Edited version of private ruling

Authorisation Number: 1011477148634

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Ruling

Subject: GST and treatment services

Question 1

Are you making GST-free supplies under either subsection 38-7(1) or subsection 38-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in relation to your supply of treatment services?

Decision 1

Yes, you are making GST-free supplies under subsections 38-7(1) and 38-10(1) of the GST Act, in relation to your supply of treatment services.

Question 2

If the answer to the above question is yes, is it appropriate for you to issue invoices that are not tax invoices to the clients, in respect of the cost of treatment services?

Decision 2

Yes, you may issue invoices to the clients that are not tax invoices, in respect of the cost of treatment services supplied to their employees.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· You provide health services and operate a number of clinics in Australia.

· Our records indicate that you are registered for goods and services tax (GST).

· You make proposals to various clients, in which you offer integrated services encompassing a whole range of services to employees of those clients.

· You have attached a sample of such a proposal to your ruling request.

· If a client is satisfied with your proposal, they will let you know that they agree to the proposal. Similarly, if the client is not satisfied, they will advise you that they reject the proposal. The client communicates with you by a letter, email or telephone. It is an informal process.

· You do not have any contractual arrangement with a client to supply your integrated services. There is no binding obligation on a client to refer their employees to seek treatments at your clinics and you have no contractual obligation to treat any client's employees.

· If a client is sufficiently interested in your proposal, the client may refer their employees to attend one of your clinics. At that time, the client is required to complete a form (prescribed form).

· Where service is provided to a client, the client is charged for the cost of the service. The supply of the service to the client is treated as a taxable supply and it is subject to GST.

· In addition, a client may ask one of its employees to attend one of your clinics for a service. Following the completion of the service, a report will be issued to the client. The client is required to complete the prescribed form, if they have not already done so. The client is charged for the relevant cost and it is subject to GST, as the supply is a taxable supply.

Treatment services

· Following the completion of initial service, the employee may also seek treatment services from you. You invoice the client directly for the cost of such services.

· You do not take over the treatment of an employee unless the employee opts for it.

· The treatment services provided by you are not services for which medicare benefits are payable under Part II of the Health Insurance Act 1973.

· Your treatment services are supplied by or on behalf of a 'medical practitioner', an 'approved pathology practitioner' or a 'recognised professional' as prescribed in the GST Act.

· Where the treatment services are supplied by or on behalf of a 'recognised professional', they fall within one of the categories of 'other health services' set out in subsection 38-10(1) of the GST Act. For example, physiotherapy services.

· The treatment services supplied by you are generally accepted in the medical profession or in the profession associated with supplying such services, as being necessary for the appropriate treatment of employees.

· You only supply treatment services at the lower end of criticality. It is a part of the integrated services you offer. The client cannot contract with you for such services, as it is up to the employee to decide where they want to go. However, if a client already has a relationship with you and there is one of your clinics nearby, the client may send the employee to your clinic.

· The invoices are issued under your name and not under the name of the individual doctor or health professional. The individual service providers are your employees or are engaged on a sessional basis.

· You do not work in a statutory framework.

Further information supplied by you in response to our inquiries

· Under the generic instructions in relation to the supply of your services, if an employee walks into one of your clinics unannounced, you do not turn away the employee. You will contact the employer and advise them that one of their employees has presented to your clinic.

· If part way through a treatment, if you decide to discontinue the services the employer cannot require you to continue the services.

· Your terms and conditions of your proposal specify that your consultation services are provided to the employer and not to employees.

· If the relevant insurer refuses to pay for the treatment services, the employer will be pursued for the payment.

· Currently you treat the supply of treatment services as a GST-free supply.

· The employees receive treatment services from you in their individual capacity.

· An employee cannot be forced by a client to be treated by you. It is at the discretion of the employee. The employees may elect to attend one of your clinics for treatment or they may elect to see their own general practitioner.

· For the relevant employees, there is no requirement for approval or acknowledgment from the client to attend your clinics, although some clients recommend and facilitate attendance at your clinics.

· The employee can decide what sort of treatment services they should receive, provided that they are legitimate treatments. However, restrictions on the cost of treatment can be imposed by the relevant insurer.

A client has no say in the type of treatment services supplied or their duration and has no ability to limit the costs involved.

Reasons for the decisions

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decisions.

Decision 1

Section 9-5 of the GST Act refers to taxable supplies and states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST free or *input taxed.

(*denotes a term defined in section 195-1 of the GST Act.)

