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Ruling

Subject: GST and health services

Question 1

Is the supply of your health services provided to a private organisation for that organisation's employees subject to goods and services tax (GST)?

Answer: Yes

Question 2

Is the supply of your health services provided to a rehabilitation service/ organisation for their patients subject to GST?

Answer: Yes

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a partnership registered for GST.

You are a recognised professional and a member of the professional association. You are also registered with the State Board of your State.

You operate a Health Practice which provides services other than directly to patients.

The services that you provide to the patients are generally accepted in the health profession as being necessary for the appropriate treatment of the patient.

You receive referrals from a private company 'A' for an employee, paid for by the employer.

You receive referrals from a private company 'B' to provide health services to the employee. The service is direct to the employee and the employer is invoiced.

You receive referrals from a government organisation 'C' to provide health services to their clients. The treatment is provided as part of the treatment requirements for the patients as required by the claim and the government organisation is invoiced.

You receive referrals from a private company 'D' to provide health services. They are considered to be the private company's clients and they obtain approval for treatment from the employer or related company. You invoice the private company for your health services.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Section 9-5

Section 38-10

Subsection 38-10(1)

Paragraph 38-10(1)(b)

Paragraph 38-10(1)(c)

Reasons for decision

Question 1

Summary

The supply of your health services to a third party for the treatment of their employees is not GST-free under any other provision of the GST Act or any other Act.

The supply of your health services satisfies all the requirements of section 9-5 of the GST Act, this supply is taxable and you are liable to remit GST equal to 1/11th of the professional fee you charge to the third party.

Detailed reasoning

Subdivision 38-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) outlines the supplies of health goods and services which are GST-free.

As a starting point, subsection 38-7(1) of the GST Act provides that a supply of a medical service is GST-free. The definition of a medical service in section 195-1 of the GST Act includes a service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973.

Where no Medicare benefit is payable, the health service must be considered under one of the other provisions in Subdivision 38-B of the GST Act.

Of relevance to you, is subsection 38-10(1) of the GST Act, which provides that a supply of other health services is GST-free if:

· it is a service of a kind specified in the table to that subsection

· the supplier is a recognised professional in the field of psychology, and

· the supply would generally be accepted, in the profession, as being necessary for the appropriate treatment of the recipient of the supply.

All of these requirements must be satisfied in order for a psychological counselling service to be GST-free.

Your service is listed in the table in subsection 38-10(1) of the GST Act and you have advised that you are registered under the relevant Act and are members of the professional association Therefore, you satisfy the first two requirements listed above.

In relation to the third requirement, the term appropriate treatment is not defined in the GST Act. It is considered that appropriate treatment will be established where the recognised professional assesses the recipient's state of health and determines a process or course of treatment, in an attempt to preserve, restore or improve the wellbeing of that recipient insofar as that recognised professional's particular area of training allows. This may include subsequent supplies of the process or course of treatment. Appropriate treatment also includes the principles of preventative medicine.

The term generally accepted is also not defined in the GST Act. However, it is considered that a particular service being provided by the relevant professional and the circumstances in which the service is provided must generally be accepted by the relevant profession as being necessary. The words generally accepted indicate that it will ultimately be the relevant profession that determines what services will be generally accepted.

You have advised that all of the services you intend to provide would generally be accepted by your profession as being necessary for the appropriate treatment of the patient in their circumstances. However, to fully satisfy the third requirement of subsection 38-10(1) of the GST Act, the service you provide must be for the appropriate treatment of the recipient of the supply.

Section 195-1 of the GST Act defines recipient in relation to a supply to mean the entity to which the supply was made. Where there are only two parties to the supply of your health services for example, you and the patient, the recipient of the supply of your health services is your patient.

Your supply of health services will be GST-free when you satisfy all of the requirements of subsection 38-10(1) of the GST Act.

Third Party Arrangements

Where there is a third party involved in the transaction, there may be one or more supplies for GST purposes. Therefore, it is necessary to determine what is being supplied and to whom. A recipient in relation to a supply is the entity to which the supply is made.

In more complex arrangements involving more than two entities, the analysis may reveal:

· a supply made to one entity (the recipient), but provided to another entity;

· two or more supplies made; or

· a supply made and provided to one entity (the recipient) and paid by a third party.

As with two party transactions, the GST consequences of these arrangements turn on identifying:

· one or more supplies;

· consideration (a payment, act or forbearance);

· a nexus between the supply and the consideration; and

· the recipient of the supply.

1(a) Referrals from private company 'B'

You have advised that you receive referrals from a private company 'A' for the provision of health services for the benefit of its employees.

Health services are GST-free where all the elements of section 38-10(1) of the GST Act are satisfied. That is, where a health provider who is a recognised professional supplies a service that is generally accepted in the health profession as being necessary for the appropriate treatment of the recipient, that service will be GST-free. Importantly it is a requirement of this section that all supplies and the recipient of each of the supplies under the contract be determined. Only supplies to the individual requiring such services are capable of being GST-free.

Where an employer organisation engages an health provider to provide health services to its employees, it is considered that the employer organisation will be the recipient of a supply where:

(a) the employer engages the health provider to make, or to be available to make, a supply to them or to someone else; and

(b) the employer, by agreement with the health provider, determines the nature of the supply that is required or permitted to be made to them or to someone else; and

(c) there is an enforceable obligation between that employer and the health provider for the supply (such that the employer has obtained a contractual right for the supply to be made).

