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Ruling

Subject: GST and importation of compression stockings and specially designed rubber gloves

Question 1

Is the importation of compression stockings a taxable importation under section 13-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the importation of compression stockings is not a taxable importation under section 13-5 of the GST Act. The importation is a non-taxable importation under section 13-10 of the GST Act.

Question 2

Is the importation of specially designed rubber gloves a taxable importation under section 13-5 of the GST Act?

Answer

Yes, the importation of specially designed rubber gloves is a taxable importation under section 13-5 of the GST Act.

Relevant facts and circumstances

The entity imports compression stockings directly from an overseas manufacturing company.

The compression stockings are medical grade stockings which are designed to help stimulate the flow of lymph fluid and increase blood circulation. They are used for the treatment of various medical conditions such as vascular insufficiency, swelling disorders including clots, lymphoedema, postural hypotension, ulcers and vascular dermatitis. The compression stockings are used in hospitals and ulcer clinics and are prescribed for use by vascular surgeons, physicians, general practitioners, dermatologists and lymphoedema therapists. Obstetricians often prescribe these compression stockings for pregnant women with varicosities and pain in their legs.

The compression stockings are not support stockings which are only suitable for people with healthy veins for the prevention and not the treatment of existing vein afflictions. The compression stockings are not very attractive and are not easy to apply or remove as they are designed for people with medical conditions as described in the paragraph above.

Some compression stockings provide graduated compression with the compression decreasing in the direction of the heart.

To treat a patient's condition effectively, the compression stockings must be of the correct pressure and be correctly fitted for the particular patient. The entity measures, fits and supplies these stockings accordingly.

The compression stockings are divided into classes to identify compression strengths. They are classified as Class 1, 2 or 3 according to the pressure rating which is recorded in mmHg (millimeters of mercury). The higher the number, the greater the therapeutic support as those stockings have a higher pressure rating.

At the present time, there is no GST payable on the importation of Class 2 and 3 compression stockings. The entity has received one shipment of compression stockings from the manufacturer and was required by the freight forwarders to pay GST on the Class 1 stockings. The entity was quoted Item 40B in Schedule 4 to the Customs Tariff Act 1995.

The entity provided literature that explains the different grading pressures used in Europe and the USA. For example, all Class 1 compression stockings have the same pressure when tested on the machines although the stockings from Europe are listed as having an 18-21mmHg pressure rating whilst those from the USA are listed as having a 20-30 mmHg pressure rating. Although all Class 1 compression stockings are used to treat the same medical conditions, it appears that GST is not payable on those stockings that are imported from the USA.

The entity also imports specifically designed rubber gloves from the overseas manufacturer. These gloves have a special grip and are used to assist in applying the compression stockings.

If required, the entity will supply replacement liners for compression stockings used in the treatment of ulcers. The replacement liners are specifically designed as spare parts for these stockings and cannot be used with other stockings.

The entity is registered for the goods and services tax (GST).

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 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 subsection 38-45(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-45 (2)

A New Tax System (Goods and Services Tax) Act 1999 section 42-5

Reasons for decisions

Question 1

Under section 13-5 of the GST Act, an entity makes a taxable importation if:

· goods are imported, and

· the entity enters the goods for home consumption within the meaning of the Customs Act 1901.

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

Goods and Services Tax Ruling GSTR 2003/15 entitled Goods and services tax: importation of goods into Australia provides the ATO view and guidance on the importation of goods into Australia.

Paragraph 20 of GSTR 2003/15 explains that the Customs Act requires imported goods to be entered for home consumption, warehousing or transhipment. The 'owner' of the goods must provide Customs with specific information in a specified format (the 'customs entry'). If goods are entered for home consumption, the 'owner' must pay any customs duty to Customs at the time of entry of the goods.

The entity imports the compression stockings directly from the manufacturers overseas for supply in Australia. As such, the entity is importing goods for home consumption within the meaning of the Customs Act and will, therefore, be making a taxable importation unless the importation is a
non-taxable importation.

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if:

· it is a non-taxable importation under Part 3-2 of the GST Act (which contains only Division 42 of the GST Act), or

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

Part 3-2 of the GST Act and in particular, section 42-5 of the GST Act deals with the importation of goods that are non-taxable importations in accordance with the Customs Tariff Act 1995. The importation of the compression stockings by the Trust does not satisfy the requirements of any of the items in Division 42 of the GST Act for a non-taxable importation.

