Edited version of your written advice

Authorisation Number: 1012797718764

Ruling

Subject: GST and medical aids and appliances

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 the following products?

• Various sterile dressings.

Answer

You are making GST-free supplies when you supply the:

• Various sterile dressings

• Kit 1; and

• Kit 4.

You are making a taxable supply when you supply the:

• Certain other products.

You are making mixed supplies when you supply the:

• Kit 2;

• Kit 3;

• Kit 5;

• Kit 6

Please refer to Reasons for decision for further explanation.

Relevant facts and circumstances

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

• You are a supplier of medical aids and appliances.

• Your range consists of a range of hydro gel products designed for certain health conditions.

• Your range is specifically designed to certain health conditions.

• You have attached copies of brochures at Appendix 2 which provide more technical detail concerning the use and benefits associated with your products and the information within forms part of the relevant facts and circumstances.

• You supply a number of different 'kits' whose contents vary but may consist of a mix of certain products. With the exception of Kit 1, all kits are supplied with either a soft or hard case.

• The hydro gel has certain components and is used to help people with certain health conditions.

• The hydro gel contains certain things.

• The wound wash is used to facilitate the healing of wounds in a certain way.

• These products are not widely used by people without an illness or disability. These products are specifically designed for people with a specific health condition.

• You have not entered into any agreement with customers that the supply of the abovementioned products should not be treated as a GST-free supply.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Subsection 38-45(1)

Subsection 38-47(1)

Schedule 3

A New Tax System (Goods and Services Tax) Regulations 1999

Schedule 3 Item 3

Reasons for decision

Summary

The dressings and other products are coved by Item 3 in Schedule 3 to the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) and a supply of these products is GST-free.

The other product is not a gel. This item is not specifically covered by Schedule 3 to the GST Act or Schedule 3 to the GST Regulations, nor is it goods of a kind, which the Health Minister has declared to be GST-free by any determination. Therefore, a supply of this product is not GST-free.

Kit 1 and Kit 4 are coved by Item 3 in Schedule 3 to the GST Regulations therefore, supplies of these kits are GST-free.

Kit 2 and Kit 3 are each a mixed supply of GST-free items coved by Item 3 in Schedule 3 to the GST Regulations and a taxable item. You will need to apportion the taxable value of the scissors when making a supply of theses kits.

Kit 5 and Kit 6 are each a mixed supply of GST-free items coved by Item 3 in Schedule 3 to the GST Regulations and taxable items. You will need to apportion the taxable value of the scissors and hard case when making a supply of Kits 5 and 6.

Detailed reasoning

Subsection 38-45(1) of the GST Act provides that the supply of a medical aid or appliance is 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), and

• is specifically designed for people with an illness or disability, and

• is not widely used by people without an illness or disability.

Subsection 38-47(1) of the GST Act provides that a supply is GST-free if it is a supply of goods of a kind that the Health Minister, by determination in writing, has declared to be GST-free. Schedule 1 in GST-free Supply (Health Goods) Determination 2011 (Determination) lists the items that have been determined to be GST-free by the Health Minister.

In line with the Commissioner's Interpretative Decision 2003/1102 we conclude that the dressings and other products are products that consist mainly of hydro gel.

From the information supplied, the products are specifically designed to treat certain health conditions and we accept that they are not widely used by people without an illness or disability Therefore, they are coved by Item 3 in Schedule 3 to the GST Regulations and a supply of these products is GST-free.

Regarding various kits and the certain other products, these medical items are not specifically covered by Schedule 3 to the GST Act or Schedule 3 to the GST Regulations, nor are they goods of a kind, which the Health Minister has declared to be GST-free by any determination. The wound wash is in liquid form and we cannot conclude that a liquid is a gel. Therefore, a supply of these products is not GST-free.

However, the various kits may be viewed as a mixed supply of goods where some of the components may be GST-free supplies.

Mixed and composite supplies

Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), explains how you can identify whether a supply is a mixed or a composite supply.

In your case, the various kits are made up of a number of separately identifiable components/items which have an aim in themselves. Therefore, we need to consider the effect that GST has on each individual item. Where the kits contain a combination of taxable and GST-free items, the supply is a mixed supply. In this situation, you would need to apportion the consideration for the supply and work out the GST payable on the taxable part of the supply of the various kits.

Paragraph 59 of GSTR 2001/8 discusses what is considered to be integral, ancillary or incidental. This paragraph provides that part of the supply will be considered to be integral, ancillary or incidental if, amongst other things:

• it represents a marginal proportion of the total value of the package compared to the dominant part

• it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply, or

• it is insignificant in value or function, or merely contributes to or complements the use or enjoyment of the dominant part of the supply.

Paragraph 60 of GSTR 2001/8 discusses a valuation methodology that may assist you in determining whether a part of a supply is integral, ancillary or incidental:

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 various kits will now be considered separately. You will need to consider the treatment methodology discussed at a paragraph 60 of GSTR 2001/8 as applicable to the kits discussed below, as we do not provide nor make such valuations.

Kit 1 consists of a dressing, certain other products and a bandage. We consider this kit to be a GST-free composite supply of hydro gels in dressing form and gel form (the dominant parts). We consider the bandage to be an ancillary part of the composite supply as it is necessary to the dominant parts of the supply and/or contributes to the use of the dominant parts of the supply.

Therefore, Kit 1 is coved by Item 3 in Schedule 3 to the GST Regulations and a supply of this kit is GST-free.

Kits 2 and 3 consists of dressings, certain other products, bandages, gloves, scissors and a soft case. We consider this kit to be a mixed supply consisting of a GST-free composite supply of hydro gels in dressing form and gel form (the dominant parts) and a taxable supply of scissors. The bandages and gloves are considered to be ancillary to the dominant parts as they are necessary to the dominant parts of the supply and/or contribute to the use or application of the dominant parts. The soft case is considered to be an incidental part of the mixed supply as it is insignificant in function to the total supply. The scissors is a separately identifiable item which has an aim in itself.

Therefore, Kits 2 and 3 are a mixed supply of GST-free items coved by Item 3 in Schedule 3 to the GST Regulations and a taxable item. You will need to apportion the taxable value of the scissors when making supplies of Kits 2 and 3.

Kit 4 consists of dressings, dressings and a soft case. We consider this kit to be a GST-free composite supply of hydro gels. We consider the soft case to be an incidental part of the composite supply as it is insignificant in function to the dominant parts of the supply.

Therefore, Kit 4 is coved by Item 3 in Schedule 3 to the GST Regulations and a supply of this kit is GST-free.

Kits 5 and 6 consists of dressings, certain other products, bandages, gloves, scissors, surgical tape and a hard case. We consider this kit to be a mixed supply consisting of a GST-free composite supply of hydro gels (the dominant parts) and a taxable supply of scissors and hard case. The bandages, gloves and surgical tape are considered to be ancillary to the dominant parts as they are necessary to the dominant parts of the supply and/or contribute to the use or application of the dominant parts. The stainless steel scissors and hard case with wall bracket are separately identifiable items which have an aim in themselves.

Therefore, Kits 5 and 6 are both a mixed supply of GST-free items coved by Item 3 in Schedule 3 to the GST Regulations and taxable items. You will need to apportion the taxable value of the stainless steel scissors and hard case with wall bracket when making supplies of Kit 5.

Gloves, bandages, surgical tape

The gloves, bandages and surgical tape contained in the kits, would, if sold separately, be taxable supplies because these items are not specifically covered by Schedule 3 to the GST Act nor Schedule 3 to the GST Regulations, nor are they goods of a kind which the Health Minister has declared to be GST-free by any determination.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).