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Subject: GST and GST-free medical aids and appliances

Question

Is the enema, suppository and applicator product GST-free pursuant to section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Please refer to reasons for decision.

Relevant facts and circumstances

Entity A sponsors an enema product in Australia under licence from overseas suppliers. The product is supplied to retail pharmacies and hospital pharmacies in Australia.

The product comes in the form of a tablet or enemas and is used as a stimulant laxative to provide relief from constipation or to empty the large bowel before some medical procedures, operations or X-rays.

No prescription is required for the product.

The product is registered in Australia.

Entity A is registered for goods and services tax (GST).

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 38-50.

Reasons for decision

GST is a broad based indirect tax payable on consumption in Australia. Generally, GST is payable on the value added at each stage of the commercial chain of dealings with goods, services and other things. The GST Act describes these dealings as supplies.

A supply will be taxable where it satisfies section 9-5 of the GST Act which provides you make a taxable supply if you make the 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 for GST.

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

Hence, where Entity A supplies the enema, suppository and applicator product they make a taxable supply, as the supply is for consideration, the supply is made in course of an enterprise they carry on, the supply is connected to Australia as it is done in Australia and they are registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. There are no provisions that would result in the supply being input taxed but consideration needs to be given to if it is GST-free pursuant to section 38-45 of the GST Act.

Enemas, suppositories, and applicators

Section 38-45 of the GST Act provides that a supply is GST-free if it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations and 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.

The enemas, suppositories, and applicators specifically designed to relieve or ameliorate constipation are listed under the continence category in Item 25 of Schedule 3 to the GST Act. It is considered that these items are specifically designed for people with an illness or disability and that these items are not widely used by people without an illness or disability.

Constipation, a condition of the bowels, is a loss of continence that is the ability to control the function of the bowel. Enema, suppository and applicator product is therefore used for the treatment of loss of continence.

Therefore, section 38-45 of the GST Act is satisfied and the enema, suppository and applicator product is GST-free.

A supply to a wholesaler, a retailer or an end consumer is GST-free throughout the supply chain.

Tablets

The supply of the tablet is not covered by section 38-45 of the GST Act as it is not listed in Schedule 3 and neither is it specified in the regulations hence it is taxable unless it satisfies another GST-free provision. In particular section 38-50 of the GST Act, deals with the supply of drugs and medicinal preparations which are GST-free.

The term laxative is a general term which describes a wide range of drugs/medicinal preparations. Whether a particular laxative will be GST-free will depend on whether that particular laxative, in this case the product in tablet form satisfies the requirements of section 38-50 of the GST Act.

Where, for example the laxative is supplied on prescription and is a Pharmaceutical Benefits Scheme (PBS) or a Repatriation Pharmaceutical Benefits Scheme RPBS item or an item restricted except on prescription it will come within subsection 38-50(1) of the GST Act and as such will be GST-free. Similarly where the laxative is covered under schedule 2 or 3 of the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP), that is it can only be sold within a pharmacy or under the advice of a pharmacist or supplied by a medical practitioner or dental practitioner it will also be GST-free. This is assuming that the overriding requirements of subsection 38-50(7) have also been satisfied. That is the drug is for human consumption and the supply is to an individual for private or domestic consumption The same would apply if the supply of the laxative satisfies any of the other relevant subsections of 38-50 of the GST Act.

The rules, outlined above, mean that when Entity A makes supplies of the product in tablet form (laxative) to retail and hospital pharmacies in Australia they will be taxable. It is then at the time they are sold to the end consumer that section 38-50 of the GST Act may result in the supply being GST-free.