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Ruling

Subject: GST and medical services

Question 1

Should the invoices you receive from the local medical clinics (clinics), for services provided by their staff to public inpatients in normal business hours, be subject to goods and services tax (GST)?

Answer

Yes. The clinic is making a supply to you under your contract, and this is a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met by the clinic.

Question 2

Should the invoices you receive from the clinics, for after-hours on-call services provided by their staff to your public inpatients, be subject to GST?

Answer

Yes. As discussed above, the clinic is making a supply to you, and this is a taxable supply where the requirements of section 9-5 of the GST Act are met by the clinic.

Question 3

What is the role of recipient created tax invoices. Are these required?

Answer

In certain situations the recipient of a supply is able to issue a tax invoice to the supplier. This is referred to as a recipient created tax invoice (RCTI). Please see our advice below for further information.

Question 4

Do you have any GST liability when the clinics provide services directly (in their own right) to private patients in your hospital premises?

Answer

No. The clinic is making the supply. It is the supplier that must pay the GST payable when a taxable supply is made.

Relevant facts and circumstances

· You are a public hospital, governed under relevant legislation.

· You are registered for GST.

· You receive government funding which you have advised does not include GST.

· You receive monthly invoices from the clinics for services provided by their staff (visiting medical doctors) within normal business hours to your public inpatients. These arrangements are the subject of a contract between you and the clinics.

· You also receive monthly invoices and pay the clinics for services provided by their staff for after-hours on-call services to your public inpatients. These arrangements are also the subject of contracts between you and the clinics.

· The clinics also supply medical services (which are subject to a Medicare benefit) to their own clients (private patients) in your premises.

· Under this arrangement the medical service is performed by (and on behalf of) the medical clinic. The private patient is invoiced directly by the clinic, and the medical clinic is paid by the patient's private health fund.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 11-5

Section 38-7

Section 38-60

Section 195-1

Income Tax Assessment Act 1997

Section 995-1

Reasons for decision

Question 1

Summary

When the clinics invoice you for the services they provide to you under your contract they are invoicing you for a supply that they are making to you. This supply is a taxable supply where the clinic meets the requirements of section 9-5 of the GST Act.

The supplier (clinic) must remit the GST payable on its taxable supplies.

Detailed reasoning

When an entity makes a supply (of goods or services) for consideration in the course or furtherance of its enterprise, the supply will be a taxable supply to the extent that it is not GST-free or input taxed.

Supply is not GST-free under section 38-7 of the GST Act

Under section 38-7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a supply of a medical service is GST-free. For the purposes of the GST Act, a medical service is defined (in section 195-1) as:

· a service for which a medicare benefit is payable, or

· 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.

The term 'recipient', in relation to a supply, means the entity to which the supply is made. Where you have entered into a contract for supplies to be made to your patients, a supply is made to you (for the benefit of your patients). You are the recipient of this supply.

The service supplied by the clinic to you is not GST-free as it is not for the treatment of the recipient of the supply (because you are the recipient of the supply, and it is the patient that is being treated rather than you).

Unless the supply is a service for which a Medicare benefit is payable, the supply will not be a GST-free medical supply.

Supply is not GST-free under section 38-60 of the GST Act

Section 38-60 of the GST Act also needs to be considered in your circumstances. This section relates to third party procured GST-free health supplies.

Where an entity (for example a clinic) makes a supply of a service to an Australian government agency, and the service is the supplier (clinic) making one or more other supplies of goods or services to an individual (patient) and at least one of the other supplies is wholly or partly GST-free then the supply from the clinic to the government agency is also GST-free to the extent that the supply to the patient is GST-free. However, the parties may choose not to treat the supply as GST-free in these circumstances if they prefer.

For this section to apply you need to be an Australian government agency.

Australian government agency has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) (see section 195-1 of the GST Act).

Under section 995-1 of the ITAA 1997 Australian government agency means

(a) the Commonwealth, a State or a Territory; or

(b) an authority of the Commonwealth or of a State or a Territory.

An authority of the Commonwealth or of a State or a Territory means a body which is given the power to direct or control the affairs of others on behalf of the Commonwealth, State or Territory. (see, for example, Committee of Direction of Fruit Marketing v Delegate of the Australian Postal Commission (1980) 144 CLR 577 per Gibbs J).

We consider that you are not an authority of the Commonwealth or of a State or Territory, and are therefore not an Australian government agency. This view is based on our review of your relevant establishing legislation. Under that legislation local health areas have been established, which then have the authority to establish such hospitals, health institutions, health services or health support services as the area thinks necessary for the exercise of its functions. We consider that you have been established pursuant to this framework. We note that under the legislation a local health area does not represent the Crown. Therefore it follows that the same applies for you, and you are not an authority of the Commonwealth, a State or a Territory.

Therefore section 38-60 of the GST Act of the GST Act cannot apply to make the clinic's health related supplies to you GST-free, as you are not an Australian government agency.

Conclusion

As there is no provision in the GST Act that applies to treat the supply by the clinic to you as GST-free, the supply of services to you by the clinic is therefore a taxable supply (assuming that the clinic is registered for GST and meets the other requirements of section 9-5 of the GST Act).

When a taxable supply is made to you, the supplier must provide you with a tax invoice that shows the amount of GST payable in relation to each supply to which the tax invoice relates. The supplier is liable for remitting the GST on their taxable supplies.

We note that where you are the recipient of a taxable supply in the course of your enterprise you make a creditable acquisition, and are therefore entitled to claim input tax credits (section 11-5 of the GST Act).

Question 2

Summary

For the reasons given above, when the clinics invoice you for services they provide under your contract they are invoicing you for a supply that they are making to you. It does not matter whether the supply is made within normal business hours or after-hours.

This supply is not a GST-free supply, and will be a taxable supply where the clinic meets the requirements of section 9-5 of the GST Act. The supplier (clinic) must issue you with a tax invoice and remit any GST payable on this supply. You may claim input tax credits for your creditable acquisitions.

Question 3

Summary

You have asked about the role of RCTIs and whether they are required in your circumstances. We provide the following general information.

Detailed reasoning

We note that you have advised that you already receive invoices from your supplier. Where these meet the requirements of a tax invoice, you do not need to consider issuing an RCTI.

However, for general information, an RCTI is a tax invoice that is issued by the recipient of services (for example, you) rather than the supplier (for example, the clinic). RCTIs can only be issued by a recipient if:

· the recipient and the supplier are both registered for GST

· the sales for which the recipient can issue a RCTI are agreed to in writing by the recipient and the supplier (either in a separate written agreement specifying the supplies to which each agreement relates, or by putting relevant information showing this agreement in the tax invoices they issue)

· the agreement is current and effective when the RCTI is issued

· the services under the agreement are of the type that we have determined can be invoiced using RCTIs.

There are also a number of requirements that the recipient and the supplier must meet for an RCTI to be valid. These are explained in the fact sheet 'Recipient created tax invoices' that is available on our website (www.ato.gov.au)

Question 4

You do not have a GST liability when the clinics provide services directly (in their own right) to private patients in your premises. The clinics invoice the client directly.

In these circumstances the clinic is the supplier, and it is the supplier that must pay the GST if they make a taxable supply.

We note that, for general information only, where the supply is made directly to the patient the supply may be a GST-free supply of medical services. Also, it may be a supply of GST-free medical services where the supply is subject to a Medicare benefit.

However, as stated above, it is the supplier (the clinic) who determines the GST status of a supply and remits the GST to the ATO.