Edited version of your written advice

Authorisation Number: 1051176223423

Date of advice: 4 January 2017

Ruling

Subject: GST and Medical services

Question

Are the supplies of Medical services provided by you under the terms and conditions of the contract entered with the hospital, GST-free?

Answer

Yes. The supplies of Medical services provided by you under the terms and conditions of the contract entered with the hospital are GST-free. Please refer to the reasons for decision.

This ruling only addresses the supplies of Medical services provided by you and not any other services provided or arranged by you.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

● You entered into a contract with the hospital to provide Medical Services based on the terms and conditions of the contract.

● The contract between you and the hospital is a multi-party arrangement as patients are referred to you by the hospital and you arrange all the treatment necessary following the initial referral.

● The agreement between you and the hospital is not an agency relationship.

● You arrange the medical services to be performed by various medical providers including surgeons, audiologists, anaesthetists and day or hospital accommodation.

● You pay all the medical professionals for their services to patients of the hospital under the agreement.

● All the medical professionals contracted by you to perform the services under this agreement are registered medical service providers.

● The patients are all public patients of the hospital and no patient pays any fees to you or to the hospital. The hospital funds the surgeries and procedures from the funds they receive from Government.

● You invoice the hospital for services provided to the patients at the rates specified in the agreement. You do not issue any invoices to the patients.

● The rates specified in the agreement are not just charges to recover the cost but contain a margin over and above the expected costs in providing the services.

● Where a patient is being managed by an external supplier, you will be responsible for the initial capture and payment of costs for all related services to progress the patient's care.

● You will submit aggregated invoices to the hospital on a monthly basis for reimbursement for costs it has incurred in progressing patient treatments.

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 38-60

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

Hospital and Health Boards Act 2011- Subsection 7(1)

Hospital and Health Boards Act 2011- Subsection 18(2) and (3)

Reasons for decision

A supply is a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied.

You make a taxable supply if you make the supply for consideration; and the supply is made in the course or furtherance of an enterprise that you carry on; and the supply is connected with indirect tax zone; and you are registered or required to be registered.

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

Supply of Medical services is not input taxed under Division 40 of the GST Act. Therefore, we need to consider whether the supply of Medical services is GST-free under Division 38 of the GST Act.

Under section 38-7 of the GST Act, a supply of a medical service is GST-free. For the purposes of the GST Act, a medical service is defined in section 195-1 of the GST Act as:

● a service for which a Medicare benefit is payable, or

● 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.

Where the first requirement is not met, the requirements of the second limb of the definition of medical service must be met. That is, the supply is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

Appropriate treatment is established where a practitioner assesses the recipient's state of health and determines a process to pursue in an attempt to preserve, restore or improve the physical or psychological wellbeing of the recipient and includes subsequent supplies for the assessed process.

In this case, the Medical services provided by medical professionals arranged by you to the patients referred by the hospital are not covered by Medicare benefit. Therefore, the first limb of section 38-7 of the GST Act is not satisfied.

It is necessary to consider whether the supply of Medical services would satisfy the second limb of section 38-7 of the GST Act. The second limb of the definition of medical service contains a number of elements. All of these elements must be satisfied before a service will be a medical service under the second limb.

Service must be supplied by medical practitioner

The first element is that the service must be supplied by or on behalf of a medical practitioner or an approved pathology practitioner. Section 195-1 of the GST Act defines medical practitioner as a person who is a medical practitioner for the purposes of the Health Insurance Act 1973.

The Health Insurance Act 1973 defines medical practitioner as a person registered or licensed as a medical practitioner under a law of a State or Territory that provides for the registration or licensing of medical practitioners but does not include a person so registered or licensed:

(a) whose registration, or license to practice, as a medical practitioner in any State or Territory has been suspended, or cancelled, following an inquiry relating to his or her conduct; and

(b) who has not, after that suspension or cancellation, again been authorised to register or practice as a medical practitioner in that State or Territory.

In determining whether the Medical services are provided by you as a medical practitioner, it is relevant to consider whether you as an entity (company) can provide the medical services. The definition of medical service requires that the medical service should be supplied by a medical practitioner.

It is considered that in this context, it is taken to be a requirement that the person who actually performs services must herself or himself, be a medical practitioner in relation to supplying services of that kind. Due to the very nature, a company cannot itself perform the services it may supply through others such as medical practitioner. Therefore, the consideration should be on the professional status of the person performing the services and not the company itself.

All the medical professionals contracted by you to perform the services under the agreement with the hospital are registered medical service providers. Therefore, we consider that the first element of the definition where the services should be provided by the medical practitioner would be met in this circumstance.

Appropriate treatment

The second element is that the service supplied must be generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

'Appropriate treatment' will be established where the practitioner assessed the recipient's state of health and determines a process to pursue in an attempt to preserve, restore or improve the physical or psychological wellbeing of the recipient and will include subsequent supplies for the assessed process. Appropriate treatment includes the principles of preventative medicine.

In addition, the definition requires the treatment must be generally accepted in the medical profession as being necessary. The particular service being provided by the practitioner and the circumstances in which it is provided must be generally accepted by the medical profession. The words 'generally accepted in the medical profession' indicate that it will ultimately be the medical profession that determines what services will be generally accepted.