You supply your treatment services for consideration. You supply such services in the course or furtherance of your enterprise of providing health services to the public. The supply is connected with Australia as the services are provided within Australia. Our records indicate that you are registered for GST. Therefore, paragraphs 9-5(a) - (d) of the GST Act are satisfied.

Your supply of treatment services is not an input taxed supply under any provision of the GST Act. However, it is necessary to ascertain whether your supply could be a GST-free supply.

GST-free supply of health related services

Subdivision 38-B of the GST Act covers the GST-free supply of certain health related services. Subsection 38-7(1) of the GST Act states that a supply of a medical service is GST-free.

The definition of 'medical service' under section 195-1 of the GST Act has two limbs.

medical service means:

(a) a service for which medicare benefit is payable under Part II of the Health Insurance Act 1973; or

(b) any other service supplied by or on behalf of a *medical practitioner or *approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the *recipient of the supply.

In your case, you have stated that no medicare benefit is payable for your treatment services under Part II of the Health Insurance Act 1973. Therefore, your supply of treatment services does not satisfy the first limb of the definition.

Where your supply does not satisfy the definition of the first limb, it is necessary to determine whether the supply satisfies the second limb of the definition. The terms 'medical practitioner' and 'approved pathology practitioner' are separately defined under section 195-1 of the GST Act to mean a person who is, for the purposes of the Health Insurance Act 1973, a medical practitioner or an approved pathology practitioner.

You have stated that your treatment services are supplied by or on behalf of a medical practitioner, an approved pathology practitioner or a recognised professional. Where the treatments are provided by or on behalf of a recognised professional, they fall within one of the categories of health services set out in subsection 38-10(1) of the GST Act.

Subsection 38-10(1) of the GST Act states:

A supply is GST-free if:

a) it is a service of a kind specified in the table in this subsection, or of a kind specified in the regulations; and

b) the supplier is a *recognised professional in relation to the supply of services of that kind; and

c) 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.

Necessary for appropriate treatment of the recipient of the supply

According to the definition of 'medical service' in section 195-1 of the GST Act and what constitutes 'other health services' in subsection 38-10(1) of the GST Act, the supply of your treatment services must be generally accepted for appropriate treatment of the recipient of the supply. Where there is a third party payer involved in the transaction, it is necessary to determine what is being supplied and to whom.

Goods and Services Tax Ruling GSTR 2006/9 (GSTR 2006/9) refers to supplies. Part 3 of the ruling refers to supplies in the context of a tripartite arrangement. Proposition 13 of GSTR 2006/9 states that when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

In your case, we consider that the arrangement between you, an employer and their employees is a tripartite arrangement. Hence, it is necessary to ascertain the actual recipient of your injury treatment services. The GST consequences of your supply will depend on the actual recipient of your supply.

Paragraph 155 of GSTR 2006/9 states:

155. Under the GST health provisions in Subdivision 38-B …., the supply is only GST-free where an individual receiving that service or specific health treatment is the recipient of that supply. This outcome results from the specific wording in some health provisions, whilst in other provisions it is due to the nature of the services themselves. This means that a GST-free supply of a health service cannot be made to a business entity or a non-profit body.

In tripartite arrangements, it is our view that an entity will be making a supply to a third party if there is no agreement that creates a binding obligation between the first two parties. Paragraph 123 of GSTR 2006/9 states:

123. The Commissioner explained in Part 2 of this ruling at paragraphs 102 to 103 how an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other unless there is something else such as goods, services, or some other thing, passing between the parties.

Paragraphs 102 - 103 of GSTR 2006/9 state:

102. The Commissioner considers that an agreement that does not bind the parties in some way is not sufficient to establish a supply by one party to the other. This requirement was emphasised by the New Zealand Court of Appeal in C of IR v New Zealand Refining Co Ltd (1997) 18 NZTC 13,187 (New Zealand Refining). The case concerned payments made by the New Zealand Government to the New Zealand Refining Company, which were only to be made on condition that the refinery remained operational.

103. The New Zealand Court of Appeal noted there was an expectation among the parties that the refinery would continue to operate, but that there was no contractual obligation to that effect. The Government's only recourse in the event that the refinery ceased to be operational was to stop making payments. Although the payments were intended as an inducement to keep the refinery open, they were not linked to any identifiable supply:

In our view the payments related to the structure or framework within which supplies of services were expected to be made. They were to compensate NZRC for the removal of the protections given by the Support Letters and its exposure to the hot winds of competition. It was compensation directed to the same purpose as the grants which repaid the loans. The payments were received in course of the taxable activity of NZRC but they were not in consideration for any supply made by it. Accordingly, they are not subject to GST.

