Edited version of your private ruling

Authorisation Number: 1012256587490

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Ruling

Subject: GST-free medical services

Question 1

Are the supplies provided under the Initiative GST-free medical services provided by Entity A (individual) on behalf of Entity B?

Answer

Yes.

Question 2

Is the consideration paid by Entity C third party consideration for the provision of the GST-free supply made to the patient by the Entity A on behalf of Entity B?

Answer

Yes.

Question 3

Is the assignment of the consideration by the patient to Entity A consideration for a supply by Entity A to the patient?

Answer

No

Question 4

Does the obligation to pay over the consideration by Entity A to Entity B have any goods and services tax (GST) implications?

Answer

No

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.

Entity B (you) are a company registered for GST.

You provide public health services and health related services.

You provide health services under an Initiative which aims to improve access to primary care in rural and remote Areas.

The purpose of the Initiative is to increase access to primary care services for patients who may otherwise find it difficult to access these services due to a shortage of skilled professionals located in eligible rural locations that are approved for an exemption to section 19(2) of the Health Insurance Act 1973 (Cth). These locations are remote and sparsely populated and have difficulty in attracting appropriately qualified professionals that can provide primary care to patients who reside in these locations.

The Initiative aims to remedy or improve this situation by allowing public hospitals at eligible locations to provide primary care services to eligible patients. These services have not historically been provided by public hospitals due to their inability to claim Medicare benefits pursuant to section 19(2) of the Health insurance Act 1973 (Cth).

Section 19(2) prohibits a Medicare benefit being claimed where professional services are rendered by, or on behalf of, or under an arrangement with the Commonwealth, States and Territories or authority established by the Commonwealth, States and Territories.

Due to the shortage of appropriately skilled private practitioners in eligible locations, the Initiative will now entitle public hospitals to a Medicare benefit for professional services they render or which are rendered on their behalf to non-admitted and non-referred patients.

Due to the nature of the Medicare statutory framework, public hospitals are not entitled to register for a Medicare Provider Number ("MPN"). However, medical practitioners are entitled to register for such a number and claim Medicare benefits. Therefore, in order for eligible public hospitals that provide eligible services under the Initiative to access the Medicare benefits for the provision of the eligible services, the Local Health Districts require participating Entity A's to obtain a MPN and "pay over" benefits assigned to them by eligible patients pursuant to a Letter of Agreement. This is the most practical way identified by the participants to the Initiative to achieve the desired result, that is, for eligible Local Health Districts to receive payment for eligible services provided to eligible patients.

The Initiative, once implemented, will operate to allow Medicare benefits to be claimed with respect to the provision of professional non-admitted, non-referred eligible services to patients by the State Local Health Districts through arrangements with Entity A's at eligible rural hospital sites.

Eligible services under the Initiative are non-admitted, non-referred services provided by medical practitioners.

The Initiative will only apply to public patients accessing services to be provided at public hospital sites granted an exemption under section 19(2) of the Health Insurance Act 1973 under this Initiative.

Medicare Benefit

Local Health Districts and participating Entity A's/eligible health professionals will be responsible for ensuring that

1) Patients who receive eligible services must assign their Medicare benefits to the Entity A /eligible health professional in accordance with Medicare Australia requirements.

It is important to note that the requirements for the assignment of Medicare benefits remain unchanged under this initiative Compliance with these requirements is the responsibility of the Entity A /eligible health professional and generally requires that

· an agreement must be made between the patient (assignor) and the provider for the assignment of benefit

· the agreement is evidenced through the use of the assignment of benefit form

· the patient is required to sign the form

· a copy of the agreement must be provided to the patient

The Medicare benefits must be claimed in accordance with the Health Insurance Act 1973 and Medicare Australia billing rules. It will be the responsibility of the Entity A /eligible health professional to allocate the item numbers, sign claim forms, and otherwise ensure compliance with Medicare Australia requirements.

