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Ruling

Subject: GST and medical aids and appliances

Question

Will you be making a GST-free supply when you supply the medical aid and appliance?

Decision

Yes, you will be making a GST-free supply when you supply the medical aid and appliance.

Relevant facts

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

You are about to supply a new medical aid and appliance to the Australian market.

The medical aid and appliance is specifically designed for people with an illness or a disability and not widely used by people without an illness or a disability.

The medical aid and appliance will be supplied with three button batteries inside the device and three spares in the package. The batteries are not specifically designed for the medical aid and appliance but are generic. Prices of the batteries vary depending on quality.

You believe that the supply of the batteries is incidental to the supply of the medical aid and appliance. The dominant part of the supply is the medical aid and appliance and the batteries will be supplied for the customers' convenience. The value of the batteries is insignificant compared to the value of the medical aid and appliance and only comes with the medical aid and appliance as a one-off supply.

Reasons for decision

Under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the supply of a medical aid or appliance is GST-free where the medical aid or appliance:

· 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); and

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

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

All three requirements listed above must be satisfied for a medical aid or appliance to be GST-free. A medical aid or appliance that is GST-free will be GST-free at all stages of the supply chain and not only when it is supplied to a person with an illness or disability.

Item 33 in the table in Schedule 3 to the GST Act (Item 33) lists 'medical alert devices'. It is considered that a 'medical alert device' is a device that is designed for the purpose of alerting medical/caring personnel or an ambulance service to the fact that a person is in need of emergency medical assistance or that the person has a medical condition that may require specific treatment.

Therefore, it is considered that the medical aid and appliance is a 'medical alert device' and is covered by Item 33. As such, the first requirement in subsection 38-45(1) of the GST Act is satisfied.

Furthermore, the medical aid and appliance is specifically designed for people with an illness or a disability and is not widely used by people without an illness or a disability. As such, the second and third requirements in subsection 38-45(1) of the GST Act are also satisfied.

As all the requirements of subsection 38-45(1) of the GST Act are satisfied, you will be making a GST-free supply when you supply the medical aid and appliance.

You advised that when you supply the medical aid and appliance, you will also supply batteries with it. As such, we need to determine whether the supply of the batteries will also be GST-free.

Spare parts

Subsection 38-45(2) of the GST Act provides that a supply of a spare part will be a GST-free supply 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.

The term 'spare part' is not defined in the GST Act. As such, it is necessary to rely on the ordinary meaning of that phrase. The Macquarie Dictionary (1977) defines 'spare part' as, amongst other things, ' a part which replaces a faulty, worn, or broken part of a machine'

A supply of batteries for the medical aid and appliance would be GST-free under subsection 38-45(2) of the GST Act where the batteries are supplied as spare parts and are specifically designed as spare parts for the medical aid and appliance. As you will be supplying generic batteries which are not specifically designed for the medical aid and appliance, the supply of those batteries will not be GST-free as spare parts.

Composite supplies

Where a supply is identifiable as having more than one part and each part is taxable, GST is payable on the whole supply. Similarly, if all the parts of the supply are identifiable as being non-taxable, GST is not payable on any part of the supply.

However, where a supply consists of a combination of separately identifiable taxable and non-taxable parts, it is necessary to identify the taxable part of the supply so that the consideration for the supply can be apportioned and the GST payable on the taxable part of the supply can be worked out. 

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on composite and mixed supplies by describing the characteristics of supplies that contain taxable and non-taxable parts (mixed supplies) and the characteristics of supplies that appear to have more than one part but are essentially supplies of one thing (composite supplies).

Paragraphs 16 and 17 of GSTR 2001/8 state:

16. A mixed supply is a supply that has to be separated or unbundled as it

Contains separately identifiable taxable and non-taxable parts that need to be

individually recognised…

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…

Whether a particular part of a supply is integral, ancillary or incidental in relation to the whole supply is a question of fact and degree. It is considered that a part of a supply will be integral, ancillary or incidental where it is insignificant in value or function, or merely contributes to or complements the use or enjoyment of the dominant part of the supply.

You have stated that the initial supply of the batteries for the medical aid and appliance is for the customer's convenience. Furthermore, the value of these batteries is small compared to the value of the medical aid and appliance and you will only be supplying these batteries as a one-off when a customer initially purchases the medical aid and appliance.

Conclusion

We agree that the supply of the medical aid and appliance that includes batteries and one extra spare pack of batteries for the customers' convenience is a composite supply. As determined above, the supply of the medical aid and appliance is GST-free under subsection 38-45(1) of the GST Act. Therefore, the whole supply that will include the batteries will be GST-free.

Further Information regarding importation:

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 (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 which deals with the importation of goods that are non-taxable importations in accordance with the Customs Tariff Act 1995 does not apply to the medical aid and appliance.

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.

As discussed above, the supply of the medical aid and appliance will be a GST-free supply of a medical aid or appliance under subsection 38-45(1) of the GST Act. As such, the importation of the medical aid and appliance will be a non-taxable importation under section 13-10 of the GST Act.