Edited version of your written advice

Authorisation Number: 1013057823849

Date of advice: 29 July 2016

Ruling

Subject: GST and supply of Audiometry services

What is the GST status of the following supplies of hearing services, when you provide them to an injured worker and invoice the cost of the services to the employer's insurer?

Questions

• Hearing needs assessment (Audiometry)

• Hearing aids fitting

• 12-month review of hearing aids

Answers

• Hearing needs assessment (Audiometry) - GST-free

• Hearing aids fitting - GST-free

• 12-month review of hearing aids - GST-free

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Trustee (you) is registered for goods and services tax (GST).

You are an approved hearing service provider. Injured workers are frequently referred to you by an Insurer to determine whether they require hearing devices. You are approved by the relevant State to provide these services to injured workers. The procedure is very similar in every state that you operate, and basically works as follows:

• A worker who has sustained damage to their hearing is either referred to you by the employer's insurer ("the insurer") or the worker comes to you directly and you engage the relevant insurers and/or solicitors.

• You have entered into a contract with the insurer to provide hearing devices and hearing services to the injured workers.

• You assess the extent of the injury. If warranted, you will recommend that the injured worker be fitted with a hearing device. The assessment service you provide is Audiometry services.

• Before fitting the hearing aid to the injured worker, you must provide an audiogram and a quote to the insurer.

• The insurer then authorises you to fit the hearing device to the injured worker for a trial period.

• If the trial is successful, you will invoice the insurer for the services and the hearing aids supplied to the worker.

Invoicing

The invoice that you issue will generally comprise of the following items:

• The wholesale price of the hearing aids as included in the state authority's approved hearing aid price

• 12 months battery supply

• A handling fee to compensate you for buying, handling and providing the hearing aids and selling them to the insurer at the scheduled wholesale price

• Hearing needs assessment fee

• Hearing aids fitting fee

• A fee to review hearing 12 months after supply of hearing aids

The hearing aids that you supply are specifically designed for people with hearing disabilities and are not widely used by people without hearing disabilities.

There are no agreements between you and the insurance companies or the state authority that the supply of the hearing aids will not be treated as GST-free.

The invoiced items were for:

• hearing needs assessment fee (Audiometry), Audiometry is the science of measuring hearing acuity

• two hearing aids at an approved wholesale price

• hearing aids fitting service fee (binaural)

• hearing aids handling fee for buying, handling and providing the hearing aids and selling them to the insurer

• 12 months hearing aids batteries supply - batteries specifically designed for the hearing aids.

You have described the hearing aids fitting service and the 12-month review service as follows:

• The fitting involves the application of a suitable remedial hearing device(s) (hearing aid(s)) according to the degree of lost hearing acuity. The hearing aids provided to injured workers are digital. The electronics are set according to the worker's level of hearing loss, the environmental conditions in which the worker lives and works, and the specific hearing problems that the worker needs to overcome (e.g. to enable the worker to hear in a noisy environment and to separate speech from noise). "Fitting services" involve prescribing the model and type of hearing aid(s) the worker needs, setting the hearing aid electronics to remediate as far as possible the worker's specific hearing loss, and, if necessary, adjusting the hearing aid(s) after an initial trial period. On some occasions, adjusting the hearing aid(s) after the trial might extend to replacing the hearing aid with a more suitable model. This would require further consultation with the insurer.

• The 12-month review involves re-measuring the worker's hearing acuity. A worker's level of hearing acuity and the loss already detected during the initial hearing assessment can deteriorate over time with further exposure to noise and with ageing. Reviewing the hearing aids 12 months after initial supply involves re-assessing the worker's hearing acuity, and if appropriate adjusting the settings and components on the hearing aid(s) to suit the current extent of hearing loss.

There are no agreements between you and the insurance companies or the State Authority that the supply of the hearing aids will not be treated as GST-free.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 9-5, 38-10, 38-60.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

The GST status of hearing services, when you provide them to an injured worker and invoice the cost for the services to the employer's insurer, is as follows:

• Hearing needs assessment fee (Audiometry) - GST-free

• Hearing aids fitting service - GST-free

• 12-month review of hearing aids - GST-free

Hearing needs assessment service (Audiometry) and the 12-month review of hearing aids

In this case, under the state authority guidelines, you are a hearing service provider contracted to provide hearing services and hearing devices. We now analyse to determine whether the hearing services are taxable supplies. The relevant GST-free provisions are contained in subdivision 38-B, sections 38-10 and 38-60 of the GST Act.

