Edited version of your written advice

Authorisation Number: 1013009506637

Date of advice: 9 May 2016

Ruling

Subject: GST and a supply of a product

Question

Is a supply of a product by an Australian entity (you) in Australia GST-free under subsection 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of the product is not a GST-free under subsection 38-45(1) of the GST Act. The supply is a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

• You are an Australian entity that is registered for GST.

• You are proposing to commence the sale of a product in Australia to distributors, patients and doctors.

• There is currently no agreement between you and any recipient that the supply will not be treated as a GST-free supply.

• The product is not a drug or medicinal preparation. The product does not need to be provided on prescription.

• The product is not available on the Pharmaceutical Benefits Scheme (PBS).

• The product is not subject to an approval under paragraph 19(1)(a) of the TGA nor is it supplied under an authority under subsection 19(5) of the TGA nor is it exempted from the operation of Part 3 of the TGA under regulation 12A of the Therapeutic Goods Regulations 1990.

• The product is intended only to be administered by an authorised health professional.

• The initial recipients of the product are healthcare professionals.

• The product can be ordered by consumers or health professionals for use by the consumer. However, it will be sent directly to the treating doctor nominated by the consumer. You will not deliver the product directly to the customers/ residential addresses.

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 Subsection 38-45(1)

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

A New Tax System (Goods and Services Tax) Act 1999 Schedule Sch3

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

Reasons for decision

Issue 1

GST is payable on a taxable supply. You make a taxable supply if all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied as follows:

(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 the indirect tax zone (Australia), and

(d) you are registered or required to be registered.

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

From the facts provided, you satisfy the requirements of a taxable supply under paragraphs 9-5(a) to 9-5(d) of the GST Act as follows:

(a) you supply the product in return for consideration by way of payments;

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

(c) the supply is connected with Australia as you are carrying on your enterprise in Australia; and

(d) you are registered for GST.

The supply of the product to customers in Australia is not input taxed under any provisions of the GST Act or any other legislation.

The next step is to determine whether the supply is GST-free.

GST-free

Under subsection 38-45(1) of the GST Act, a supply of a medical aid or appliance is GST-free if:

• it 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)

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

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

Item 12

Item 12 in the table in Schedule 3 to the GST Regulations (Item 12) lists 'infusion sets'. The phrase 'infusion sets' is not defined in the GST Act or GST Regulations.

Generally, where a phrase is not defined in the relevant Act or regulations, it is usually interpreted in accordance with its ordinary meaning, unless it has a special or technical meaning. Where a phrase has a special or technical meaning, it is necessary to determine its meaning by reference to the industry to which that phrase relates (Herbert Adams Ltd v. Federal Commissioner of Taxation (1932) 47 CLR 222; (1932) 2 ATD 31).

An 'infusion set' is a sterile device used for the introduction of fluid, including medication or nutrient but excluding blood and blood products, by means other than through the gastrointestinal tract. It normally consists of several parts that together form the infusion set. These parts consist of a sterile container with an attached drip chamber allowing fluid to flow one drop at a time, a long sterile tube with a clamp to regulate the flow, a connector to attach to the access device and possibly connectors to allow another infusion set to be connected into the same line. A set can be gravity fed or can be used in conjunction with an infusion pump.

Based on the information provided, we consider that it is more appropriate to consider the product under Item 37.

Item 37

Item 37 in the table in Schedule 3 (Item 37) lists 'needles and syringes'.

You stated that each the product cannot be purchased separately to the syringe.

In this case, we need to consider the character of the supply of the product as it may consist of one or more parts.

Characterisation of the supply

A supply may be characterised as consisting of one or more things or parts. That is, the supply may be regarded as commercially distinct in its own right or it may be regarded as having several identifiable parts.

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on composite and mixed supplies by describing the characteristics of supplies that contain taxable and non-taxable parts (mixed supplies) and the characteristics of supplies that appear to have more than one part but are essentially supplies of one thing (composite supplies).

Paragraphs 16 and 17 of GSTR 2001/8 state:

16. 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.

17. If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then the supply is composite. You treat a composite supply as a supply of a single thing.

Whether a particular part of a supply is integral, ancillary or incidental in relation to the whole supply is a question of fact and degree. It is considered that a part of a supply will be integral, ancillary or incidental where it is insignificant in value or function, or merely contributes to or complements the use or enjoyment of the dominant part of the supply.

We need to consider all of the circumstance of a supply to determine whether the supply is mixed or composite. If a composite supply is taxable, then GST is payable on the whole supply. If a composite supply is non-taxable, then no GST is payable on the supply as a whole.

Paragraph 59 of GSTR 2001/8 explains that 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.

All facts must be considered in determining whether a supply has any parts that are integral, ancillary or incidental. No single factor will by itself provide the sole test of whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply.

Based on the facts provided, the supply of the product is not a mixed supply as the syringe is ancillary/incidental to the supply of the product itself and is not a dominant part of the supply. As the syringe is incidental to the substance part which is taxable the supply is a composite supply which is taxable and GST is payable on the whole supply.

Section 38-50 of the GST Act

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

• the drug or medicinal preparation is for human use or consumption, and

• the supply is to an individual for private or domestic consumption.

Additionally, to be GST-free under section 38-50 of the GST Act, the supply also must be covered by one of the subsections from 38-50(1) to 38-50(6) of the GST Act

Subsection 38-50(1) of the GST Act states:

(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).

Paragraph (a) above covers drugs or medicines specified in Schedules 4 or 8 of the SUSMP that are only available on prescription. Many of these products were formerly labelled 'S4' and 'S8' medications. From the 1 July 2000 it is compulsory to label these products as 'Prescription Medicine' and 'Controlled Drugs', respectively. These include such things as medications for arthritis or for the treatment of depression.

Paragraph (b) above covers Pharmaceutical Benefits Scheme (PBS) drugs and medicines supplied on prescription as a pharmaceutical benefit within the meaning of Part VII of the National Health Act.

The product is not restricted under a State or Territory law, it is not a PBS drug or medicine and it is not supplied on prescription. As such, subsection 38-50(1) of the GST Act is not satisfied.

Subsection 38-50(2) of the GST Act states:

(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.

This covers drugs and medicines that can only be supplied by a medical practitioner, dental practitioner or pharmacist. Many of these products were formally labelled 'S2' and 'S3' medications. As at 1 July 2000 it is compulsory to label these products as 'Pharmacy Medicine' and 'Pharmacy Only Medicine', respectively.

The product is not restricted under a State or Territory law and as such, subsection

38-50(2) of the GST Act is also not satisfied. There are no other subsections in section 38-50 of the GST Act that are relevant. Therefore, the supply of the product is not GST-free under section 38-50 of the GST Act.

There are no other provisions in Division 38 of the GST Act that make the supply of the product GST-free. You supply the product for consideration in the course or furtherance of an enterprise that you carry on in Australia and as such, all the requirements for a taxable supply in section 9-5 of the GST Act are satisfied. Therefore, your supply of the product is a taxable supply under section 9-5 of the GST Act.

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).