevant health profession as being necessary for the appropriate treatment of the recipient of the supply.

'Appropriate treatment' will be established where a recognised professional, assesses the recipient's state of health and determines a process to pursue, in an attempt to preserve, restore or improve the physical or psychological wellbeing of that recipient, insofar as that professional's area of training allows. It will include subsequent supplies for the determined process. Appropriate treatment also includes the principles of preventative medicine.

However, appropriate treatment of the recipient of the supply is considered not to be established where the recipient of the supply is a third party business entity and not the patient.

Section 195-1 of the GST Act defines 'recipient' in relation to a supply to mean the entity to which the supply was made.

Where there is a third party involved in a transaction, there may be more than one supply to which the GST Act applies. For example, the terms of an agreement between the health professional and a third party may result in the health professional making a supply to the third party which is not a GST-free health service. This supply is additional to any supply made to the patient.

A third party will be the 'recipient of a supply' by the health professional where:

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the third party engages the health professional to provide something to them or to someone else

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the third party, by agreement with the health professional, determines what is to be provided to them or to someone else, and

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there is a binding obligation between the third party and the health professional for the thing to be provided and the third party is liable to provide payment.

The purpose of the agreement which exists between the entity, as a preferred provider, and the health fund, is to establish the level of fees payable by the health fund in the event of a fund member receiving treatment from the entity. The agreement does not require the entity to perform services in relation to health fund members. The existence of the agreement does not change the fact that the recipient of the entity's supply of services is the patient, not the health fund.

The health service is generally accepted by the relevant health profession as being necessary for the appropriate treatment of the patient, the recipient of the supply, in their circumstances. Therefore, the third requirement in subsection 38-10(1) of the GST Act is satisfied.

As such, the entity is making a GST-free supply under subsection 38-10(1) of the GST Act.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   subsection 38-10(1)
   section 195-1

Related ATO Interpretative Decisions
ATO ID 2004/975

Keywords
Goods and services tax
GST free
GST health
Section 38-10 - other health services

Business Line:  GST

Date of publication:  18 March 2005

ISSN: 1445-2782