Under the agreement provided with your application it is stated that:

"…At the conclusion of each financial year a letter will be sent to you providing details of your total Medicare billings under the Initiative for the previous financial year to assist with the preparation of your income tax return…"

A further letter provided with your application states that:

"…As you are aware under your participation in the COAG Improving Access to Primary Care in Rural and Remote Areas (Si 9(2) Exemptions) Initiative you have agreed to pay over the Medicare benefit income assigned to you for eligible services provided under the Initiative to the [insert name of LHD] Local Health District

An exemption has been granted for [insert exempted site name] Medicare revenue has been received with respect of the following Health Professional or Medical Practitioner [Name] Provider No [Details] at this site

A total Medicare benefit income of $ [Insert amount of Medicare revenue paid over to the Local Health District for the financial year] was paid over to [insert name of LHD] Local Health District under this Initiative for the financial year of 2OXX/20XX.

We note that in accordance with Australian Taxation Officer Class Ruling (CR2011/44) you are entitled to claim a deduction under section 8 1 of the income Tax Assessment Act 1997 for an amount equal to the gross billings you paid over to [insert name of LHD] Local Health District as part of the Initiative arrangement …"

The Commonwealth subsequently entered into a Memorandum of Understanding ("MOU") with the State, that set outs the framework within which the Commonwealth and the State will cooperate to implement the Initiative agreed to at COAG.

In order for the exemption from section 19(2) to be granted, the following criteria must be met:

Site - Those sites that will be eligible under this Initiative are health facilities from which services are traditionally provided by the state health services, including hospitals located in an "eligible location".

Location - The exemption will he limited to those rural and remote communities that have a population of less than 7,000 people and are experiencing a general practitioner GP workforce shortage.

Eligible professionals under the Initiative include Entity A's that, under contractual arrangements with a Local Health District, provide eligible services to patients at an eligible site operated by the Local Health District.

Funds earned by Local Health Districts through the Initiative are used to enhance primary health care services within the approved locality.

Agreement of local stakeholders - the Initiative must have the unanimous support of local primary care practitioners (private and/or community based) in eligible locations evidenced by a written agreement. An exception will be considered by the Federal Minister for Health where support is overwhelming but not unanimous.

Implementation Plan - Local Health Districts are responsible for identifying locations that are likely to meet the Site and Location criteria. The State Ministry of Health will confirm initial eligibility with the Commonwealth. In accordance with the Health Policy Statements and Policy Framework issued for that purpose, Local Health Districts will then develop an implementation plan and submit it, together with consent forms obtained from local stakeholders, to the State Ministry of Health for review.

The State Ministry of Health will then submit applications for exemption to the Federal Minister for Health, who is ultimately responsible for the approval or otherwise of applications made under the Initiative.

In addition to the formal arrangements with the Commonwealth through the MOU, the State Ministry of Health requirements for Local Health Districts and Entity A's participating under the Initiative are set out in a Health Policy Directive and Framework: "Improving Access to Primary Care in Rural and Remote Areas (s19(2) Exemptions) Initiative".

The Policy Statement provides that once relevant Entity A's consent to participate in the Initiative at the eligible site, a Letter of Agreement is issued by the relevant Local Health District outlining the requirements for the participants, including the assignment of Medicare benefits.

Participating Entity A's will apply to Medicare Australia for a separate Medicare Provider Number ("MPN") specifying the eligible site (location specific provider).

The service is provided to the patient by Entity A's on behalf of the Local Health District. The assignment of the patient's Medicare benefit takes place in a similar way to general Medicare bulk billing procedures, pursuant to the Medicare statutory framework, That is, Entity A's will have an agreement with patients who receive eligible services at the hospital site under the Initiative for the patient's Medicare benefits to be assigned to Entity A. The relevant approved forms under the Health Insurance Act 1973 (Cth) will be used for this purpose.

Under the Initiative, patients will not be charged a co-payment for services.

Entity A's will be responsible for claiming Medicare benefits under the Initiative by allocating the correct item numbers on the Medicare form, signing claim forms and otherwise ensuring compliance with Medicare Australia's requirements.

Under the general terms of their engagement, and in accordance with their Letters of Agreement, all benefits assigned by patients to Entity A's under the Initiative must be paid over to their relevant Local Health District by the Entity As to be used for primary care enhancement. Local Health Districts will facilitate the billing process with Medicare Australia on behalf of the Entity A's. In practice, the Medicare Benefit will not be received by Entity A but will be paid directly into a separately identifiable bank account held by the relevant Local Health District.