This is considered to be the acquisition of a right to have a supply provided to a third party and is a different supply to the actual supply that is provided to the third party. These elements will generally be satisfied where there is a written contractual relationship between the payer and the supplier which determines what is to be supplied. The consideration for the right to have a supply provided to a third party, which is calculated by reference to the supply made to the employee, attaches to the supply provided to the entity acquiring that right (i.e. the employer) because of the contractual relationship between the supplier and the acquirer.

This will be the case even though the nature of services to be provided by the health provider to the employee as a result of the arrangement is health services. The supply made by the health provider to the employer will not be GST-free as it is not for the appropriate treatment of the recipient employer (even though there is a subsequent or concurrent supply to the employee). This will include any retainers or upfront charges as well as the fees calculated by reference to each individual service performed. As this is an entity to entity transaction, it is subject to GST. Where registered for GST, the employer will be entitled to claim any GST paid to the health provider as an input tax credit.

Goods and services tax ruling GSTR 2006/9 provides further clarification on the Commissioner's view in relation to the terms "made" and "provide" at paragraphs 130 to 156.

Paragraphs 131 and 132 state:

'Made' in the context of 'a supply made' takes its meaning from the definition of 'recipient' in section 195-1:

recipient, in relation to a supply, means the entity to which the supply was made.

'Provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

Paragraphs 155 and 156 further explains these concepts with regard to the supply of health services. They state:

Certain supplies of health services

155. Under the GST health provisions in Subdivision 38-B (except for sections 38-45 and 38-47 dealing with particular supplies of goods and section 38-55 dealing with private health insurance and ambulance insurance), the supply is only GST-free where an individual receiving that service or specific health treatment is the recipient of that supply. This outcome results from the specific wording in some health provisions, whilst in other provisions it is due to the nature of the services themselves. This means that a GST-free supply of a health service cannot be made to a business entity or a non-profit body.

156. In some fiduciary relationships it may be necessary for one party to give consent to the supply of a health service for another party. For example, a custodial parent gives consent for the medical treatment of a child. The Commissioner accepts in these circumstances that the other party, the child, is the recipient of the supply.

Therefore, where a private company 'A' contracts you for a supply of health services aimed at improving the well being of its employees, it is considered that the recipient of the supply is the employer organisation. As this is an entity to non individual entity transaction, it is subject to GST.

1(b) Referrals from private company 'B'

As per the reasoning above the recipient of the supply is private company 'B' and not the employee accordingly the supply of your psychology services is not GST-free private company 'B' is the recipient of a supply of your services.

1(c) Referrals from government organisation 'C'

As per the reasoning above a supply of your health services is not GST-free where a third party is the recipient of a supply of your health services.

Question 2

Summary

The supply of your health services to a third party for the treatment of their clients is not GST-free under any other provision of the GST Act or any other Act.

The supply of your health services satisfies all the requirements of section 9-5 of the GST Act, this supply is taxable and you are liable to remit GST equal to 1/11th of the professional fee you charge to the third party.

Detailed reasoning

Referrals from private company 'D'

The fact sheet 'GST and other health services' (NAT 4650), provides that a third party, such as an insurance company, will be the recipient of your supply where:

(a) the third party engages you to make, or to be available to make, a supply to them or to someone else

(b) the third party, by agreement with you, determines the nature of the supply that is required or permitted to be made to them or to someone else, and

(c) there is an enforceable obligation between that third party and you for the supply (such that the third party has obtained a contractual right for the supply to be made) and the third party is liable to provide payment.

Where all the above elements are satisfied there will be a supply made to the third party payer and provided to a patient.

Please note that in circumstances where the arrangement between you and the third party payer is such that the third party payer does not engage you but merely makes payment on behalf of an injured individual, the injured individual is the recipient of the supply.

However, in this case, the clients are referred to you from private company 'D' to provide health services. They are considered private company 'D' s clients and they (private company 'D') obtain approval for treatment from the employer or insurance company for you to perform the services. Accordingly, the employer or insurance company chooses you to make the supply to the client, thus they have engaged you (through private company 'D') to provide the health services.

In addition, the employer or insurance company authorises your services before you supply them to the client. You would not perform any services until your obtained written approval from the employer or insurance company. The approvals create a binding obligation for the performance of those services.

As the employer or insurance company chooses you, determines the nature of your supply and enter into a contractual relationship with you for the supply to be made to the client and are liable to pay for the supply of your services to the client, they are the recipients of a supply of your professional services to them.

An employer or insurance company cannot receive treatment and the supply to the employer or insurance company cannot be a supply of appropriate treatment. Therefore, paragraph 38-10(1)(c) of the GST Act is not satisfied. Consequently, in this situation, the supply of your services is not GST-free under subsection 38-10(1) of the GST Act.

In this case the employer or insurance company retains private company 'D' to retain you to provide health services to the employee/client. The relationship between you and private company 'D' is an administrative supply of your services to private company 'D' and not a health service to which Division 38 of the GST Act would apply. The supply of your services to private company 'D' is also not GST-free under any other provisions of the GST Act.

Therefore, the supply of your services to private company 'D' is subject to GST. As such, you should include the amount of GST on those services on the tax invoices you issue to private company 'D'.