ATO Interpretative Decision

ATO ID 2004/975 (Withdrawn)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• This ATO ID is withdrawn.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 health service provider, making a taxable supply to a third party, a business entity, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it provides a health service to a patient pursuant to an existing agreement with the third party for the provision of that service?

Decision

Yes, the entity is making a taxable supply to the third party under section 9-5 of the GST Act when it provides a health service to a patient pursuant to an existing agreement with the third party for the provision of that service.

Facts

The entity is a provider of health services.

A third party, a business entity, engages the entity to provide a health service to a patient. The third party and the entity enter into a written agreement. The agreement creates a binding obligation for the provision of the health service by the entity and for payment by the third party. The agreement specifies the nature of the health service to be provided.

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.

The entity is registered for goods and services tax (GST). The supply is made for consideration, in the course or furtherance of the entity's enterprise and is connected with Australia.

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

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it makes the supply for consideration

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the supply is made in the course or furtherance of an enterprise that the entity carries on

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the supply is connected with Australia, and

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the entity is registered or required to be registered for GST.

However, section 9-5 of the GST Act further states that a supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

The entity's supply of health services satisfies the positive limbs of section 9-5 of the GST Act, but will only be a taxable supply if it is not GST-free under Division 38 of the GST Act or input taxed under Division 40 of the GST Act.

Of relevance, is subsection 38-10(1) of the GST Act, which provides that an entity makes a GST-free supply of health services if:

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it 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) (paragraph 38-10(1)(a) of the GST Act)

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the entity is a recognised professional in relation to the supply of services of that kind (paragraph 38-10(1)(b) of the GST Act), and

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the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply (paragraph 38-10(1)(c) of the GST Act).

The entity provides a health service that is listed in the table in subsection 38-10(1) of the GST Act and the entity is a recognised professional, as defined in section 195-1 of the GST Act, in relation to the supply of that health service. Therefore, the requirements in paragraphs 38-10(1)(a) and 38-10(1)(b) of the GST Act are satisfied.

Paragraph 38-10(1)(c) of the GST Act requires that the supply must generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply.

A supply can only be one of 'treatment' if it is made to the person requiring that treatment. Therefore, 'treatment' cannot, by its nature, be something that is supplied to a business entity. Accordingly, where:

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the health services provided to a patient are accepted by the relevant profession as being necessary for the appropriate treatment of that patient

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the supply is made pursuant to an agreement with a third party that is a business entity, and

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the terms of the agreement are such that the third party is the recipient of a supply,

that supply to the third party is not 'necessary for the appropriate treatment of the recipient of the supply' under subsection 38-10(1) of the GST Act, because as a business entity, the third party cannot be in receipt of 'treatment'.

Therefore, in considering the application of subsection 38-10(1) of the GST Act to the entity's supply, it is necessary to determine who is the recipient of the entity's supply.

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 are only two parties involved, generally there is a single supply to which the GST Act applies. For example, where those two parties are a health professional and a patient, the recipient of the single supply is the patient. That supply is a GST-free health service where the requirements of section 38-10 of the GST Act are met.

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.

The GST status of each supply is considered separately. The supply from the health professional to the third party is taxable where the requirements of section 9-5 of the GST Act are met, whilst the supply to the patient is a GST-free health service where the requirements of subsection 38-10(1) of the GST Act are met.

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.

In the present case, the third party engages the entity to provide a health service. The written agreement between the entity and the third party specifies the service that is to be provided (that is, health services), and it creates a binding obligation on the entity to provide the health service to a patient and for the third party to pay for that service. Therefore, the third party is in receipt of a supply by the entity.

As a business entity cannot receive 'treatment' the supply to the third party cannot be a supply of 'appropriate treatment and therefore is not GST-free under subsection 38-10(1) of the GST Act.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under any other provision in 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 health service to a patient pursuant to an existing agreement with the third party for the provision of that service.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   Division 38
   subsection 38-10(1)
   paragraph 38-10(1)(a)
   paragraph 38-10(1)(b)
   paragraph 38-10(1)(c)
   Division 40
   section 195-1

ATO Interpretative Decisions overturned by this decision
ATO ID 2002/1077

Keywords
Goods and services tax
GST free
GST health
Section 38-30 - community care
GST supplies & acquisitions
Taxable supply

Business Line:  GST

Date of publication:  24 December 2004

ISSN: 1445-2782