Edited version of private ruling

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Ruling

Subject: GST and medical Aids and Appliances

Question 1

Are you making a GST-free supply under subsection 38-45(2) of the A New Tax System (Goods and Services) Tax 1999 (GST Act) when you supply a product that is used to make a GST-free medical aid and appliance?

Answer 1

Yes, you are making a GST-free supply under subsection 38-45(2) of the GST Act when you supply a product that is used to make a GST-free medical aid and appliance.

Question 2

Are you making a GST-free supply under section 38-45(1) of the GST Act when you supply your fully fitted waterproof mattress protectors?

Answer 2

Yes, you are making a GST-free supply under section 38-45(1) of the GST Act when you supply your fully fitted waterproof mattress protectors.

Facts and Circumstances

You are registered for GST.

You import and wholesale a range of products that are specifically designed for inserting into GST-free medical aids and appliances. They are not medical aids or appliances in their own right; they are a product that goes into a GST-free medical aid and appliance.

Your product is a specifically designed spare part because it can be supplied to replace a faulty, worn or broken part of a GST-free medical aid and appliance.

You also supply fitted mattress protectors that are fully water proof and are specifically designed for people with an illness or a disability such as incontinence and not widely used by people without an illness or a disability.

You advise that you do not have any agreements with your customers (the recipients of your supplies) stating that the supply of your products and mattress protectors will not be treated as GST-free supplies.

Detailed reasoning

Subsection 9-5 of the of the GST Act states that you make a taxable supply if:

· you make a supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· you are registered or required to be registered.

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

Section 38-45 of the GST Act states:

(1) A supply is GST-free if:

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

(b) 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.

(2) 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).

(3) 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)

Question 1

The product that you supply for fitting into a GST-free medical aid and appliance is not covered in Schedule 3 or the GST Regulations. The table in Schedule 3 to the GST Act lists the GST-free medical aids and appliances, however you are not supplying the GST-free medical aid and appliance, you are supplying a product that goes into the GST-free medical aid and appliance. Subsequently your product is not a GST-free medical aid and appliance under subsection 38-45(1) of the GST Act.

Subsection 38-45(2) of the GST Act provides that spare parts that are specifically designed as spare parts for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act are also GST-free.

The term 'spare part' is not defined in the GST Act. Therefore, it is given its ordinary meaning. The Macquarie Dictionary (2001) defines a spare part as 'a part which replaces a faulty, worn, or broken part of a machine....'.

On this basis we consider that a supply of a part that can be used to replace a faulty, worn, or broken part of another thing, will be GST-free under subsection 38-45(2) of the GST Act, provided that the part supplied is specifically designed as a spare part for a medical aid or appliance the supply of which is GST-free under subsection 38-45(1) of the GST Act.

Under this interpretation, it is not necessary to determine that the part is being supplied in order to replace a faulty, worn or broken part of another thing the supply of which would be GST-free under subsection 38-45(1) of the GST Act. The fact that the part can be used to replace a faulty, worn, or broken part of another thing the supply of which would be GST-free under subsection 38-45(1) of the GST Act is sufficient to establish that the supply is GST-free under subsection 38-45(2) of the GST Act.

You advise that your product is a specifically designed spare part because it can be supplied to replace a faulty, worn, or broken part of a GST-free medical aid and appliance. Furthermore, you do not have any agreements with your clients stating that supplies of your products are not to be treated as GST-free supplies.

Consequently, the supply of your product is considered to be a GST-free spare part under subsection 38-45(2) of the GST Act.

Question 2 

For the supply of your mattress protector to be a GST-free medical aid or appliance, it:

· must be covered by Schedule 3 to the GST Act (Schedule 3), or specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations)

· must be specifically designed for people with an illness or disability, and

· must not be widely used by people without an illness or disability.

Item 16 in the table in Schedule 3 to the GST Act (Item 16) lists 'waterproof covers or mattress protectors'. Furthermore, item 22 in the table in Schedule 3 to the GST Act (Item 22) lists 'waterproof protection for beds and chairs'.

The terms 'waterproof covers or mattress protectors' and 'waterproof protection for beds and chairs' are very wide in meaning and do not provide enough indication as to the characteristics or class of goods that are covered.

Items 16 and 22 are listed under the category 'Continence' which appears in the second column of the table in Schedule 3 to the GST Act.

Section 182-15 of the GST Act provides that the second column of the table in Schedule 3 is not operative and in interpreting an item in this table, or any other operative provision, the column may only be considered for a purpose for which an explanatory section may be considered under subsection 182-10(2) of the GST Act.

Paragraph 182-10(2)(c) of the GST Act provides that in interpreting an operative provision, an explanatory section may only be considered in determining the provision's meaning if the provision is ambiguous or obscure.

Therefore, we consider that for an item to be covered under Items 16 and 22, the item must be designed for the purpose of assisting with the treatment or management of incontinence.

You advised that your mattress protectors are specifically designed for people with incontinence problems. Therefore, your product is specifically designed for people with an illness or disability. As such, your products are covered by Items 16 and 22. What is left to be determined is whether your mattress protectors are not widely used by people without an illness or disability.

Factors taken into account in determining whether a medical aid or appliance is not widely used by people without an illness or disability are discussed in the GST Pharmaceutical Health Forum Issues Register.

Issue number 1.d. in the GST Pharmaceutical Health Forum Issues Register states:

1.d. What factors should be taken into account in determining whether a medical aid or appliance is widely used by people without an illness or disability?

In determining whether a medical aid and appliance is used by people without an illness or disability reference should be made to how the wider community uses these goods. That is, the common purpose for which the goods are purchased.

Subsection 38-45(1) of the GST Act does not require the GST treatment of a medical aid and appliance to be determined by reference to the actual use for which an item is being purchased but rather focuses on the purpose for which the wider community purchases these products.

Accordingly, it is considered that irregular and uncommon use of a medical aid and appliance in a way contrary to its manufactured purpose will not prevent the good from being GST-free.

Based on the information provided, we consider that the common purpose for which the mattress protector will be purchased is for the management of incontinence and as such, the products will not be widely used by people without an illness or disability.

Accordingly, the supply of your mattress protectors meets all of the requirements listed in subsection 38-45(1) of the GST Act. Furthermore you do not have any agreements with your clients stating that supplies of the mattress protectors would not be treated as GST-free supplies.

Consequently, the supply of your mattress protectors will be a GST-free supply.