Significantly for these purposes, the Letter of Agreement for Entity As participating under the Initiative provides:

"…That as part of the terms and conditions of the Initiative, you are required to pay over to the Local Health District the Medicare billings assigned to you for relevant services provided under the Initiative…"

The Health Directive and Policy Framework setting out the arrangements for the Initiative also includes a Letter of Agreement that must be entered into by the relevant Local Health District and the participating Entity A.

The Health Policy Directive and Framework relating to the Initiative (including the Letters of Agreement), will comprise a rule in force at the Local Health District for the purposes of the model fee-for-service contracts. Entity A's are therefore required to comply with the requirements of the Health Policy Directive relating to the Initiative under the terms of their appointment.

Taxpayer contentions

The details of the arrangements are as follows:

1. A GST-free medical supply is made to the patient by Entity A on behalf of Entity B.

Entity As that consent to participate in the Initiative are engaged by Entity B to provide eligible medical services to eligible patients on behalf of Entity B. The recipients of the medical service supplies under the Initiative are clearly the eligible patients.

As a Medicare benefit is payable under Part II of the Health Insurance Act 1973 (Cth), the eligible services provided by the Entity A on behalf of Entity B will be GST-free pursuant to section 38-7 of the GST Act.

2. Under the Medicare statutory framework, a Medicare benefit is payable to the patient in respect of the GST-free medical service,

The Medicate benefit paid by Medicate is third party consideration for the provision of the GST-free supply made to the patient by Entity A on behalf of Entity B.

3. In accordance with the terms of the Medicare approved form (e.g. DB2-GP), the patient assigns the benefit to Entity A (using Entity A's Medicare Provider Number used specifically for the Initiative).

The assignment of the Medicare benefit by the patient to Entity A has no GST implications as there is no supply made for consideration by Entity A to the patient.

4. Under the Letter of Agreement, Entity A pays over the Medicare benefit to Entity B.

Under the terms of their engagement and specifically the Letter of Agreement which operates for the Initiative, Entity A pays over the assigned benefit to Entity B.

The obligation to pay over the Medicare benefit by Entity A to Entity B has no GST implications. This is because the obligation to pay over this amount forms part of the general terms and conditions of Entity A's engagement (including the Letter of Agreement) for which they are compensated by Entity B on a fee-for-service basis. That is, Entity A will be paid for making a supply to the patient provided it pays over the third party consideration paid by Medicare that has been assigned to Entity A from the patient. There is no separate supply being made to Entity A by Entity B in relation to the payment.

5.Entity A will he paid for making a supply to the third party provided it pays over the consideration paid by Medicare that has been assigned to Entity A from the patient.

As noted above, Entity A is paid for the services made under the Initiative by Entity B pursuant to the general terms of the fee for service contract. Currently, Entity A pays GST in respect of these services to Entity B.

You contend that:

1.The relevant supplies provided under the Initiative are GST-free medical services provided to the patients by Entity A on behalf of Entity B; and

2. The Medicare benefit paid by Medicare is third party consideration for the provision of the GST-free supply made to the patient by Entity A on behalf of Entity B; and

3. The assignment of the Medicare benefit by the patient to Entity A has no GST implications as there is no supply made for consideration by Entity A to the patient; and

4. The obligation to pay over the Medicare benefit by Entity A to Entity B has no GST implications. This is because the obligation to pay over this amount forms part of the general terms and conditions of the Entity A's engagement (including the Letter of Agreement) for which they are compensated by Entity B on a fee for service basis and for which they are already paying GST.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 9-15(1)

Section 9-40

Section 38-7(1)

Section 195-1

Reasons for decision

Issue 1

Question 1

Summary

Under the terms of the Initiative the supply is a GST-free supply of a medical service under section 38-7 of the GST Act.

Detailed reasoning

The requirements of a taxable supply are stated in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) (all further legislative references in this private ruling are to the GST Act unless otherwise stated). The requirements of a creditable acquisition are stated in section 11-5.

