Edited version of private ruling

Authorisation Number: 1011584338904

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Ruling

Subject: GST and supply of Medical Services

Question

When you remit a percentage of the payments collected for the medical services provided to the patients of the practitioner, is the remittance of the percentage to the practitioner consideration for a taxable supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

From the information received, the remittance of the percentage of the payments collected from the patients to the practitioner is part of the consideration which the practitioner received for the supply of medical services to the patients and therefore, is not consideration for the supplies you have made to the practitioner under the agreement.

The supply of the medical services by the practitioner is either GST-free supplies under section 38-7 of the GST Act or taxable supplies under section 9-5 of the GST Act. The 70 per cent of the payments collected is therefore consideration for either the GST-free supplies or taxable supplies made by the practitioner which, the practitioner will have to account to for GST purposes.

Relevant facts

You are located in Australia and are registered for the goods and services tax (GST).

You own and operate medical centres and are in the business of providing premises and a range of administrative services to medical practitioners to enable them to practice medicine out of your medical centres.

You have an agreement with a doctor who has agreed to practice medicine at one of your medical centres. The doctor is a registered medical practitioner (practitioner) with the relevant Australian Medical Board and holds an approved provider number with Medicare Australia that has access to Medicare benefits at the location agreed in the agreement.

The agreement provides the following:

· You shall act as the agent of the practitioner in rendering accounts to patients of the practitioner and in collecting all revenues for medical services performed by the practitioner at the medical centre and shall provide general administrative services to the practitioner to assist their practice of medicine. You will provide the patient rooms and agreed necessary equipment to enable the practitioner to carry on their practice of medicine. In return, the practitioner will pay a service fee to you for all of the entitlements they receive under the agreement.

· The practitioner appoints you to act as their agent to render accounts for medical services provided by the practitioner at your medical centre and to collect all revenues connected with their practice of medicine at your centre (also referred to as the consulting fee). The practitioner undertakes to pay you a fee for providing these services and for providing facilities and other general administrative services to the practitioner.

· The practitioner authorises you to withhold the agreed fee from the gross revenues you collect on behalf of the practitioner and you agree to remit the balance of revenues to the practitioner.

· The parties acknowledge that nothing in this agreement renders or deems a party to be a partner or joint venture of each other. The parties agree that the practitioner is an independent medical practitioner and is responsible for their own tax, superannuation, Work Cover, sickness and accident cover. The practitioner agrees and undertakes at no time to bind or attempt to bind you in any way whether by expression, implication or otherwise. The practitioner acknowledges that they are not providing services to you. The parties acknowledge that nothing in this agreement renders or deems the practitioner to be an employee of your company. The practitioner will maintain appropriate medical indemnity insurance and provide you with a copy of insurance cover as evidence of the currency of that insurance.

· The practitioner agrees to indemnify you against any claim, damage, loss, liability, cost, outgoing or payment which you may be liable for in respect of any professional negligence by them or any breach of their obligation under this Agreement. You agree to indemnify the practitioner against any claim, damage, loss, liability, cost, outgoing or payment which they may be liable for in respect of the negligence of your company or for any breach of your obligation under the agreement.

All patients are bulk billed at present. However, because the fee structure is at the discretion of the medical practitioners, this may change at some time in the future.

Usually the patients are not required to pay in cash their medical visits. The instances where patients would pay cash include:

· where they do not have a Medicare card (e.g. foreign visitors);

· pre employment medicals (which Medicare does not cover);

· if the doctor increases their fee structure at some time in the future there would be a cash co-payment.

The medical practitioner is registered for GST and you make the payment to their nominated entity (company).

Reasons for decision

From the information received, the practitioner provides medical services to the patient and you provide premises and administrative services to the practitioner. In this situation there are two supplies:

1. a supply of premises and administrative services from you to the practitioner. The consideration (payment) for this supply is a percentage of the billings for medical services performed by the practitioner to the patients; and

2. a supply of medical services from the practitioner to the patient. The consideration for this supply is the total payments received from the patients (fees paid to you from the payments collected and the remainder of the payments collected).

In this case, when you remit a percentage of the payments collected from the patients to the practitioner, this service is part of the administrative services you agreed to provide to the practitioner under the agreement and for which you receive payments (your fees). The remittance of the percentage of the payments you have collected from the patients to the practitioner is therefore not consideration for a supply you have made to the practitioner; it is part of the total consideration of the supply of medical services made by the practitioner to the patients. Accordingly, you will only account for GST on your taxable supply of premises and administrative services made to the practitioner.

