Edited version of private advice

Authorisation Number: 1052354558851

Date of advice: 29 January 2025

Ruling

Subject: GST - taxable supply

Question 1

Is your supply of a medicinal product to a distributor a GST-free supply pursuant to section 38-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No, your supply is not GST-free under section 38-50 of the GST Act because you do not make your supply to an individual for private or domestic use or consumption. Your supply is a taxable supply under section 9-5 of the GST Act.

This ruling applies for the following period:

XX January 20XX - XX January 20XX

The scheme commenced on:

XX January 20XX

Relevant facts and circumstances

You are an Australian entity and registered for GST.

You provide a medicinal product as a method of treatment.

A prescription for the medicinal product is provided to eligible patients. Patients can fill the script at a pharmacy that stocks the medicinal product.

You purchase the medicinal product from a manufacturer.

You have an agreement with a distributor who on-sells your products to pharmacies for on-supply to eligible patients. You do not sell your product to patients or individuals for their own use or consumption.

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 38-50

Reasons for decision

Section 38-50 of the GST Act outlines the circumstances in which the supply of a medicinal product or medicinal preparation is GST-free. For a supply of a medicinal product or medicinal preparation to be GST-free under section 38-50 of the GST Act, the supply must first satisfy the requirements in subsection 38-50(7) of the GST Act. Where this condition is satisfied, the supply must also satisfy the requirements contained in either subsections 38-50(1), 38-50(2), 38-50(4), 38-50(4A), 38-50(5) or 38-50(6) of the GST Act.

Subsection 38-50(7) of the GST Act provides that the supply of a medicinal product or medicinal preparation covered by section 38-50 of the GST Act is GST-free if, and only if:

(a)           the drug or medicinal preparation is for human use or consumption; and

(b)           the supply is to an individual for private or domestic use or consumption.

You are supplying a medicinal product that is for human use or consumption, satisfying paragraph 38-50(7)(a) of the GST Act.

You do not sell the medicinal product directly to patients or individuals, rather you only sell to a wholesaler or pharmacies who on-sell the medicinal product to patients.

The agreement with the distributor indicates that you are making supplies of the medicinal product to the distributor, for which you issue an invoice and the distributor provides payment. Further supplies are made by the distributor to pharmacies and then from the pharmacies to patients. You are not making a supply of the medicinal product to an eligible patient. Therefore, your supply is not made to an individual for private or domestic use or consumption.

As paragraph 38-50(7)(b) of the GST Act is not satisfied, your supply of the medicinal product is not GST-free under section 38-50 of the GST Act. As such, it is not necessary to consider whether subsections 38-50(1), 38-50(2), 38-50(4), 38-50(4A), 38-50(5) and 38-50(6) of the GST Act are satisfied.

Your supply of the medicinal product to the distributor will be a taxable supply if the requirements of section 9-5 of the GST Act are met.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a)           you make the supply for consideration; and

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

(c)           the supply is connected with Australia; and

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

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

You receive a monetary payment for your supply of the medicinal product to the distributor. Paragraph 9-5(a) of the GST Act is satisfied.

You make the supply in the normal operation of your business, satisfying paragraph 9-5(b) of the GST Act. You operate your business in Australia, satisfying paragraph 9-5(c) of the GST Act. You are registered for GST, satisfying paragraph 9-5(d) of the GST Act.

There are no provisions in the GST Act under which the supply would be input taxed. The supply is not GST-free under section 38-50 of the GST Act. There are no other provisions in the GST Act under which the supply would be GST-free.

Your supply of the medicinal product is therefore a taxable supply under section 9-5 of the GST Act. You are liable to pay GST on the supply.

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