ATO Interpretative Decision

ATO ID 2004/228

Goods and Services Tax

GST and repacking rechargeable wheelchair batteries with new general purpose rechargeable cells
FOI status: may be released
Status of this decision: Decision Current

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Issue

Is the entity, a supplier of batteries, making a GST-free supply under subsection 38-45(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it repacks a customer's old rechargeable wheelchair battery with new general purpose rechargeable cells?

Decision

No, the entity is not making a GST-free supply under subsection 38-45(2) of the GST Act when it repacks a customer's old rechargeable wheelchair battery with new general purpose rechargeable cells. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity is a supplier of batteries. The entity repacks wheelchair batteries with new general purpose rechargeable cells.

The repacking process consists of stripping the dead cells from the customer's old battery casing and replacing them with new general purpose rechargeable cells. Once repacked, the old casing is then resealed and the battery returned to the customer. The customer always retains ownership of the battery.

The new general purpose rechargeable cells are of a type commonly used in a multitude of applications, for example, in portable battery operated electric drills and mobile phones.

The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act. The supply is not input taxed under Division 40 of the GST Act.

Reasons for Decision

To determine the GST status of the entity's supply, it is first necessary to establish what the entity is actually supplying.

The entity strips the dead cells from the customer's battery casing and replaces them with new general purpose rechargeable cells. The customer always retains ownership of the battery. The entity is providing a repacking/reconditioning service consisting of a labour component and a materials component (that is, the new general purpose rechargeable cells). The entity is not supplying a wheelchair battery to the customer.

Where a supply consists of more than one part, the supply could be either a mixed or a composite supply. Where a supply contains a dominant part and also something that is integral, ancillary or incidental to that part, the supply is composite. A composite supply is treated as a single supply and takes its GST status from the dominant component of the supply. Where the supply has separately identifiable parts, the supply is a mixed supply. The GST status of the component parts of a mixed supply are determined separately (Goods and Services Tax Ruling GSTR 2001/8).

The labour component of the entity's supply is the value of the total time used to complete the process of removing the old cells, replacing them with new general purpose rechargeable cells and resealing the casing. The materials component is the value of the new general purpose rechargeable cells packed into the old casing. Both the labour and materials components are significant in their own right and neither dominates the other. The GST status of each component is determined separately.

Battery Cells

Subsection 38-45(2) of the GST Act provides that a supply of a spare part is a GST-free supply if the spare part is:

•: supplied as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act, and
•: specifically designed as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act.

The new cells that the entity uses to repack the battery are general purpose rechargeable cells commonly used in a multitude of applications, for example, in portable battery operated electric drills and mobile phones. As such, the new cells are not specifically designed as a spare part of a GST-free medical aid or appliance and the second requirement in subsection 38-45(2) of the GST Act is not satisfied. Therefore, the supply of the battery cells is not GST-free.

Labour

There are no provisions in the GST Act that operate to make the supply of the labour component GST-free.

The entity is registered for GST and the supply meets the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it repacks a customer's old rechargeable wheelchair battery with new general purpose rechargeable cells.

Note: There are circumstances where the entity may purchase an old rechargeable battery from a customer. The entity repacks and subsequently sells to that customer or another or trade in an old battery in an exchange for a repacked battery. In these circumstances, the supply is not a supply of a repacking service but is the supply of a repacked battery. If the repacked battery sold to the customer in this manner is a specifically designed battery for a GST-free medical aid or appliance, the supply will be a GST-free supply of a specifically designed spare part under subsection 38-45(2) of the GST Act.

Date of decision: 30 May 2003

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   Division 38
   subsection 38-45(1)
   subsection 38-45(2)
   Division 40

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2001/8

Other References:
Commonwealth of Australia 2003. Health Industry Partnership - Issues Register - 2.a.15 - Repairs to GST-free Medical Aids and Appliances (which may include the supply of spare parts). Tax Office, viewed 30 May 2003, www.ato.gov.au
Commonwealth of Australia 2003. Health Industry Partnership - Issues Register - 4.a.2 - Where a medical aid or appliance is repaired, will the repair be GST-free? Tax Office, viewed 30 May 2003, www.ato.gov.au

Keywords
Goods and services tax
GST free
GST health
Section 38-45 - medical aids & appliances
GST supplies & acquisitions
GST supply
Taxable supply

Siebel/TDMS Reference Number: 3548159

Business Line: Indirect Tax

Date of publication: 12 March 2004

ISSN: 1445-2782

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