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Edited version of your private ruling
Authorisation Number: 1012493760528
Ruling
Subject: GST and needle and syringe kits
Question
Are you making a GST-free supply under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supply needle and syringe kits?
Advice/Answers:
Yes, you are making a GST-free supply under subsection 38-45(1) of the GST Act when you supply needle and syringe kits.
Relevant facts:
You are registered for goods and services tax (GST).
One of the products you supply is a needle and syringe kit. The kit includes a number of items.
Certain items are designed to clean the skin prior to injecting a needle. The items are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability.
You sell the needle and syringe kits to pharmacies for $X or less.
Relevant legislative provisions:
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(1)
A New Tax System (Goods and Services Tax) Act 1999 Section 9-80
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5
Reasons for decision
Under subsection 38-45(1) of the GST Act, the supply of medical aids and appliances are 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 1999 (GST Regulations)
· is specifically designed for people with an illness or disability, and
· is not widely used by people without an illness or disability.
You have stated that the needle and syringe kit is specifically designed for people with an illness or disability and not widely used by people without an illness or disability therefore it needs to be determined whether it is covered by Schedule 3.
Item 37 in the table in Schedule 3 (Item 37) lists 'needles and syringes'. Therefore, the needles and syringes in the 'needle and syringe kit' are GST-free supplies under subsection 38-45(1) of the GST Act as they are specifically designed for people with an illness or disability and not widely used by people without an illness or disability.
Item 35 in the table in Schedule 3 (Item 35) lists 'alcohol skin wipes'. Therefore, the alcohol swabs in the 'needle and syringe kit' are GST-free supplies under subsection 38-45(1) of the GST Act as they are specifically designed for people with an illness or disability and not widely used by people without an illness or disability.
The other items that are contained in the kit such are not listed in Schedule 3. Therefore, as a supply on their own those items are a taxable supply under section 9-5 of the GST Act.
Section 9-80 of the GST Act deals with supplies that are partly taxable supplies and partly GST-free or input taxed supplies. It describes how you work out the value of the part of such a supply that is a taxable supply.
Where a supply contains (or appears to contain) more than one part you need to further analyse the supply to determine its character and GST treatment.
The supply of the needle and syringe kit appears to have more than one part. For example it consists of needles and syringes, alcohol swabs, sharps disposal container etc.
Goods and Services Tax Ruling GSTR 2001/8 discusses how you can work out the value of the taxable part of a mixed supply under section 9-80 of the GST Act.
Paragraphs 40A and 41 of GSTR 2001/8 states:
'40A. An identification of the essential character of what is supplied may inform whether a particular transaction falls within the terms of a specific statutory provision, and whether it does so wholly or only to some extent. You must consider all of the circumstances of the transaction to ascertain its essential character. However, that does not mean that an economic substance over legal form approach is endorsed for working out the essential character of what is supplied…
41. By having regard to the essential character or features of the transaction it can be ascertained whether a supply contains separately identifiable taxable and non-taxable parts or is a composite supply of one thing. It is a composite supply of one thing if one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.'
Paragraph 55 of GSTR 2001/8 provides that some supplies include parts that do not need to be separately recognised for GST purposes. We refer to these parts of a supply as being integral, ancillary or incidental. In a composite supply, the dominant part of the supply has subordinate parts that complement the dominant part. If such a supply is analysed in a commonsense way, it can be seen that the supply is essentially the provision of one thing.
Paragraphs 59 and 60 of GSTR 2001/8 states:
'59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a commonsense and practical approach, indicators that a part may be integral, ancillary or incidental include where:
· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or
· it represents a marginal proportion of the total value of the package compared to the dominant part; or
· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or
· it contributes to the proper performance of the contract to supply the dominant part.
60. As a means of minimising compliance costs, you may treat something (or things taken together) as being integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:
· $3.00; or
· 20% of the consideration of the total supply.'
The kit does not satisfy the test in paragraph 60 of GSTR 2001/8 as the water and sharps disposal container makes up a significant portion of the cost (approximately X% of the total cost) of the supply. However paragraph 61 of GSTR 2001/8 states:
'61….However, if the consideration for a part exceeds the lesser of $3.00 or 20% of the consideration for the total supply, it does not necessarily mean that the part is not integral, ancillary or incidental.
The essential character of the supply is the needle and syringe. All other components of the supply aid and assist the use and disposal of the needle and syringe. As such, it is considered that the needle and syringe is the dominant part of the supply and the supply is a composite supply. In determining the GST treatment of a composite supply it is necessary to look at the GST treatment of the dominant part of the supply. As the dominant part of the supply is GST-free then the entire needle and syringe kit is GST-free under subsection 38-45(1) of the GST Act.
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