As such, if an agreement between you and the client creates a binding obligation for you to provide the treatment services to the client's employees, then the client is considered to be the recipient of the supply.

However, if the terms of the arrangement are such that the client is merely providing payment to you for your services supplied to their employees, then the employees are the recipients and the client is merely a third party payer. This concept is encapsulated by Proposition 14 of GSTR 2006/9 - a third party may pay for a supply but not be the recipient of the supply. It is further illustrated by example 8 given in GSTR 2006/9 which states:

193. C, a Government Department, advises the health profession that it will pay for certain health services performed for a class of persons requiring those services.

194. A, a supplier of those health services, supplies a health service to B, who falls within the required class of persons. C pays A for this service. There is no binding obligation between A and C regarding the performance of this service.

195. C is paying for the supply of health services made by A to B. The supply (for the appropriate treatment of B) will be GST-free if the requirements of section 38-10 are met. C is not the recipient of the supply.

196. If C contracted A to provide the health services to the class of persons that includes B, there would be different GST consequences. There would be a supply of professional services by A to C and a provision of health services by A to B.

197. The supply of professional services to C is not GST-free under section 38-10 as C is the recipient of the supply and it is not necessary for the appropriate treatment of C as required under paragraph 38-10(1)(c). As the recipient of the supply and the payer of the consideration, C will make a creditable acquisition if all the other requirements of section 11-5 are met.

Proposition 16 of GSTR 2006/9 provides that the total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply. Paragraphs 222 of GSTR 2006/9 states:

222. Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes.

In your case, you make proposals to the clients, wherein you offer to carry out any or all of a range of services. If a client is satisfied with your proposal, they communicate this informally via letter, email or telephone call. A specific written agreement is not signed between the parties and you do not have contractual arrangements in place with the clients for the provision of treatment services.

As stated in the facts, it is ultimately the employee's decision where they seek treatment for their injury. Typically, a client may recommend and facilitate attendance by an injured employee at your clinic, if the client has an existing relationship with you. For example, a client may send employees to your clinic to receive a service. However, the employees are still free to choose their attending practitioner. They may elect to attend your clinic or see their general practitioner or another practice. Therefore, the employees have the discretion to choose the attending practitioner.

You state that, there is no binding obligation between you and the clients for you to provide treatment services to their employees. When a client sends an employee to one of your clinics, you will treat them. However, you are not contractually obliged to that client to treat their employees. The client cannot compel you to treat their employees. As such, if part way through the performance of a series of treatment services, if you determined that you do not wish to continue the treatment services, the client could not compel you to provide your services.

Further, the dealings between the parties are governed by the relevant legislation. During a treatment, you are free to determine and provide any treatment you consider appropriate for the employee. There may be subsequent communication with the client with regards to other matters. The client has no say in the type of treatment services supplied, the duration of the treatment and unable to limit the costs involved. However, restrictions on cost of treatments may be imposed by the relevant insurer.

When employees present at your clinic, the client completes the prescribed form. The completion of this form with its accompanying terms and conditions makes the client responsible for payment of your accounts.

Where an employee walks in to your clinic, you notify the client that one of their employees has presented and the invoice for the treatment services will be issued to the client. Issuing the invoices directly to the client enables that client to manage the relevant process.

Furthermore, these arrangements and the related documentation indicate that the clients are merely providing payment to you for the treatment services supplied to their employees. Nothing in the documentation or the surrounding circumstances indicate an intention to create a legally binding obligation between the parties for you to provide treatment services to the particular client's employees. The communication regarding the proposal is insufficient to create a binding obligation in respect of the treatment services.

The fact that the clients are unable to compel you to provide the treatment services supports the view that there is no binding obligation in this regard. Although the clients provide payment in certain circumstances, this does not change the above view. It is the employee who actually engages you with respect to their treatment services and chooses to receive your treatments. A client does not have any input into what treatments are provided. Also a client cannot compel you to provide the treatment services to their employees.

Conclusion

Having examined the documentation you provided and the surrounding circumstances of your case, we consider the employees to be the recipients of the supply of treatment services. The employees are considered to be the recipients of the treatment services supplied by you and the clients are merely the third party payers. As such, your supply of treatment services will be GST free under subsections 38-7(1) and 38-10(1) of the GST Act.

Decision 2

As mentioned above, when you provide treatment services to an employee, you do not make a taxable supply to the relevant client. Therefore, you have no obligation to issue any tax invoice to the relevant client. However, for administrative purposes, you may issue to the relevant client invoices that are not tax invoices, in respect of the cost of treatment services supplied to their employees.

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