Edited version of private ruling

Authorisation Number: 1011902198886

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Ruling

Subject: GST and supply of medical aids

Questions

1. Is the supply of the products A to G by you a GST-free supply under section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Are you, an importer of the products, making a taxable importation under section 13-5 of the GST Act?

Answers

1. The supply of the products B to G by you is GST-free under subsection 38-45(1) of the GST Act. However, the supply of the product A is a taxable supply.

2. You are not making a taxable importation of the products B to G under section 13-5 of the GST Act, when you import them. However, you make a taxable importation of product A because the supply of this product is a taxable supply.

Relevant facts and circumstances

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

You are a supplier of medical aids and appliances. You supply products A to G which you import from the manufacturer, website: XXX (the website). The website describes the features of each product. You also provide us with the recommended retail price of each product in Australia.

There is no agreement between you and the recipient that the supply of the products will not be a GST-free supply.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 38-45.

A New Tax System (Goods and Services Tax) Act 1999 Schedule Sch3.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(3).

A New Tax System (Goods and Services Tax) Act 1999 Section 13-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 13-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 38-45.

Reasons for decision

Question 1

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.

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

From the information received, the supply of the products by you satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

(a)    you receive consideration for your supply; and

(b)    the supply is made in the course of your enterprise; and

(c)    the supply is connected with Australia as you are located in Australia; and

(d)    you are registered for GST.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. The supply of the products is not considered to be input taxed under the GST Act. The next step is to determine whether the supply of the products in Australia is GST-free under the GST Act.

Division 38 of the GST Act sets out the supplies that are GST-free. Section 38-45 of the GST Act outlines the circumstances in which the supply of certain medical aids and appliances will be GST-free and appears as follows:

38-45 Medical aids and appliances

(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.

(* is a defined term under section 195-1 of the GST Act)

Subsection 38-45(1)

A supply of a medical aid or appliance is GST-free where paragraphs (a) and (b) in subsection 38-45(1) of the GST Act are satisfied.

Paragraph (a)

The items: 16, 17 and 22 in the table in Schedule 3 of the GST Act (Items 16, 17 and 22) are of relevance here. Item 16 lists product A; Item 17 lists products B, C, D, F and G; and Item 22 lists product E. We consider that although product E is not listed by name, it is covered under Item 22 because it is a form of waterproof protection for beds.

You state that all of the seven products are completely finished goods. Therefore, all seven products are considered medical aids or appliances and are covered by Items 16, 17 and 22. Paragraph (a) in subsection 38-45(1) is satisfied for all seven products.

Paragraph (b)

From the information received on the website, product A is listed under Home Textile products, not Medical Textile products. From the description of the features of product A on the website, it seems that product A is for home use, and does not own any feature specifically designed for people with a disability. Therefore product A does not satisfy paragraph (b) in subsection 38-45(1).

According to the website, the six products B to G are designed for people with a disability. On this basis it is considered that the products B, C, D, E, F and G are specifically designed for people with an illness or disability.

The next step is to determine whether the products B, C, D, E, F and G are widely used by people without an illness or disability.

The GST Pharmaceutical Health Forum Issues Register (available from the Tax Office's website) provides the following in determining whether a medical aid or appliance is widely used by people without an illness or disability:

1d. 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 ability 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) 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.

In this case, the six products B to G are primarily designed to meet the varying demands of heavy, medium and light levels of a certain disability. Furthermore, the purpose for which clients purchase the products is to meet the needs of patients in the health-care industry, in hospitals and nursing homes and at home.

Accordingly the supply of the six products B to G by you will be GST-free under subsection 38-45(1) of the GST Act as paragraphs (a) and (b) in subsection 38-45(1) of the GST Act are satisfied.

The supply of the product A does not satisfy paragraph (b) in subsection 38-45(1) of the GST Act and is a taxable supply.

Please note that an item which satisfies all of the requirements listed in subsection 38-45(1) of the GST Act will be GST-free at all points in the supply chain. This means that supplies of the six products B, C, D, E, F and G do not have to be made to ill or disabled people directly to be

GST-free. Supplies of these items to business entities will still be GST-free where the requirements in subsection 38-45(1) of the GST Act are met.

Subsection 38-45(3) 

Under subsection 38-45(3) of the GST Act, the supplier and the recipient of a medical aid or appliance that is GST-free under subsection 38-45(1) or (2), can agree to treat that supply not as a GST-free supply.  

For example, it may be administratively easier for a wholesaler supplier and a retailer purchaser to treat all of the supplies on an invoice as taxable rather than identify those individual items that are GST-free and those that are not GST-free.  

If the recipient is registered or required to be registered for GST a GST credit may be claimable for the GST paid. However, the sale by the retailer to the customer will still be GST-free. 

From the information received, you do not have an agreement with the recipient of the products to treat the products as taxable supplies. Accordingly subsection 38-45(3) is not applicable in this case. 

To summarise, the supply of the six products B to G by you is GST-free under subsection 38-45(1) of the GST Act.

However, the supply of the product A is a taxable supply under section 9-5 of the GST Act.

Question 2

Section 13-5 of the GST Act provides that you make a taxable importation if

Goods are imported goods; and

You enter the goods for home consumption within the meaning of the Customs Act.

However an importation is not a taxable importation to the extent that it is a non-taxable importation.

You are importing all seven products from overseas for home consumption within the meaning of the Customs Act therefore section 13-5 of the GST Act is satisfied.

Under section 13-10 of the GST Act an importation is a non-taxable importation if:

· it is a non-taxable importation under Part 3-2 of the GST Act, or

· it would have been a supply that was GST-free or input taxed if it had been a supply.

As indicated above, the supply of the six products B to G by you is a GST-free supply under subsection 38-45(1) of the GST Act. Therefore the importation of the products B, C, D, E, F and G is also a non-taxable importation under section 13-5 of the GST Act.

However, the importation of product A will be a taxable importation because the supply of the product is a taxable supply.