GST issues registers

Pharmaceutical health forum

Issue 3. Section 38-50 Drugs and medicinal preparations

The following questions explore what is within the concept of 'drugs and medicinal preparations' for the purposes of section 38-50. None of the questions and answers should be read in isolation but rather as part of the whole of the information contained in this document.

(a) added, (u) updated, (w) withdrawn

3.a. What analgesics with a single active ingredient has the Health Minister, by determination in writing, declared to be GST-free?

Non-interpretative - straight application of the law.

The Ministerial Determination GST-free Supply (Drugs and Medicinal Preparations) Determination 2015 provides that an analgesic with a single active ingredient is GST-free if it:

•

is required, under the Therapeutic Goods Act 1989, to be registered or listed, or is included in a class of goods required to be registered or listed, and

•

contains aspirin, paracetamol or ibuprofen, and

•

is intended to be taken by mouth.

3.b. Will the supply of 'over the counter' drugs and medicines by a pharmacist be subject to GST?

Non-interpretative - straight application of the law.

A supply of an 'over the counter' drug or medicinal preparation which does not fall within one of the GST-free drugs and medicines mentioned above will not be GST-free. A pharmacist who is registered or required to be registered for GST will charge GST on these supplies.

3.c. Will all drugs and medicines be GST-free if there is a prescription?

Non-interpretative - straight application of the law.

Not all scripted drugs and medicinal preparations will be GST-free. Only drugs and medicines which meet the requirements so that they are GST-free under section 38-50 (refer to the explanatory section at the commencement of issue 3) and sold on the required form of script (that is, a NHS or a private script) will be GST-free.

3.d. Where the GST Act requires that for a supply to be GST-free it must be made on prescription, does the Pharmacist need to actually dispense the drug or medicine or can they simply sight a prescription and supply the drug or medicine as an over the counter sale?

Non-interpretative - straight application of the law.

It is considered that for an item to be supplied on prescription, the Pharmacist must actually dispense the drug or medicine. Where the Pharmacist chooses not to dispense the drug or medicine and supply the item as an 'over the counter' sale, the patient is entitled to retain possession of their original prescription.

Accordingly, 'over the counter' sales of drugs and medicines covered by the Pharmaceutical Benefits Schedule will not be GST-free.

3.e. Are supplies of drugs by manufacturers and wholesalers GST-free?

Non-interpretative - straight application of the law.

One of the elements required by section 38-50 for a supply of a drug or medicinal preparation to be GST-free is that the supply must be to an individual for private or domestic use or consumption.

Therefore, under section 38-50 supplies from a manufacturer to a wholesaler will be subject to GST, as will a supply from a wholesaler to a pharmacist.

In accordance with section 11-25, where the retailer or the wholesaler is registered, they will be entitled to an input tax credit for any creditable acquisition that they make, to the extent the creditable acquisition is used for a business purpose.

Section 11-5 states that you make a creditable acquisition when:

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you acquire anything solely or partly for a creditable purpose, and

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the supply of the thing to you is a taxable supply, and

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you provide, or are liable to provide, consideration for the supply, and

•

you are registered, or required to be registered.

Accordingly, where the retailer or the wholesaler is registered for GST, they are entitled to claim as an input tax credit the GST paid on stocks of drugs and medicines they buy, to the extent those stocks of drugs and medicines are used for a business purpose.

In limited circumstances, a supply of a drug or medicinal preparation may be GST-free under sections 38-45 and/or 38-47, as well as section 38-50. Reference should be made to the answer at issue 4.b. for guidance where more than one GST-free provision of the GST Act is applicable.

3.f. What responsibility does a Pharmacist have in regard to subsection 38-50(7)?

3.g. Some state legislation provides for certain products to be Schedule 2 on the Standard for the Uniform Scheduling of Medicines and Poisons (SUSMP), and others not to be Scheduled at all. As a wholesaler we provide an indication of the tax treatment the pharmacist will apply to the product. Where the product is GST-free to consumers in five States but not in one, we could consider that product to be GST-free. What is the risk to us of doing that?

Non-interpretative - straight application of the law.

The main principal of the GST Act is that responsibility to remit GST is with the supplier. As the supplier is liable for GST, the supplier must determine what the GST status of a product is. Where certain products are GST-free in most but not all States, the wholesaler should take the location of sale into account if they take it upon themselves to advise the GST status of products.

3.h. If drugs and medicines sold by Chinese herbalists are added to Schedule 1 of the Standard for the Uniform Scheduling of Medicines and Poisons, will supplies of such products be GST-free?

Non-interpretative - straight application of the law.

Subsection 38-50(2) provides that supplies of drugs and medicines are GST-free if, under the State or Territory law applicable to where the supply is made, the supply of that drug or medicine to an individual for private or domestic use or consumption is restricted but may be made by a medical practitioner, dental practitioner, pharmacist or any other person permitted by or under that law to do so.

The primary mechanism for restricting access of drugs and medicinal preparations is through 'scheduling'. Scheduling is the grouping of products containing specified substances into schedules representing levels of restriction on distribution. Scheduling decisions are made by the Secretary to the Department of Health and Ageing in consultation with the Advisory Committee on Medicines Scheduling (ACMS) and the Advisory Committee on Chemicals Scheduling (ACCS) and published as the Standard for the Uniform Scheduling of Medicines and Poisons (SUSMP), which is generally adopted by the States and Territories.

Supplies of such products will be GST-free, provided the provisions of the SUSMP dealing with Schedule 1 substances are amended and adopted under the relevant State or Territory law where the supply is made, or, the State or Territory law applicable to where the supply is made has separate legislation restricting supplies of drugs or medicines of that kind.

3.i. Drugs and medicines which are not on the Australian Register of Therapeutic Goods cannot be supplied in or exported from Australia. However, individuals can legally import most therapeutic goods for personal use under the Personal Import Scheme. This scheme allows for treatments to be imported for personal use in quantities that are no greater than three month's supply. Are these taxable importations?

For source of ATO view, refer to GSTR 2003/15 - Goods and services: importation of goods into Australia

Section 13-10 provides that an importation is not a taxable importation if it would have been a GST-free supply, if it had been a supply.

A supply made for consideration, in the course or furtherance of an enterprise carried on by the supplier, connected with Australia, by a supplier that is registered for GST, will be GST-free where one of the GST-free provisions of the GST Act is satisfied.

Accordingly, where the supply of an imported drug or medicine by a registered entity for consideration in the course of or furtherance of an enterprise and connected with Australia would be GST-free, the importation of that drug or medicine by an individual will be a non-taxable importation.

Further, section 42-5 provides that an importation of goods is a non-taxable importation if the goods are covered by item 26 in Schedule 4 to the Customs Tariff Act 1995. Item 26 in Schedule 4 to the Customs Tariff Act 1995 covers imports of goods sent by the postal system, with a value not exceeding $1,000 and goods sent by air and sea cargo, with a value not exceeding $1000, respectively.

Accordingly, goods sent by the postal system, and goods sent by air and sea cargo, with a value not exceeding $1000, are non-taxable importations.

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