Subdivision 38-B - Health

Subsection 38-10(1) of the GST Act states:

(1) A supply is GST-free if:

(a) it is a service of a kind specified in the table in this subsection, or of a kind specified in the regulations; and

(b) the supplier is a *recognised professional in relation to the supply of services of that kind; and

(c) the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the *recipient of the supply.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

The hearing needs assessment service that you provide is an Audiometry service. Item 3 of the table in subsection 38-10(1) of the GST Act lists 'Audiometry' and thus satisfies paragraph 38-10(1)(a) of the GST Act. We are of the view that any other service that you provide under hearing services that is an essential part of providing the audiometry service will also satisfy paragraph 38-10(1)(a) of the GST Act.

You are a recognised professional in relation to the supply of the audiometry services and thus the supply of the hearing needs assessment service satisfies paragraph 38-10(1)(b) of the GST Act.

It remains to be decided whether the requirement under paragraph 38-10(1)(c) of the GST Act is satisfied. The recipient is the entity to whom the legal flow of supply is made (the entity invoiced). In that light, since the recipient of the supply in your case is the insurer, the requirement in paragraph 38-10(1)(c) is not satisfied.

However, section 38-60 of the GST Act took effect from 1 July 2012. Where a supply of a health service provided to an individual is a GST-free supply of health services, that supply will also be GST-free where the recipient of the supply is, among other, an insurer settling a claim under an insurance policy. Relevantly, subsection 38-60(1) states:

(1) If:

(a) a supply is a supply of a service to an insurer; and

(b) the service is the supplier making one or more other supplies of goods or services to an individual; and

(c) at least one of the other supplies is:

(i) wholly or partly *GST-free under this Subdivision; and

(ii) for settling one or more claims under an *insurance policy of which the insurer is an insurer;

the first-mentioned supply is GST-free to the extent that the other supplies mentioned in paragraph (b) are GST-free under this Subdivision.

You have been contracted by the insurer to supply the service to the insurer and thus paragraph 38-60(1)(a) of the GST Act is satisfied. That service involves providing one or more Audiometry services to an individual, the injured worker, and thus paragraph (b) is satisfied. Accordingly for the purposes of paragraph 38-60(1)(b), the 'other supply' made to the individual is the supply of your Audiometry service

Relevantly paragraph 38-60(1)(c)(ii) of the GST Act will be satisfied if the service is provided for settling claims under an insurance policy of which the insurer is an insurer. The fact that you provide a quote, and later an invoice, to the insurer for the cost of services you provide to an individual injured worker suggests that the insurer has liability to settle the claim with the injured worker. Accordingly, paragraph 38-60(1)(c)(ii) is satisfied.

Therefore, having satisfied paragraphs (a) - (c) in subsection 38-60(1), the supply you make to the insurer is GST-free to the same extent as the supply provided to the injured worker.

Hearing aids fitting service

These services are not GST-free in their own right. However, when supplied as part of another GST-free supply, these services may also be GST-free. The Commissioner has expressed his views about supplies that are ancillary or integral to another supply in a GST Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) as follows:

15. You need to consider all of the circumstances of a supply to work out whether the supply is mixed or composite. GST is only payable on the taxable part of a mixed supply. 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.

Mixed supply

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…

Composite supply

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…

18. A composite supply is either taxable or non-taxable. It may also be a part of a larger mixed supply.

Integral, ancillary or incidental parts

55. 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 common-sense way, it can be seen that the supply is essentially the provision of one thing. It need not be broken down, unbundled or dissected any further. For this reason, a composite supply may appear, at first, to have more than one part, but is treated as if it is the supply of one thing.

Based on your description of the hearing aids fitting service, we are of the view this service is an integral part of the supply of Audiometry. Accordingly, consistent with the view expressed in paragraph 55 of the GSTR 2001/8, the supplies of fitting and review services are GST-free supplies.

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