Section 9-5 states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(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.

(* denotes a defined term in section 195-1 of the GST Act.)

It is considered that the scope of the Initiative does not fall into the operation of section 38-20 of the GST Act - Hospital treatment due to the limitation of its scope.

Of relevance is section 38-7, a supply of a medical service is GST-free. Medical service is defined in section 195-1 as:

(a) a service for which medicare benefit is payable under Part II of the Health Insurance Act 1973; or

(b) any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

Where a medical practitioner supplies services to a hospital and, as a result of that supply, services are provided to a patient, there will be two separate supplies:

· a supply from the hospital to the patient

· a supply from the medical practitioner to the hospital.

In this case whilst the supplies are being provided in the hospital environment, as a result of the Initiative which allows public hospitals at eligible locations to provide primary care services to eligible patients these services now have an exemption from section 19(2) of the Health insurance Act 1973 (Cth). Section 19(2) which prohibits a Medicare benefit being claimed where professional services are rendered by, or on behalf of, or under an arrangement with the Commonwealth, States and Territories or authority established by the Commonwealth, States and Territories.

As a result public hospitals can now claim a Medicare benefit for professional services they render or which are rendered on their behalf to non-admitted and non-referred patients.

In conclusion, the supply whilst not being a supply of hospital treatment under section 38-20 of the GST Act is a supply of a medical service under section 38-7 of the GST Act.

As the supply satisfies the criteria in section 38-7(a) of the GST Act, the supply will be a GST-free supply of a medical service from you to the patient.

Question 2

Summary

The payment of the Medicare benefit is consideration for the supply of medical services.

Detailed reasoning

As stated in your facts due to the nature of the Medicare statutory framework, public hospitals are not entitled to register for a Medicare Provider Number. However, medical practitioners are entitled to register for such a number and claim Medicare benefits.

Therefore, in order for eligible public hospitals that provide eligible services under the Initiative to access the Medicare benefits for the provision of the eligible services, the Local Health Districts require participating Entity As to obtain a MPN and "pay over" benefits assigned to them by eligible patients pursuant to a Letter of Agreement.

Under the agreement for tax purposes the Medicare billings Entity A earned under the Initiative belong to Entity A and for Medicare purposes is payment for the supply of medical services provided to the client.

The payments must be included in their tax return, however; they are entitled to claim a deduction for an amount equal to the gross Medicare billings paid over to you.

The Commissioner's view on the meaning of 'supply' is set out in Goods and Services Tax Ruling GSTR 2006/9. GSTR 2006/9, amongst other things, sets out a number of propositions to assist in analysing a transaction to identify the supply or supplies made in the transaction. Of relevance to your circumstances is Proposition 13 which states:

Proposition 13: when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow)

130. In Grandma's flowers pursuant to the contract between A and B, B makes the supply to A but provides the flowers to C.

131. '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.

132. '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).

For GST purposes we find that the supply of the medical services is a supply made by you to the client and the medical service is provided by Entity A. The Medicare benefit is payment for that supply. In this instance Entity A is receiving the payment on your behalf (due to the Medicare statutory framework).

The supply of the medical service is from you to the patient. The payment of the Medicare benefit from the patient, but for the statutory requirements would normally be paid to you. Under the Initiative the payment is made to Entity A and forwarded to you for the supply of your medical services. .

Question 3

Summary

As there is not a supply from Entity A to the patient there is not any consideration paid to Entity A from the patient.

Detailed reasoning

As discussed above, under the Initiative Entity A is merely receiving the payment on your behalf. The payment is assigned to Entity A under the Medicare statutory requirements. Entity A supplies his services to you on a fee for service basis it is you that is making the supply of the medical services to the patient.

Question 4

Summary

As Entity A is receiving the payment on your behalf and the Medicare benefit is the consideration for a supply from you to the patient there is no supply and no GST consequences.

Detailed reasoning

As discussed previously, as we have determined that there is not a supply being made by Entity A in return for the assignment and subsequent forwarding of the Medicare benefit then there are not any GST implications. Entity A is receiving the payment on your behalf.