Edited version of private ruling

Authorisation Number: 1011618191539

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Ruling

Subject: GST and Medical aids and appliances

Questions

Is the supply of the mattress and its control unit GST-free?

Is the supply of the spare parts for the mattress GST-free?

Is the supply of the bags to carry the mattress and all its components for GST-free?

Answers

Yes. The supply of the mattress and its control unit is GST-free.

Yes. The supply of the spare parts for the mattress is GST-free.

Yes. The supply of the bags to carry the mattress and all its components for transport is

GST-free

Relevant facts

You are registered for goods and services tax (GST).

You intend to import a system which comprises of a pneumatically inflated mattress that is controlled by a combination of air pump and electronically operated control unit. A bag is supplied with the system for transport purposes.

The cost for the bag is around 2% of the total consideration of the supply of the system.

The mattress and the control unit are supplied with the spare parts:

All spare parts are specifically designed for the system and are not compatible to use with other products.

The system is to assist the prevention of bedsores for bed-ridden patients.

The system is designed for the following environments:

Hospitals - for patients with conditions of restricted movement or just out of a surgery.

Aged care sector - for the old or infirm at high risk or suffering from pressure ulcers.

Home care - members of the general public being cared for at home suffering from medical conditions which restrict their movement.

You do not have any agreement with your customers or the suppliers that the supply of the system will not be treated as a GST-free supply.

Reasons for decisions

Section 38-45 of the GST Act outlines the circumstances in which the supply of certain medical aids and appliances will be GST-free. It states:

A supply is GST-free if:

· it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and

· the thing supplied is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability.

A supply is GST-free if the thing supplied is supplied as a spare part for, and is specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection (1).

However, a supply is not GST-free under subsection (1) or (2) if the supplier and the *recipient have agreed that the supply, or supplies of a kind that include that supply, not be treated as GST-free supplies.

(* denotes a term defined in section 195-1 of the GST Act)

In your case, you have met the requirement in subsection 38-45(3) of the GST Act as you do not have any agreement with your customers or the suppliers that the supply of the system will not be treated as a GST-free supply. Therefore, it is necessary to consider whether the supply of the system and its spare parts satisfies the other requirements in section 38-45 of the GST Act.

Mattress and the control unit

Covered by an item in Schedule 3 (paragraph 38-45(1)(a) of the GST Act)

Item 66 in the table in Schedule 3 (Item 66) lists 'pressure management mattress and overlays'. A mattress will be a 'pressure management mattress' where it is designed to provide comfort and prevent bed sores by evenly distributing the pressure exerted by the mattress on the patient's body. The brochure for this system describes that the mattress prevents bedsores. As such, the mattress is a pressure management mattress covered by item 66.

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)(b) of the GST Act)

In determining whether a medical aid or appliance is specifically designed for people with an illness or disability, reference should be made to the designer's/manufacturer's intention of how the product is to be used and its features. Indicators of the designer's/manufacturer's intention of how a product to be used includes the products are marketed and the type of retail outlets at which the products can be purchased.

The system is predominately used in hospitals, aged care, nursing homes and home care where patients are either bed-ridden or with medical conditions which restricted movement. Therefore, the mattress is specifically designed for people with an illness or disability and not widely used by people without an illness or disability.

The control unit is an integral part of the system that controls the air pump and maintains the desire setting of the mattress. They are sold together as one unit and will not be supplied separately. As such, the supply of the mattress and the control unit is GST-free under subsection 38-45(1) of the GST Act.

The spare parts

Subsection 38-45(2) of the GST Act provides that the supply of a spare part is GST-free if the spare part is:

· supplied as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act, and

· specifically designed as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act.

A spare part is a part which has been specifically designed to replace a faulty, worn, or broken part of a medical aid or appliance.

Based on the information provided, the spare parts meet the requirements in subsection 38-45(2) of the GST Act and are GST-free.

Bags to pack the systems for transport

The bag that is for the purpose to carry the system for transport is not an item listed in Schedule 3 of the GST Act or in the GST Regulations, nor is there a general class of goods listed which covers it. It is not a spare part of the system as it is a generic product and is not specifically designed for use as a spare part for the system. Therefore, it is not GST-free under subsection 38- 45(2) of the GST Act.

Goods and Services Tax Ruling 2001/8 provides guidance in respect of apportioning the consideration for a supply that includes taxable and non-taxable parts. The ruling describes the characteristics of a mixed supply and a composite supply.

Paragraphs 16 and 17 of GSTR 2001/8 state:

Mixed supply

16. A mixed supply is a supply that has to be separated or unbundled as it contains identifiable taxable and non-taxable parts that need to be individually recognised…

Composite supply

17. If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then the supply is composite. You treat a composite supply as a supply of a single thing…

In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental part.

Paragraph 59 of GSTR 2001/8 states:

No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, indicators that a part may be integral, ancillary or incidental include where:

· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

· it represents a marginal proportion of the total value of the package compared to the dominant part; or

· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

· it contributes to the proper performance of the contract to supply the dominant part.

In deciding whether a supply consists of more than one part the Tax Office takes the view that a commonsense approach can be adopted.

Paragraphs 20 and 21 of GSTR 2001/8 state:

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:

$3.00; or

20% of the consideration of the total supply.

Based on the information provided, the cost of the bag is less than 20% of the consideration of the total supply. In addition, the bag is not necessary for the system to be used to prevent the bedsores. Therefore the bag is not a dominant part of the supply. However, you may choose to treat the supply of bags as integral, ancillary or incidental to the GST-free supply of the system. This means that the supply of bags would be treated as a composite supply, and the whole of the supply of the system would be GST-free.