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Edited version of your written advice
Authorisation Number: 1013098383160
Date of advice: 10 November 2016
Ruling
Subject: Medical services
Question 1
Are the supplies of medical services made by Entity A GST-free supplies?
Answer
Yes.
Question 2
Is Entity A entitled to claim input tax credits for the acquisitions it makes from Entity B and other goods and services it acquires in connection with the supplies of medical services?
Answer
Yes.
Question 3
Can Entity A amend its activity statements for the tax periods where it has incorrectly remitted GST on GST-free supplies and where it has not claimed input tax credits for creditable acquisitions?
Answer
Yes, provided the amendments are made with the timeframes applicable to the relevant tax periods.
Relevant facts and circumstances
Entity A is an 'incorporated medical practitioner' providing medical services through its employee.
Entity A's employee is a registered medical practitioner.
Entity A is registered for the GST.
Entity A sold the goodwill of its medical practice to Entity B.
Entity B is registered for the GST.
Entity A provides medical services which are eligible for medicare benefits.
Entity B supplies Entity A with services relating to the premises and administration of the medical practice.
Entity B issues tax invoices to Entity A which include GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 11-5.
A New Tax System (Goods and Services Tax) Act 1999 section 38-7.
A New Tax System (Goods and Services Tax) Act 1999 section 93-5
A New Tax System (Goods and Services Tax) Act 1999 section 142-5
Taxation Administration Act 1953 section 105-65
Question 1
Are the supplies of medical services, made by Entity A, GST-free supplies?
Answer
Yes.
Reasons for decision
Pursuant to section 38-7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the supply of a medical service is GST-free. A medical service is defined in section 195-1 of the GST Act as follows:
A medical service means:
(c) a service for which medicare benefit is payable under Part II of the Health Insurance Act 1973; or
(d) 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.
(Terms marked with asterisks (*) are defined in section 195-1 of the GST Act)
Under section 38-7 of the GST Act, a medical service would only be GST-free where it is supplied to the patient.
Entity A provides medical services via their employee who is a registered medical practitioner, to patients.
The medical services provided by Entity A are services for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973.
Therefore the supplies of medical services made by Entity A are GST-free supplies.
Question 2
Is Entity A entitled to claim input tax credits for the acquisitions it makes from Entity B and other goods and services it acquires in connection with the supplies of medical services provided to patients?
Answer
Yes.
Reasons for decision
Division 11 of the GST Act provides that you are entitled to input tax credits for your creditable acquisitions.
Section 11-5 of the GST Act provides that you make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose; and
(b) the supply of the thing to you is a taxable supply; and
(c) you provide, or are liable to provide, consideration for the supply, and
(d) you are registered, or required to be registered.
Entity B is registered for the GST and issues a tax invoice to Entity A for the premises and administration services it provides to Entity A. The premises and services are related to the enterprise carried on by Entity A. The tax invoice states that the service fees include an amount of GST in the price.
As all of the conditions of section 11-5 of the GST Act are satisfied, the service fees Entity A acquires from Entity B are creditable acquisitions and Entity A is entitled to claim input tax credits for the GST incurred in making these acquisitions.
Where Entity A acquires other goods or services in connection with the medical services provided to patients, and the amount includes GST, Entity A will be entitled to claim an input tax credit to the extent of the GST included in the price.
Question 3
Can Entity A amend its activity statements for the tax periods where it has incorrectly remitted GST on GST-free supplies and has not claimed input tax credits for the GST incurred in its creditable acquisitions?
Answer
Yes, provided the amendments are made with the timeframes applicable to the relevant tax periods.
Summary
Generally, for tax periods starting on or after 1 July 2012, an activity statement can only be revised within 4 years after lodgement.
In relation to claiming input tax credits for tax periods starting on or after 1 July 2012, an entity has four years to claim from the end of the tax period to which the input tax credit would have been attributable.
Reasons for decision
Miscellaneous Tax Ruling MT 2010/1 - restrictions of GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (MT 2010/1) provides the Tax Office view in relation to when it is reasonable for the Commissioner to exercise his discretion to refund overpayments of an assessed net amount that arises as a result of an amount of GST payable being overpaid.
For section 105-65 to apply, there must firstly be an amount of GST taken into account in an entity's assessed net amount which is in excess of what was legally payable on the particular supply in the relevant tax period.
Section 105-65 is designed to prevent windfall gains to suppliers and to require a supplier to compensate the person who ultimately bore the cost of the GST burden. In appropriate circumstances, the Commissioner may exercise his discretion to refund an overpayment where it is fair and reasonable to do so.
Section 105-65 applies to tax periods starting before 31 May 2014. For tax periods starting on or after 31 May 2014, Division 142 of the GST Act applies.
Under Division 142 of the GST Act, if a supplier has passed on an amount of excess GST to its customers, it remains payable until the supplier reimburses the passed-on amount to its customers.
Tax periods before 31 May 2014
In this case, Entity A incorrectly classified its GST-free supplies as taxable and remitted GST on some or all of the GST-free supplies of medical services. Entity A did not charge GST on the medical services and therefore has not passed on GST to the end consumer. As such, Entity A is not required to reimburse the recipients of the supplies of medical services.
The Commissioner is satisfied that Entity A has not charged GST to its patients and considers it fair and reasonable to exercise his discretion and will refund the GST Entity A has overpaid provided the revisions are made within the timeframe applicable to each of the relevant tax periods.
Tax periods on or after 31 May 2014
Division 142 of the GST Act does not deem the excess GST as payable because Entity A has not passed-on the excess GST to its patients.
Therefore, provided the revisions are made within the timeframe applicable to each of the relevant tax periods, the Commissioner will refund the excess GST Entity A has paid.
Time limits on activity statement revisions
Under self-assessment, the Commissioner is taken to have made an assessment of an entity's net amount on the day an entity lodges an activity statement for a tax period that starts on or after 1 July 2012. The assessment can generally be amended only within a period of four years from the date of lodgement.
However, section 93-5 of the GST Act restricts the claiming of input tax credits to four years from the due date for lodgement of the activity statement for the original tax period to which the input credit would have been attributable.
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