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Ruling

Subject: Are you making a GST-free supply of the X implants?

Question 1

Are you (ABC Pty Ltd) making a GST-free supply of X implants (a drug or medicinal preparation) under section 38-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you make the supply to the following recipients?

· medical practitioners who prescribe this medicine to their patients

· your affiliated clinic

· other clinics, and

· pharmacies

Answer

No, you are not making a GST-free supply of X implants (a drug or medicinal preparation) under section 38-50 of the GST Act when you make the supply to medical practitioners who prescribe this medicine to their patients, your affiliated clinic, other clinics, and pharmacies.

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 (ABC Pty Ltd) are registered for GST. Dr A is the Director of your company. Dr A is the head doctor of a clinic, the XYZ Clinic, which is a non-profit charity.

· You manufacture X implant which is a medicine/drug. The medicine/drug is used to treat addictions. The medication can only be used on patients, by administering subcutaneously in the abdomen area or by taking the medicine/drug orally.

· Medicines/drugs are normally required to be registered under the Therapeutic Goods Act 1989 (TG Act). X implant is an experimental medicine/drug not registered under the TG Act. However, under the TG Act there are three circumstances in which the medicine/drug can be administered without the drug being registered. That is:

o if the person is at risk of premature death, or

o if the treatment is part of a clinical trial

o if the medicine/drug is manufactured by Dr A for Dr A's patients under State law.

· Experimental medicine/drug requires approval and doctors need to have the right to prescribe. Therapeutic Goods Administration (TGA) is notified each time a patient is to be treated with X implant. No sales or supplies can be made without the permission of the TGA. Under State and Federal law X implants can only be used by doctors who have a licence to prescribe the medicine/drug to Australian patients and other patients. The medication can only be delivered to doctors with prescribing rights who agree to comply with all the TGA restrictions on this medication.

· You are therefore restricted to only supply the X implants that you manufacture to medical practitioners who prescribe the medicine/drug and abide by Commonwealth and State laws. You are regularly inspected by the TGA with respect to this work as well as the State Chief Pharmacists.

· Doctors who write prescriptions for X implants work within clinics and are sometimes able to get pharmacists or their clinics to order the medication for them.

· You sell the medicine/drug to your affiliated clinic (the XYZ Clinic) which is a non-profit entity. The medicine/drug may also be sold to other doctors or companies, such as other clinics and pharmacies. On occasions you sell the product overseas. You do not usually sell to the patients. The supply is made to a doctor.

Relevant legislative provisions

The A New Tax System (Goods and Services Tax) Act 1999 section 38-50

Reasons for decision

Note: all reference materials used in this letter are available on the ATO website www.ato.gov.au.

Are you making a GST-free supply of X implants?

Section 38-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) outlines the circumstances in which the supply of a drug or medicinal preparation is GST-free.

Section 38-50 of the GST Act provides:

(1) A supply of a drug or medicinal preparation is GST-free if the supply is on prescription and:

(a)  under a *State law or a *Territory law in the State or Territory in which the supply takes place, supply of the drug or medicinal preparation is restricted, but may be supplied on prescription; or

(b) the drug or medicinal preparation is a pharmaceutical benefit (within the meaning of Part VII of the National Health Act 1953).

(2) 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.

(3) Subsection (2) does not cover the supply of a drug or medicinal preparation of a kind specified in the regulations.

(4) A supply of a drug, medicine or other pharmaceutical item is GST-free if the supply is on prescription and:

(a)  it is supplied as a pharmaceutical benefit (within the meaning of section 91 of the Veterans' Entitlements Act 1986); and

(b)  it is supplied under an approved scheme (within the meaning of that section).

(4A) A supply of a drug, medicine or other pharmaceutical item is GST-free if the supply is on prescription and:

(a)  it is supplied as a pharmaceutical benefit (within the meaning of section 5 of the Military Rehabilitation and Compensation Act 2004); and

(b)  it is supplied in accordance with a determination made under paragraph 286(1)(c) of that Act.

(5) A supply of a drug or medicinal preparation is GST-free if:

(a)  the drug or medicinal preparation is an analgesic that has a single active ingredient the supply of which as a drug or medicinal preparation would be GST-free under subsection (2) if it were supplied in a larger quantity; and

(b)  the drug or medicinal preparation is of a kind the supply of which is declared by the *Health Minister to be GST-free, by determination in writing.

(6) A supply of a drug or medicinal preparation is GST-free if:

(a)  the drug or medicinal preparation is the subject of an approval under paragraph 19(1)(a) of the Therapeutic Goods Act 1989, and any conditions to which the approval is subject have been complied with; or

(b)  the drug or medicinal preparation is supplied under an authority under subsection 19(5) of that Act, and the supply is in accordance with any regulations made for the purposes of subsection 19(7) of that Act; or

(c)  the drug or medicinal preparation is exempted from the operation of Part 3 of that Act under regulation 12A of the Therapeutic Goods Regulations.

(7) A supply of a drug or medicinal preparation covered by this section is GST-free if, and only 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.

(Note: the terms marked with an asterisk are defined in section 195-1 of the GST Act)

Therefore, for a supply of a drug or medicinal preparation to be GST-free under section 38-50 of the GST Act, the supply must first satisfy the requirements in subsection 38-50(7) of the GST Act. Where this condition is satisfied, the supply must then also satisfy the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4), 38-50(4A), 38-50(5) or 38-50(6) of the GST Act.

Subsection 38-50(7) of the GST Act provides that for a supply of a drug or medicinal preparation to be GST-free, the drug or medicinal preparation must be for human use or consumption and the supply must be to an individual for private or domestic use or consumption.

In your case, you are supplying X implants that are for human use or consumption. However, your supply is not made to an individual for their private use or consumption as you are supplying the X implants to medical practitioners, your affiliated clinic, other clinics and pharmacies. Therefore, the requirements of subsection 38-50(7) of the GST Act are not satisfied. Accordingly, your supply is not GST-free under section 38-50 of the GST Act.

As your supply of X implants to the relevant recipients do not firstly satisfy the requirements in subsection 38-50(7) of the GST Act, it is not necessary to further determine whether your supply also satisfies the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4), 38-50(4A), 38-50(5) or 38-50(6) of the GST Act.

Are you making a taxable supply of X implants?

Your supply of X implants to the relevant recipients will be subject to GST where you are making a taxable supply. Under section 9-5 of the GST Act you make a taxable supply if:

(a) you make the supply for consideration

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

(c) the supply is connected with Australia, and

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

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

We have determined earlier in this ruling that your supply of X implants to the relevant recipients is not GST-free. Your supply of X implants is not an input taxed supply. (Examples of some input taxed supplies are supplies of residential rent, residential premises and precious metals).

Therefore, where your supply of X implants satisfies the requirements in paragraphs 9-5(a) to (d) of the GST Act, you will be making a taxable supply and GST will be payable on your supply.

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