Edited version of private ruling

Authorisation Number: 1011653460073

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Ruling

Subject: GST and GST-free health services

Question

Is your supply of a herbal preparation used in treating a patient, and supplied at the premises where your health service is supplied, taxable when the herbal preparation is used or consumed in total or in part away from these premises?

Answer

When supplying acupuncture services

The herbal preparation is GST-free if it is supplied as part of the patient's treatment regardless of where the herbal preparation is used or consumed.

When supplying Chinese herbal medicine services

The herbal preparation is taxable if it is used or consumed in total away from the premises where your health service is supplied. Where part of the herbal preparation is used or consumed away from these premises then only that part is taxable.

This may require you to make an apportionment between the value of the herbal preparation consumed at these premises and what is consumed away from these premises.

Please refer to reasons for decisions for possible scenarios where the herbal preparation may also be GST-free.

Relevant facts and circumstances

You are registered for GST.

You supply GST-free Chinese herbal medicine and acupuncture services.

You also supply herbal preparations as part of your health services for which you charge a separate fee from your consultation fee.

The herbal preparations are an integral part of the treatment of your patients and are tailored to meet their specific treatment needs.

The herbal preparations are supplied to the patients at the premises where the health service is supplied.

The herbal preparations can be either used or consumed in total or in part by a patient during their consultation. They can also be used or consumed in total away from the premises where the health service is supplied.

You can supply the herbal preparations for either your Chinese herbal medicine or acupuncture services.

There are several Chinese herbs whose supply has been restricted by your State Government that can only be supplied by a practitioner of Chinese medicine.

Reasons for decision

Subsection 38-10(3) of the GST Act provides that the supply of goods is GST-free if:

· the supply is made to a person in the course of supplying to the person a health service (including acupuncture but excluding Chinese herbal medicine, naturopathy, optometry and pharmacy), the supply of which is GST-free under subsection 38-10(1) of the GST Act, and

· it is made at the premises where the health service is supplied.

Subsection 38-10(4) of the GST Act further provides that the supply of goods is GST-free if:

· the supply is made to a person in the course of supplying to the person a health service (limited to Chinese herbal medicine or naturopathy), the supply of which is GST-free under subsection 38-10(1) of the GST Act, and

· it is supplied, and used or consumed at the premises at which the health service is supplied.

It is considered that the phrase 'in the course of supplying' in the context of subsections 38-10(3) and 38-10(4) of the GST Act requires that the goods must be supplied at the same point in time as the GST-free health service and must have been either:

· customised or manipulated for the exclusive treatment of the illness or disability of the particular patient who is the recipient of the GST-free service, or

· necessarily utilised as an integral part of the patient's treatment required immediately during that specific consultation.

In your case, you supply GST-free health services in the form of Chinese herbal medicine and acupuncture. In supplying these services you also provide goods in the form of herbal preparations which are supplied at the premises where your health service is supplied. These preparations are specifically tailored to meet the treatment needs of each patient and are an integral part of their treatment.

The herbal preparations can be either used or consumed in total or in part by a patient during their consultation. They can also be used or consumed in total away from the premises where the health service is supplied

Acupuncture services

In the case where you supply acupuncture services, subsection 38-10(3) of the GST Act does not stipulate that the herbal preparations must be used or consumed at the premises where the health service is supplied.

Consequently, as all the requirements of subsection 38-10(3) of the GST Act are satisfied, your supply of the herbal preparations with your supply of acupuncture services is GST-free regardless of whether a patient uses or consumes the herbal preparation at or away from the premises where the health service is supplied.

Chinese herbal medicine

In the case where you supply Chinese herbal medicine services, it is a requirement of subsection 38-10(4) of the GST Act that the goods must be supplied and used or consumed at the premises where the health service is supplied. Consequently, where a patient uses or consumes the herbal preparation in total during their consultation, the supply of the herbal preparation would be GST-free under subsection 38-10(4) of the GST Act.

Where all of the herbal preparation is used or consumed by the patient away from the premises where the health service is supplied, the second requirement of subsection 38-10(4) of the GST Act is not met. Consequently, your supply in these circumstances is not GST-free under subsection 38-10(4) of the GST Act but taxable, given it would satisfy the requirements under the GST Act for making a taxable supply.

In the case where only part of the herbal preparation is used or consumed during the consultation, for the purposes of subsection 38-10(4) of the GST Act only the portion used or consumed would be GST-free. This implies that you would be required to make an apportionment between the value of the herbal preparation consumed at the premises where the health service is supplied and what is consumed away from these premises.

Further considerations for Chinese herbal medicine services

Restricted Chinese herbs

The supply of a drug or medicinal preparation can also be GST-free under subsection 38-50(2) of the GST Act provided it is not excluded from being GST-free under subsection 38-50(3) of the GST Act. Presently there are no drugs or medicinal preparations that have been excluded from subsection 38-50(2) of the GST Act. This subsection covers the circumstances where a drug or medicinal preparation's supply is restricted by a state or territory law and can only be supplied by a person permitted to do so under that law. This subsection does not require that the drug or medicinal preparation be used or consumed at the premises where the health service is supplied.

In your case, there are several Chinese herbs whose supply has been restricted by your State Government that can only be supplied by a practitioner of Chinese medicine. Hence, these herbs are covered by subsection 38-50(2) of the GST Act and if you make a supply that consists solely of these restricted Chinese herbs, it would be GST-free.

More likely, however, is the case where you may make a mixed supply (taxable and GST-free herbs).

If you do make a mixed supply then you can make an apportionment similar to the apportionment you would have to make where a patient uses or consumes only part of the herbal preparation during the consultation. You may however be able to treat the mixed supply as a composite supply if you so wish. A composite supply is a supply that contains a dominant (main) part and a part that is integral, ancillary or incidental to this dominant part. A composite supply is treated as a supply of a single thing taking on the GST character of the dominant part.

I refer you to the public ruling GSTR 2001/8 (available from the Tax Office website), and in particular paragraphs 17 to 22, which provide guidance as to whether you can treat a supply as composite.

Food

Some herbs (such as lotus seeds) are accepted for the purposes of GST as a food or as an ingredient for food or beverages, the supply of which is GST-free.

As per the discussion for restricted Chinese herbs, you may need to either make an apportionment or treat the supply as composite if you supply a herbal preparation containing these types of herbs. I refer you to the fact sheet 'GST and acupuncture, naturopathy and herbal medicine services' which provides further information on this matter. This fact sheet is also available from the website.