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Edited version of your private ruling
Authorisation Number: 1012567640153
Ruling
Subject: GST and a supply of antibacterial drops
Issue
Is the supply of a product by an Australian entity (you) to customers in Australia GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No, the supply of the product by you to customers in Australia is not GST-free. The supply of the product by you to customers in Australia is a taxable supply under section 9-5 of the GST Act.
Relevant facts and circumstances
· You are an Australian company which is registered for GST.
· You manufacture and sell a range of medical devices.
· You manufacture and will sell an advanced wound care product ('product') and other synonyms to customers in Australia.
· The ingredients of the product include honey and other hydrocolloids namely a gum.
· The product is regulated by the Australia Therapeutic Goods Administration as a "Medical Honey Liquid Barrier Dressing Sterile (ARTFG199785).
· The product is distributed to and sold by primary health care specialists and their patients.
· The product is only marketed to clinicians or people with a disability or illness.
· The product is not supplied on prescription. The product is not listed under the pharmaceutical benefits scheme.
· The product contains X% of honey and Y% of hydrocolloid gum.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5
A New Tax System (Goods and Services Tax) Act 1999 Section 38-45
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(1)
A New Tax System (Goods and Services Tax) Act 1999 Schedule 3
A New Tax System (Goods and Services Tax) Regulations1999
Reasons for decision
GST is payable on a taxable supply. Section 9-5 of the GST Act 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 defined term in section 195-1 of the GST Act)
The supply of the product by you to customers in Australia will be taxable if all the requirements in section 9-5 of the GST Act are satisfied.
From the facts given, your supply of the product to customers in Australia satisfies paragraphs
9-5(a) to (d) of the GST Act, as follows:
(a) you make the supply of the product for consideration by way of payments;
(b) you make the supply of the product in the course of your business;
(c) the product is supplied in Australia through an enterprise that you carry on in Australia (and therefore the supply is connected with Australia); and
(d) you are registered for GST in Australia.
However, section 9-5 of the GST Act also provides that the supply is not taxable to the extent that it is GST-free or input taxed.
There are no provisions in the GST Act under which your supply of the product would be input taxed.
Therefore, what remains to be determined is whether the supply of the product by you is GST-free.
GST-free supply
A supply of a medical aid and appliance is GST-free under Division 38 of the GST Act if it satisfies the requirements in subsection 38-45(1) of the GST Act.
Subsection 38-45(1) of the GST Act states:
A supply is GST-free if:
(a) it is covered by Schedule 3 (medical aids and appliances), or specified
in the regulations; and
(b) the thing supplied is specifically designed for people with an illness or
disability, and is not widely used by people without an illness or
disability.
Paragraph 38-45(1)(a) of the GST Act
The first requirement under subsection 38-45(1) of the GST Act is that the product must be covered by Schedule 3 or subsequent regulation to the GST Act, to be GST-free. Schedule 3 to the GST Act consists of a table of medical aids and appliances.
The first five items in Schedule 3 to the regulation 38-45.01 are listed under the category of Advanced wound care. The Advanced wound care products must predominantly consist of one of the five items below:
- Alginate
- Hydro colloids
- Hydro gel
- Polyurethane film
- Polyurethane foam
You advised us that the product will be sold as an advanced wound care product. However, in order for your supply of the product to be GST-free, the product must predominately consist one of the five items listed above.
Based on the facts provided, your product consists of X% Manuka honey and Y% hydro colloids. Furthermore, the product does not contain any of the other items listed in Schedule 3 to the regulation 38-45.01. As the product does not contain predominantly any of above five ingredients, the product does not come under the advanced wound care products. Therefore, the first criterion in paragraph 38-45 (1)(a), is not satisfied.
Accordingly, the supply of the product by you does not satisfy all of the requirements of subsection 38-45(1) of the GST Act, and is not GST-free. Furthermore, your supply of the product does not satisfy any other GST-free provision of the GST Act. Your supply of the product will be a taxable supply as all the requirements in section 9-5 of the GST Act are satisfied.
The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.
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