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Ruling

Subject: GST and supply of drugs and medicinal preparations

Question 1

Are your supplies of Product A to customers such as supermarkets and other pharmaceutical suppliers/wholesalers GST-free?

Answer

No, your supplies of Product A to supermarkets and other pharmaceutical suppliers/wholesalers are not GST-free. Such supplies are taxable and subject to GST.

Question 2

Are supplies of Product A provided by supermarkets directly to an individual for their own private or domestic use or consumption, GST-free?

Answer

No, supplies of Product A provided by supermarkets are not GST-free. Such supplies are taxable and subject to GST.

Question 3

Are your supplies of Product B to pharmacies or medical practitioners GST-free?

Answer

No, your supplies of Product B to pharmacies or medical practitioners are not GST-free. Such supplies are taxable and subject to GST.

Question 4

Are supplies of Product B provided by pharmacies or medical practitioners directly to an individual for their own private or domestic use or consumption, GST-free?

Answer

Yes, supplies of Product B, provided by pharmacies or medical practitioners, directly to an individual for their own private or domestic use or consumption, are GST-free.

Relevant facts and circumstances

You sponsor Product A and Product B in Australia under licence from another manufacturer.

Product A is for general sale and is not classified under the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP).

Product B can only be supplied by a medical practitioner, dental practitioner or pharmacist and is classified as a Schedule 2 (S2) medication with 'Prescription Only Medicine' stated on the packaging.

You supply Product A to supermarkets and other pharmaceutical suppliers/wholesalers. You supply Product B to pharmacies or medical practitioners.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-50(2),

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-50(7) and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision

GST is payable on any taxable supplies that you make. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

(a) the supply is made for consideration;

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

(c) the supply is connected with Australia; and

(d) 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.

Accordingly, your supply of Product A and Product B will be a taxable supply if it meets all the requirements in section 9-5 of the GST Act.

From the facts given, your supply of Product A and Product B satisfies all the requirements of paragraphs 9-5(a) to (d) of the GST Act, as follows:

(a) You make a supply of Product A and Product B and in return you will receive consideration for the supply by way of payment;

(b) You supply Product A and Product B in the course or furtherance of your business (enterprise);

(c) You supply Product A and Product B through an enterprise that you carry on in Australia (and therefore the supply is connected with Australia); and

(d) You are registered for GST in Australia.

Hence, your supply of Product A and Product B to supermarkets is taxable to the extent that it is not GST-free or input taxed.

The supply of Product A and Product B does not satisfy any of the input taxed provisions under the GST Act. The GST-free provisions under the GST Act must also be taken into consideration.

GST-free drugs and medicinal preparations

The rules dealing with GST-free drugs and medicinal preparations are detailed in section 38-50 of the GST Act. For a supply of a drug or medicinal preparation to be GST-free under section 38-50 of the GST Act, the supply must first satisfy the requirements in subsection 38-50(7) of the GST Act. Where this condition is met, the supply must also satisfy the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4), 38-50(5) or 38-50(6) of the GST Act.

Subsection 38-50(7) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free under this section if:

(a) the drug or medicinal preparation is for human use or consumption, and

(b) the supply is to an individual for private or domestic use or consumption.

Subsection 38-50(2) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free if, under a State law or a Territory law in the State or Territory in which it is supplied, the supply of the drug or medicinal preparation to an individual for private or domestic use or consumption is restricted, but may be made by:

(a) a medical practitioner, dental practitioner, or pharmacist, or

(b) any other person permitted by or under that law to do so.

For example, an item that is listed in Schedule 2 of the SUSDP (restricted drugs) would be covered by subsection 38-50(2) if supplied to an individual for their private use, by a medical practitioner. However when this same Schedule 2 drug is supplied by you to another wholesaler or pharmacy, then this is not a GST-free supply, as the supply of drugs by you is not being made to an individual patient for their own private or domestic use.

Question 1

With specific reference to Question 1, when you supply Product A to supermarkets or other pharmaceutical suppliers/wholesalers, this supply is not GST-free. The supply of the product to the supermarket does not satisfy subsection 38-50(7) of the GST Act as the supply is not made to an individual for private or domestic use. As subsection 38-50(7) is not satisfied, we do not need to consider the other subsections of section 38-50 of the GST Act further as this is not a GST-free supply. When you supply Product A to a supermarket, this is a taxable supply and is subject to GST.

Question 2

In addition to the reasons for decision to Question 1, we advise the following:

When a supermarket supplies Product A directly to an individual for their own private or domestic use or consumption, this does satisfy 38-50(7) of the GST Act. To be GST-free the supply must also satisfy the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4), 38-50(5) or 38-50(6) of the GST Act. To satisfy one of these subsections, a drug must be a drug supplied on prescription, a drug listed in one of the Schedules of the SUSDP, a drug supplied as a pharmaceutical benefit under the Veterans Entitlements Act 1986 or the Military Rehabilitation and Compensation Act 2004, as an analgesic, or as a drug approved under the Therapeutic Goods Act 1989.

You advised that Product A is not listed under the SUSDP and you have not provided evidence that the product satisfies any of the other provisions regarding pharmaceutical entitlements. We consider that section 38-50 of the GST Act does not apply to make the supply of this product, a GST-free supply.

Therefore supplies of Product A by supermarkets are not GST-free. Such supplies are taxable and subject to GST.

Question 3

In addition to the reasons for decision to Question 1, we advise the following:

The supply of Product B does not satisfy any of the input taxed provisions under the GST Act; we need to consider if the GST-free provisions of the GST Act apply to this supply.

You are supplying Product B to pharmacies or medical practitioners. This supply does not satisfy subsection 38-50(7) of the GST Act as your supply is not provided to an individual for their own private or domestic use or consumption. As the conditions of this subsection are not satisfied, section 38-50 does not apply and this is not a GST-free supply. This supply is a taxable supply and is subject to GST.

Question 4

In addition to the reasons for decisions in Question 1 and Question 3 above, we advise the following:

The supply of Product B by pharmacies or medical practitioners, directly to an individual for their own private or domestic use or consumption, satisfies the requirements in subsection 38-50(7) of the GST Act. To be GST-free the supply must also satisfy the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4), 38-50(5) or 38-50(6) of the GST Act.

Product B is listed in Schedule 2 of the SUSDP, which means that the supply of this drug is covered by subsection 38-50(2) of the GST Act if supplied by a medical practitioner or pharmacy, to an individual for their private use.

Accordingly supplies of Product B by pharmacies, medical practitioners or other pharmaceutical suppliers/wholesalers, directly to an individual for their own private or domestic use or consumption, are GST-free.