ATO Interpretative Decision

ATO ID 2004/805

Goods and Services Tax

Issue

Is the entity, a supplier of medical aids and appliances, 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 supplies a spare part for an anaesthesia monitor?

Decision

No, the entity is not making a GST-free supply under subsection 38-45(2) of the GST Act when it supplies a spare part for an anaesthesia monitor.

The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity is a supplier of medical aids and appliances. The entity supplies a spare part for an anaesthesia monitor.

The primary function of the anaesthesia monitor is to monitor patients during anaesthesia. For example, the monitor contains modules that can monitor heart rate, blood pressure and saturation of oxygen in the blood system of patients during anaesthesia. An anaesthesia monitor also has a built-in alarm function that can alert medical staff when a patient needs attention.

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.

Reasons for Decision

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

•

is 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 entity supplies a spare part for an anaesthesia monitor. Therefore, it is necessary to determine whether the anaesthesia monitor is GST-free under subsection 38-45(1) of the GST Act.

Subsection 38-45(1) of the GST Act provides that the supply of a medical aid and appliance is GST-free where the medical aid or appliance:

•

is covered by Schedule 3 to the GST Act (Schedule 3), or specified in the A New Tax System (Goods and Services Tax) Regulations 2019(GST Regulations),

•

is specifically designed for people with an illness or disability, and

•

is not widely used by people without an illness or disability.

Anaesthesia monitors are not specifically listed in Schedule 3 or the GST Regulations.

However, items that may be of relevance are 'heart monitors' which are shown at item 1 in the table in Schedule 3 (Item 1) and '"medical alert" devices' which are shown at item 33 in the table in Schedule 3 (Item 33).

The terms 'heart monitors' and '"medical alert" devices' are not defined in the GST Act.

Where a term is not defined in the relevant Act, it takes on its ordinary meaning, unless the term has a special or technical meaning. Where a term has a special or technical meaning, it is necessary to determine its meaning by reference to the industry to which that term relates (Herbert Adams Pty Ltd v. Federal Commissioner of Taxation (1932) 47 CLR 222; (1932) 2 ATD 31).

The Stedman's Medical Dictionary (2000), 27th edition, Lippincott Williams & Williams, Baltimore, defines a 'cardiac (heart) monitor' as:

an electronic monitor which, when connected to the patient, signals each heart beat with a flashing light, an electrocardiographic curve, an audible signal, or all three.

The term '"medical alert" devices' is not defined in medical dictionaries. For the purposes of item 33, a '"medical alert" device' is interpreted to mean a device which is designed for the purpose of alerting medical or caring personnel, or an ambulance service, that a person is in need of emergency medical assistance or that the person has a medical condition that may require specific treatment.

In a Sales Tax context, in determining how goods might be covered by one or other of the items in the various Schedules, the tribunals and courts have often looked to the 'essential character' or 'objective characterisation' of goods.

Essential character tests have been established by the Courts in cases such as Thomson Australia Holdings Pty Ltd v. Federal Commissioner of Taxation (1988) 20 FCR 85; 88 ATC 4916; (1988) 19 ATR 1896 and FC of T v. Rotary Offset Press Pty Ltd 71 ATC 4170; (1971) 2 ATR 411. Davies J. said in Thomson Australia Holdings:

the task of the court is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

Also, in Rotary Offset Press Pty Ltd 71 ATC 4170 at 4175; (1971) 2 ATR 411 at 417, Gibbs J commented:

The question whether a periodical is "advertising matter" seems to me to depend on whether the periodical, viewed objectively and without regard to the actual intentions of those publishing it, answers that description.

Similarly for GST, to determine whether a thing is covered by an item in Schedule 3 or the GST Regulations, it is necessary to have regard to the essential character of the thing. This means deciding what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for.

A heart monitor is a device with the primary function of monitoring a patient's heart beat. Although the anaesthesia monitor can monitor a patient's heart beat, this is not the primary function of the machine. The anaesthesia monitor is comprised of numerous modules that perform different functions including monitoring blood pressure and saturation of oxygen in the blood. The anaesthesia monitor is not a heart monitor within the meaning of this term in Item 1 and is not covered by the item.

The primary purpose of a medical alert device is to alert. Although, the anaesthesia monitor has an alarm function, the primary function of the anaesthesia monitor is to monitor patients during anaesthesia. The alarm function is not a medical alert device in itself. It is merely a function within the anaesthesia monitor. The anaesthesia monitor is not a "medical alert" device and is not covered by Item 33.

As the anaesthesia monitor is not covered by Schedule 3 or the GST Regulations, it is not GST-free under subsection 38-45(1) of the GST Act. Therefore, the supply of the spare part for the anaesthesia monitor is not GST-free under subsection 38-45(2) of the GST Act.

The entity is registered for GST and the supply satisfies the positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under any other provision of 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 supplies a spare part for an anaesthesia monitor.

Amendment History

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
   Schedule 3
   Schedule 3 table item 1
   Schedule 3 table item 33

Case References:
Herbert Adams Pty Ltd v. Federal Commissioner of Taxation
   (1932) 47 CLR 222
   (1932) 2 ATD 31

Related ATO Interpretative Decisions
ATO ID 2004/804

Other References:
Stedman's Medical Dictionary (2000), 27th edition, Lippincott Williams & Williams, Baltimore

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

Siebel/TDMS Reference Number:  4247290

Business Line:  Indirect Tax

Date of publication:  8 October 2004

ISSN: 1445-2782