As explained above, the services are determined by the medical profession to the extent what services are generally accepted in the medical profession as appropriate treatment. Therefore, it is the responsibility of the medical professionals contracted by you to determine whether the Medical services and other related services such as hospital accommodation are 'Appropriate treatment' and generally accepted in the medical profession.

Based on the facts provided the medical professionals contracted by you will conduct the initial consultation and if clinically required they will carry on the procedures, determine the requirement of hospital accommodation and other related services. Currently, the supply of consultations services, Medical procedures, Medical surgeries and anaesthetic services are treated as GST-free by you.

It is our view based on the facts provided that the Medical services provided by the medical professionals contracted by you satisfy the second element of the definition of 'appropriate treatment'.

Recipient of supply

Section 195-1 of the GST Act defines recipient in relation to a supply to mean the entity to which the supply was made. In some circumstances, the recipient of the supply is not the patient of the practitioner but is a third party. Appropriate treatment will not include supplies undertaken for a third party that does not encompass the concept of treatment.

In some instances, medical services are made under multi-party arrangements where a medical practitioner supplies medical service to a person (patient) and the medical practitioner receives payment from a third party. The Commissioner generally treats these arrangements as involving a single supply with the payment from the third party being the consideration for the supply and the third party is the recipient of the supply. As the supply is not provided to the patient, the supply is not a GST-free supply.

In this case, you provide Medical services to the patients referred by the hospital and receive payments from the hospital for the services provided to their patients under the agreement. As explained above the medical services provided by you to the patients referred by the hospital under the agreement will be taxable supply to the hospital.

However, section 38-60 of the GST Act provides that the supply of a service to make a supply to an individual is GST-free under Subdivision 38-B of the GST Act to the extent that the underlying supply to the individual is also GST-free and the supply is to:

● an insurer in settling a claim under an insurance policy;

● an operator of a statutory compensation scheme;

● a compulsory Third party scheme (CTP) operator under a CTP scheme; or

● an Australian Government agency.

Under this section, there is no separate taxable supply made by the service provider to the insurer, the statutory compensation scheme, CTP operator or Australian Government agency where the service provider makes a supply to an individual.

If a supply by a medical service provider to an individual is either wholly or partly GST-free under Subdivision 38-B of the GST Act (the underlying supply), then the supply of service of making the underlying supply by the medical service provider to an Australian government agent is GST-free, to the same extent as the underlying supply.

Hospital as an Australian government agent

The fact sheet for 'Payments to government agencies under Division 81' (QC 24540) provides that each of the following is an Australian government agency:

● the Commonwealth, a State or territory

● a Commonwealth, State or territory government department

● a body (whether or not it is an entity) established by the Commonwealth, a state or a territory to carry on activities

● a body (whether or not it is an entity) established for a public purpose by an Australia law

● a local governing body established by a state or territory law (such as a local municipal council)

Hospital is established under the Hospital and Health Boards Act 2011 which provides that Hospital and Health Services (H&HS) are statutory bodies and are the principal providers of public services (Subsection 7(1)).

Furthermore, H&HS represents the State (Subsection 18(2)) and has all the privileges and immunities of the State (Subsection 18(3)).

The Commissioner considers that the Commonwealth, a State or a Territory includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1 of the GST Act.

The Australian Business Register (ABR) provides access to the publicly available information supplied by the business/government agencies when they register for an Australian Business Number (ABN). In the ABR, an entity's type includes the following:

● Commonwealth Government entity

● Commonwealth Government Statutory authority

● State Government entity

● State Government Statutory Authority

● Territory Government entity

● Territory Statutory Authority.

We note that the hospital has been registered in the ABR as 'State Government Statutory Authority'. Therefore, it is our view that the hospital is an Australian government agency.

Conclusion

The supply of Medical services provided by you to the patients referred by the hospital will satisfy the elements of second limb of section 38-7 of the GST Act except the element of 'recipient of the supply'. Under the agreement the recipient of the supply is the hospital. However, the supply of Medical services to an individual patient would be GST-free as the supply would satisfy the second limb of section 38-7 of the GST Act.

Therefore, the Medical services provided by you to the patients referred by the hospital will be GST-free under subsection 38-60(3) of the GST Act, as the underlying supply of Medical services to the patients will be GST-free. Furthermore, the hospital is an Australian government agency and the supply of Medical services made by you will be GST-free to the same extent as the underlying supply.

Please note that if any of the supplies made by you to the patients are partly GST-free, then the supplies made by you to the hospital under the agreement will be GST-free to the same extent as the underlying supply.

Additional information

Option to treat the supply as taxable

Some entities have a variety of arrangements with medical service providers when a range of supplies are made to individuals. Depending on the nature and terms of the particular arrangement, some supplies will be GST-free and some supplies will be taxable. Medical service provider and the recipient of the supply (insurer, the CTP scheme or statutory compensation scheme operator, or the Australian government agency) may agree to treat the supplies as taxable.

When a supply is treated as a taxable supply, a tax invoice is required to be issued. If a supplier has issued a tax invoice, the recipient is entitled to claim input tax credits for the GST paid on the acquisition to the extent that the acquisition is a creditable acquisition.

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