Edited version of private advice

Authorisation Number: 1051792240355

Date of advice: 21 December 2020

Ruling

Subject: Medical aids and appliances

Question

Is the entity, a supplier of medical aids and appliances, making a GST-free supply under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a Product?

Answer

No, the supply of the Product is not GST-free under subsection 38-45(1) of the GST Act.

Relevant facts and circumstances

The entity is a supplier of medical aids and appliances. In this case the entity is supplying a Product.

The entity is registered for goods and services tax (GST)

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-45.

Reasons for decision

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

(a)  is covered by Schedule 3 to the GST Act, or in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations); and

(b)  is specifically designed for people with an illness or disability and is not widely used by people without an illness or disability.

Paragraph 38-45(1)(a) - covered by Schedule 3

Item 1 of Schedule 3 to the GST Act (Item 1) lists "heart monitors" and Item 2 of Schedule 3 to the GST Act (Item 2) lists "pacemakers". Additionally, Item 33 of Schedule 3 to the GST Act (Item 33) lists "medical alert" devices.

Heart monitor

The term "heart monitors" is not defined in the GST Act, and thus, will take on its ordinary meaning unless the term has a special or technical meaning. Where a term has a special meaning, it is necessary to determine its meaning by reference to the industry to which that term relates.

The Stedman's Medical Dictionary (2000) defines a cardiac (heart) monitor to mean: 'an electronic monitor which, when connected to the patient, signals each heartbeat with a flashing light, an electrocardiographic curve, an audible signal, or all three.' As such, it is considered that a device with the primary function of monitoring a patient's heartbeat is a "heart monitor"; and is covered by Item 1. As the Product does not directly monitor the patient's heartbeat, it does not fall under Item 1.

Pacemaker

Item 2 lists "pacemakers". It is considered that the term pacemaker comprises the entire pacing system whether implantable or temporary. As the Product is not considered to be a pacemaker itself, we do not consider the product falls under Item 2.

"Medical Alert" device

For the purposes of Item 33, a 'medical alert' device' is interpreted to mean a device which is designed for the purpose of alerting medical or caring personnel, or an ambulance service, that a person is in need of emergency medical assistance or that the person has a medical condition that may require specific treatment.

In a Sales Tax context, in determining how goods might be covered by one or other of the items in the various Schedules, the tribunals and courts have often looked to the 'essential character' or 'objective characterisation' of goods.

Essential character tests have been established by the Courts in cases such as Thomson Australia Holdings Pty Ltd v. Federal Commissioner of Taxation (1988) 20 FCR 85; 88 ATC 4916; (1988) 19 ATR 1896 and FC of T v. Rotary Offset Press Pty Ltd 71 ATC 4170; (1971) 2 ATR 411. Davies J. said in Thomson Australia Holdings:

the task of the court is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

Similarly, for GST, to determine whether a thing is covered by an item in Schedule 3 or the GST Regulations, it is considered necessary to have regard to the essential character of the thing. This means deciding what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods might be used for.

The primary purpose of a 'medical alert' device is to alert. The primary function of the Product is not to alert, this is a auxiliary function of the system the Product is part of. Therefore, the Product is not a 'medical alert' device and is not covered by Item 33.

As the Product is not covered by any items in Schedule 3 or the GST Regulations, it is not GST-free under subsection 38-45(1) of the GST Act.

The entity is registered for GST and the supply satisfies the positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under any other provision of Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies the Product.

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