As you are acting on behalf of the practitioner when you collect payments from the patients for the medical services they have received from the practitioner, it is your responsibility to determine the GST status of the supplies of these medical services at the time you collect the payments from the patients. It is also your responsibility to issue the tax invoices when required and notify the practitioner of the GST status of their supplies so that they know how to account for these supplies for GST purposes.

To assist you, we will provide you with some guidance on the GST status of the supply of medical services made by the practitioner to the patients based on the information received.

GST status of supply of medical services made by the practitioner

GST is payable on a taxable supply. Under section 9-5 of the GST Act you make a taxable supply if:

(a) you make the supply for consideration;

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

(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.

From the information received, the practitioner will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as they make the supply for consideration and in the course of an enterprise (business) that they carry on; Further the supply is connected with Australia (as the supply is done in Australia and through a business that the practitioner carries on in Australia) and the practitioner is registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision under the GST Act that will make the supply input taxed.

GST-free

Relevant to the supply of medical services is section 38-7 of the GST Act.

Under subsection 38-7(1) of the GST Act, a supply of a medical service is GST-free.

Under section 195-1 of the GST Act, a 'medical service' is defined to mean:

(a) a service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973; or

(b) 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.

The definition of a 'medical service' has two limbs. Any service that falls within either the first or second limb of the definition is GST-free under subsection 38-7(1) of the GST Act.

From the information received, the patients are currently bulk billed as they have a Medicare card. However, in some instance patients will pay cash either because they are foreigners and do not have a Medicare card or the consultation is for pre employment medicals and this consultation is not covered by Medicare. You also advised that in the future, the practitioner may increase their consultation fee and this consultation will be partly covered by Medicare and the patient will have to pay the rest of the consultation fee.

Medical services covered by Medicare

Where the medical services are covered by Medicare, the supply of these medical services will be GST-free under subsection 38-7(1) of the GST Act as the first limb of the definition of 'medical service' will be satisfied.

Medical services not covered by Medicare

Where a Medicare benefit is not payable, the second limb of the definition of 'medical service' needs to be considered.

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.

The first element is that the service must be supplied by or on behalf of a medical practitioner or an approved pathology practitioner.

A medical practitioner is defined in section 195-1 of the GST Act to mean a person who is a medical practitioner for the purposes of the Health Insurance Act 1973. From the information received, the practitioner satisfies this first element.

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' is established where the 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 well being of the recipient and will include subsequent supplies for the assessed process. 'Appropriate treatment' includes the principles of preventative medicine but does not include supplies undertaken for a third party that does not encompass the concept of treatment.

In addition, the definition requires the treatment must be generally accepted in the medical profession as being necessary. 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.

Section 195-1 of the GST Act defines 'recipient' in relation to a supply to mean the entity to which the supply was made.

Patient does not have Medicare card

In the case where:

· the patient does not have a Medicare card (for e.g. a foreigner), and

· the patient is the recipient of the medical service made by the practitioner and

· the treatment is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply;

then, the supply of the medical service by the practitioner will be GST-free under subsection 38-7(1) of the GST Act as all the elements in the second limb of the definition of 'medical service' will be satisfied.

Pre-employment medicals

Where the purpose of the patient's visit to the practitioner is for pre employment medicals, the supply of the medical service by the practitioner will not be GST-free under subsection 38-7(1) of the GST Act as both limbs in the definition of 'medical service' will not be satisfied since:

· the supply is not covered by Medicare; and

· the supply does not involve appropriate treatment of the patient as the report of the medical consultation is for a third party.

Payments from Medicare and patient

Where the fee of the medical services provided by the practitioner is covered by Medicare and the patient has to pay the remaining amount, the supply of medical services by the practitioner will be GST-free under subsection 38-7(1) of the GST Act as both limbs in the definition of 'medical service' will be satisfied since:

· part of fee of the supply is covered by Medicare; and

· the remaining fee is for the treatment of the patient which is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

Summary

The supply of the medical services by the practitioner is either GST-free supplies under section 38-7 of the GST Act or taxable supplies under section 9-5 of the GST Act.