Edited version of your written advice

Authorisation Number: 1012848672964

Ruling

Subject: GST and supply of cosmetic treatment

Question 1

What is the GST status of the supply of a cosmetic treatment to a private individual?

Answer

The supply of the cosmetic treatment is a mixed supply that has two separately identifiable parts. The supply of the medical service is a taxable supply and the supply of the drug or medicinal preparation (drug) is GST-free.

Question 2

If the administration of the drug is not billed separately how should it be accounted for?

Answer

You will have to apportion the fee received for the cosmetic treatment between the taxable and non-taxable components of the supply on a reasonable basis.

Relevant facts and circumstances

You supply cosmetic treatment to private individuals that involve the supply and administration of a specified drug at the same time. The drug is administered for purely cosmetic reasons.

You operate under an arrangement where a medical practitioner provides the consultation and a registered nurse administers the drug.

The drug supplied during the treatment is a prescription drug. The drug is a 'S4' medication that is, a drug specified in Schedule 4 of the 'Standard for the uniform Scheduling of Drugs and Poisons' (SUSDP).

The private individuals select the treatment they would like to have and are charged a specific single fee for the selected treatment. The fee for the cosmetic treatment is calculated on the amount of drug that is administered. A Medicare benefit is not payable for this cosmetic treatment.

The individuals cannot purchase the drug only. The drug can only be supplied to medical practitioners. The medical practitioner is the one who orders the drug. When you purchase the drug you are charged GST and you claim back the GST included in the price.

You are registered for GST.

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 38-7.

A New Tax System (Goods and Services Tax) Act 1999 Section 38-50.

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question 1

You are liable for GST on any taxable supply that you make.

A supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:

(a) you make the supply for consideration

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

(a) the supply is connected with Australia, and

(b) 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.

Your supply of the cosmetic treatment meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because the cosmetic treatment is supplied for consideration, in the course of carrying on your enterprise, the supply is connected with Australia and you are registered for GST.

The supply of the cosmetic treatment is not an input tax supply. Accordingly, what is left to consider is whether the supply, or any part of the supply, is GST-free.

You administer the drug to individuals which is carried out by a registered nurse. Therefore, section 38-7 of the GST Act (supply of medical services) and section 38-50 of the GST Act (supply of drugs and medicinal preparations) are relevant for consideration.

Supply of medical services - administration of the drug

Section 38-7 of the GST Act state:

(1) A supply of a *medical service is GST-free.

(2) However, a supply of a *medical service is not GST-free under subsection (1) if:

(a) it is a supply of a *professional service rendered in prescribed circumstances within the meaning of regulation 14 of the Health Insurance Regulations made under the Health Insurance Act 1973 (other than the prescribed circumstances set out in regulations 14(2)(ea), (f) and (g)); or

(b) it is rendered for cosmetic reasons and is not a *professional service for which medicare benefit is payable under Part II of the Health Insurance Act 1973.

(* denotes a defined term in section 195-1 of the GST Act)

'Medical service' is defined in section 195-1 of the GST Act as being:

(a) a service for which medicare benefit is payable under Part II of the Health Insurance Act 1973; or

(b) any other service supplied by or on behalf of a *medical practitioner or *approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the *recipient of the supply.

In this case, the consultation is performed by a medical practitioner and the administration of the drug is done by the registered nurse. It is understood that in the relevant State/Territory, by law a registered nurse is only permitted to administer a prescription medicine such as this drug under the direction of an 'authorised prescriber' such as a medical practitioner. As registered nurses have no authority to independently purchase, obtain, administer or supply prescription medicines, we consider that the registered nurse is performing the service of administering the drug on behalf of the medical practitioner. That is, it is a component of the medical service being provided by the medical practitioner.

Under paragraph 38-7(2)(b) of the GST Act, a supply of a medical service will not be GST-free if the following two elements are satisfied:

a. the medical service is rendered for cosmetic reasons, and

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

If a Medicare benefit is payable in relation to a medical service it is not necessary to enquire whether the service was rendered for cosmetic reasons as in that case the supply would be GST-free. However, if a Medicare benefit is NOT payable it is then necessary to consider if the service is rendered for cosmetic reasons.

The term 'cosmetic reasons' is not defined in the GST Act. It is considered that the term will take on its ordinary meaning. The Macquarie Concise Dictionary defines 'cosmetic' as:

serving to beautify: imparting or improving beauty, especially of the complexion: designed to effect a superficial alteration while keeping the basis unchanged.

A medical service will be rendered for cosmetic reasons if it is predominantly performed for, or is rendered for the purpose of permitting, the improvement of the personal appearance of a patient, such as a face-lift. Whether a service is for cosmetic reasons must be evaluated on a case by case basis. Procedures that alter or enhance a patient's appearance but have no medical or reconstructive purpose are considered to be cosmetic and are taxable.

However, a procedure that is performed for medical or reconstructive reasons is not cosmetic and is GST-free. An example of this is skin grafting performed on a burn victim. A procedure will be for medical reasons if it is predominantly performed for, or is rendered for the purpose of permitting, the alteration of a significant defect in appearance caused by disease, trauma or congenital deformity and:

a. it is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of a psychiatric condition, of that patient; or

b. the patient is less than 18 years of age and a defect is in an area of the body, which normally and usually would not be clothed.

