Edited version of private ruling

Authorisation Number: 1011566181003

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Ruling

Subject: GST and the supply of a drug

Question:

Is the supply of prescription only drug to a patient by a medical practitioner a GST-free supply?

Answer:

The supply of prescription only drug to a patient by a medical practitioner is a mixed supply - see Reasons for decision.

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 are carrying on a business of supplying medical services.

· In your practice you provide cosmetic medical procedures using certain drugs.

· The abovementioned drugs are included in Schedule 4 of the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP) and can only be supplied to medical practitioners.

· Under the supply process a patient purchases a drug from the medical practitioner.

· The patient is then injected with the drug by the medical practitioner.

· The price of the supply of drug is calculated based on type and amount of the drug injected into the patient.

· There is no additional cost for the injection process since such costs are included in the purchase price of the drug.

· You are registered for the goods and services tax (GST).

Reasons for decision

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

You pay GST if you make a taxable supply. However, a supply is not taxable to the extent that:

· it is GST-free;

· it is input taxed;

· a section of the GST Act states it is not a taxable supply; or

· it does not meet the requirements of a taxable supply as provided in paragraphs 9-5(a) to (d) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

A supply may be characterised as consisting of one or more things or parts. A mixed supply is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

In your case as the supply of the drug consists of a process, it must be examined to determine the nature of the supply.

The GST treatment of a mixed supply is examined in Goods and Services Tax Ruling GSTR 2001/8 (GSTR 2001/8).

Paragraph 40 of GSTR 2001/8 states:

40. Overseas courts have considered a number of cases about whether a supply is mixed or composite. They have considered a supply as being mixed where its parts are separately recognisable or have an aim in themselves. On the other hand, they regard a supply as composite where it contains, or appears to contain, several parts that may objectively be treated as if they are simply a supply of a single thing. The terms they have used in describing subordinate parts of a composite supply include 'incidental', 'integral', 'ancillary'.

Paragraphs 43 and 44 of GSTR 2001/8 state:

43. A mixed supply contains separately identifiable parts where one or more of the parts is taxable and one or more of the parts is non-taxable. None of these parts is integral, ancillary or incidental in relation to the whole supply. On the other hand, a composite supply is a supply of one dominant part that has other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply.

44. In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental parts.

In your case the supply consists of two parts, one part being the sale of the drug by you to the patient and the other part being the supply of medical service (injection of the drug) by you into the patient.

A supply of a drug or medicinal preparation will be GST-free where it first satisfies the requirements in subsection 38-50(7) of the GST Act, and also satisfies the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4), 38-50(5) or 38-50(6) of the GST Act.

Subsection 38-50(7) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free under this section if:

(a)    the drug or medicinal preparation is for human use or consumption; and

(b)   the supply is to an individual for private or domestic use or consumption.

Paragraph 38-50(7)(a) of the GST Act is met in your case as the drug is administered to a human..

Paragraph 38-50(7)(b) of the GST Act is also satisfied in this case because the supply is made to an individual for private use or consumption (beauty treatment).

Subsection 38-50(2) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free if, under a State law or a Territory law in the State or Territory in which it is supplied, the supply of the drug or medicinal preparation to an individual for private or domestic use or consumption is restricted, but may be made by:

(a)  a medical practitioner, dental practitioner, or pharmacist; or  

(b)  any other person permitted by or under that law to do so.

An item listed in Schedule 4 of the SUSDP (restricted drug) is covered by this subsection if supplied by a medical practitioner. As each of the relevant drugs is listed in the Schedule 4 of the SUSDP, a supply of any of these drugs by you to a patient for private or domestic use or consumption is GST-free. As the supply by you to a patient in the course of a cosmetic medical procedure will satisfy the requirements of paragraph (a) above, subsection 38-50(2) of the GST Act will be satisfied.

The sale of the relevant drugs by you to the patient is therefore a GST-free supply.

In order to determine whether the second part of the supply process (injection of the drug and any consultation occurs) we must consider the nature of the medical service being provided.

Under subsection 38-7(1) of the GST Act, the supply of a medical service is GST-free. However, subsection 38-7(2) of the GST Act stipulates where a medical service is not GST-free. Paragraph
38-7(2)(b) of the GST Act requires following two elements to be satisfied before a medical service will not be GST-free:

· the medical service must be rendered for cosmetic reasons; and

· the services is not a professional service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973

In your case the injection of the drug meets the requirements of paragraph 38-7(2)(b) of the GST Act. Therefore, the medical service component in the supply process is not a GST-free supply.

You have advised that as the purchase price of the drug includes the cost of injection, there is no additional charge for the injection process. As such, the supply of the drug is considered to be a mixed supply, comprising the sale and injection of the drug.

The consideration received for a mixed supply must be apportioned between the taxable and non-taxable parts to determine the correct amount of GST payable.

Where there is no legislative provision specifying a basis for apportionment you may use any reasonable method to apportion the consideration to the parts of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case.

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