However, an importation is also a non-taxable importation to the extent that, had it been a supply, the supply would have been GST-free or input taxed.

There are no provisions in the GST Act that would make the supply of the compression stockings input taxed.

It is, therefore, necessary to determine whether the supply of the compression stockings would be GST-free.

Under subsection 38-45(1) of the GST Act, the supply of a medical aid or appliance is GST-free where it:

· is 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)

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

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

The supply of a medical aid or appliance that meets all the three elements of subsection 38-45(1) of the GST Act will be GST-free. The supply will be GST-free all the way down the supply chain and not only when supplied to a person with an illness or disability.

Item 14 in the table in Schedule 3 to the GST Regulations lists 'compression garments'. It is considered that compression garments are 'garments which exert sufficient pressure on the wearer to be of therapeutic benefit. They are commonly used by lymphoedema and burns sufferers. The garment must be manufactured with the materials, features, technology and fabrics that are ideal for providing constant and consistent compression, at the correct pressure, to the patient'.

In this case, the compression stockings are medical grade stockings which are designed to help stimulate the flow of lymph fluid and increase blood circulation. They are used for the treatment of various medical conditions by having compression applied. The information provided indicates that the compression stockings exert sufficient pressure to be of therapeutic benefit to the wearer.

In addition, the compression stockings are not very attractive and are not easy to apply or remove. Only people who require them will purchase them and they are prescribed for such people. It is clear from the information provided that the compression stockings are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability.

As the compression stockings satisfy all the elements of subsection 38-45(1) of the GST Act, its supply will be GST-free. Consequently, the importation of the compression stockings satisfies the requirements of a non-taxable importation under section 13-10 of the GST Act. As such, the importation is not subject to GST.

Spare parts- replacement liners for compression stockings

Under subsection 38-45(2) of the GST Act, 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 specifically designed spare part for a GST-free medical aid or appliance is one which has been specifically designed to replace a faulty, worn or broken part of a medical aid or appliance. This means that generic parts are not GST-free.

Spare parts which are specifically designed as spare parts for a GST-free medical aid or appliance are GST-free at all points in the supply chain. That is, it is not necessary to determine to whom or for what the part is being supplied. Provided the part has been specifically designed to replace a faulty, worn or broken part of a GST-free medical aid or appliance, the sale of that part will be GST-free under subsection 38-45(2) of the GST Act.

The entity will import and supply replacement liners for compression stockings. The replacement liners are specifically designed as spare parts for these stockings and cannot be used with other stockings.

It has already determined that the supply of the compression stockings will be GST-free under subsection 38-45(1) of the GST Act. As the replacement liners are specifically designed as spare parts for the compression stockings that are GST-free under subsection 38-45(1) of the GST Act, the supply of the replacement liners will be GST-free under subsection 38-45(2) of the GST Act as spare parts.

Consequently, the importation of the replacement liners will also satisfy the requirements of a non-taxable importation under section 13-10 of the GST Act and will not be subject to GST.

Question 2

The entity also imports specifically designed rubber gloves from overseas. These gloves have a special grip and are used to assist in applying the compression stockings.

As discussed in Question 1 above, the supply of a medical aid or appliance that meets all the three elements of subsection 38-45(1) of the GST Act will be GST-free.

The first requirement in subsection 38-45(1) of the GST Act is that the item must be covered by Schedule 3 to the GST Act, or specified in the GST Regulations.

Rubber gloves are not specifically listed in Schedule 3 to the GST Act nor specified in the GST Regulations. Neither are they covered by any of the items that are listed in Schedule 3 to the GST Act and the GST Regulations. As such, the supply of the rubber gloves will not be GST-free. The supply will be a taxable supply where all the requirements of section 9-5 of the GST Act are satisfied.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

· it makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia

· the entity is registered or required to be registered for GST, and

· the supply is not GST-free or input taxed.

In this case, the supply of the specially designed rubber gloves is not GST-free and there are no provisions in the GST Act which will make the supply of the rubber gloves input taxed.

The entity makes the supply for consideration in the course of its enterprise, the supply is made in Australia and the entity is registered for GST. As such, all the elements of section 9-5 of the GST Act are satisfied and the supply of the rubber gloves is a taxable supply on which GST is payable.

Therefore, the importation of the specially designed rubber gloves from the overseas manufacturer is a taxable importation under section 13-5 of the GST Act.