Paragraph 38-7(2)(b) of the GST Act also refers to the Medicare benefit as being payable. It is considered that the term payable as it appears in the section is satisfied if the service is one that could be submitted to Medicare as payable.

You advised that the services that you provide in administering the drug are on a purely cosmetic basis and a Medicare benefit is not payable for the cosmetic treatment. In this instance, the medical service that you provide in administering the drug is not GST-free under section 38-7 of the GST Act.

Supply of drugs and medicinal preparations

Section 38-50 of the GST Act outlines the circumstances in which the supply of a drug or medicinal preparation will be GST-free.

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 product 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 the drug is listed in Schedule 4 of the SUSDP and supplied by a medical practitioner, your supply of the drug to an individual in the course of a cosmetic treatment therefore satisfies paragraph 38-50(2)(a) of the GST Act.

For the supply of the drug to be GST-free, subsection 38-50(7) of the GST Act must also be satisfied. Subsection 38-50(7) of the GST Act provides that a supply of a drug or medicinal preparation covered by section 38-50 of the GST Act 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.

From the information received, the supply of the drug meets the above requirements. Accordingly, your supply of the drug to individuals is a GST-free supply.

Mixed supply

Goods and Services Tax Ruling GSTR 2001/8 explains how you can identify whether a supply includes taxable and non-taxable parts under the GST Act.

As stated in paragraph 13 of GSTR 2001/8, a supply that may at first appear to be one thing may contain taxable and non-taxable parts on closer analysis. GSTR 2001/8 refers to such a supply as a 'mixed supply'. 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.

At paragraph 45, GSTR 2001/8 states that in many circumstances, it will be a matter of fact and degree whether the parts of a supply are separately identifiable, and retain their own identity.

Example 13B in Goods and Services Tax Ruling GSTR 2001/8 states:

Example 13B - unreasonable apportionment

81ZI. Felicity is a registered medical practitioner who provides cosmetic medical procedures using certain drugs. She provides a cosmetic procedure using a drug that is GST-free but the supply of the medical service is taxable. The procedure usually takes between 15 and 30 minutes to carry out. Felicity invoices the patient but only applies consideration to the GST-free supply of the drug. The medical service is not considered to be incidental to the supply of the drug because it is an important part of the cosmetic procedure and it has considerable value because of the level of professional skill and time involved. The supply by Felicity is a mixed supply and the consideration is in respect of both parts. It is unreasonable in these circumstances that no consideration relates to the medical service. There is no commercial reason for Felicity to not apply any of the consideration to the taxable medical supply.

Similarly in your case, the service of the administering the drug is an important part of the overall cosmetic treatment and it has considerable value because of the level of professional skill and time involved. In this instance, it is unreasonable to state that no consideration relates to the supply of the medical service when the cosmetic treatment is carried out. Accordingly, the total consideration received for the cosmetic treatment is in respect of both the supply of the medical service and the supply of the drug.

Conclusion

When you supply cosmetic treatments to private individuals you are making a mixed supply of a medical service and the drug to the individuals. The supply of the drug is GST-free under section 38-50 of the GST Act. The supply of the medical service is a taxable supply as it meets all the requirements of section 9-5 of the GST Act.

Question 2

You advised that you receive a single payment for the cosmetic treatment.

As stated earlier, you are making a supply that is partly taxable and partly GST-free. Therefore, you need to apportion the payment received for the cosmetic treatment between the taxable and non-taxable parts of the supply on a reasonable basis and work out the GST payable on the taxable part of the supply.

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on how to apportion the consideration for a supply that includes taxable and non-taxable parts.

Paragraphs 92 to 96 of GSTR 2001/8 state:

92. Where, as in the case of supplies covered by section 9-75, there is no legislative provision specifying a basis for apportionment, you may use any reasonable method to apportion consideration to the separately identifiable taxable part of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances and be undertaken as a matter of practical commonsense.

93. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case. In some cases, there will be only one reasonable method you may use.

94. Depending on your circumstances, you may use a direct or indirect method when apportioning the consideration for a mixed supply.

95. The method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. You may need to use different methods, or a combination of methods, for different supplies to ensure the appropriate amount of GST is payable. You need to keep records that explain all transactions and other acts you engage in that are relevant to supplies you make, including supplies that are GST-free and input taxed.

96. Where consideration is apportioned in a manner that cannot be justified in terms of reasonableness, the general anti-avoidance provisions of the GST Act may have application.

Tax invoice for a mixed supply

GSTR 2001/8 provides the following information in relation to tax invoices for mixed supplies:

Preparing a tax invoice that includes a mixed supply

120. Subsection 29-70(1) specifies the information to be contained in a tax invoice.

121. The GST payable on a mixed supply you make will be less than 1/11 of the price of the supply. To show the correct amount of GST, the tax invoice for a mixed supply must contain enough information to clearly ascertain:

• what is supplied including the quantity and price;

• the extent to which supplies are taxable; and

• the amount of GST payable.

For further information on apportioning the consideration for a mixed supply refer to GSTR 2001/8 which is available on our website at ato.gov.au

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