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Ruling
Subject: GST status of paper for ECG machines
Question: Is the supply of paper for use in connection with ECG (electrocardiograph) and similar machines a GST-free supply?
Answer: No, the supply of paper used in connection with ECG and similar machines is not a GST-free supply
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You supply cardiograph recording paper to be used in ECG and similar machines.
The machines are used by hospitals and other medical centres to record and monitor a patient's heart rate.
The papers are specialised in that different machines require different types of paper.
The paper allows the medical practitioner to keep a record of the patient's heart condition as determined by the machine.
You supply the paper for use in the machines, but not the machines
There is no agreement between you and your customers to not treat your supplies as GST-free.
You were issued with a private binding ruling (PBR) which advised that the supply of paper was GST-free.
This decision has been re-examined and is now considered to be incorrect
A replacement ruling will now be issued
Reasons for the Decision
Division 38 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the supplies that are GST-free. Subsection 38-45 of the GST Act provides that:
(1) A supply is GST-free if:
(a) it is covered by Schedule 3 ( medical aids and appliances) or specified in the regulations; and
(b) 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.
(2) A supply is GST-free if the thing supplied is supplied as a spare part for, and is specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection (1).
(3) However, a supply is not GST-free under subsection (1) or (2) if the supplier and the recipient have agreed that the supply or supplies of a kind that include that supply, not be treated as GST-free supplies.
Paragraph 38-45(1)(a) of the GST Act is satisfied where the item is covered under Schedule 3. The relevant item number in relation to the ECG machines is item 1 in the table in Schedule 3 to the GST Act (Item 1), which list 'heart monitors'.
The term 'heart monitors' is not defined in the GST Act. The Stedman's Medical Dictionary (2000), 27th edition, Lippincott Williams & Williams, Baltimore, defines a cardiac (heart) monitor as 'an electronic monitor which, when connected to the patient, signals each heart beat with a flashing light, an electrocardiograph curve, an audible signal, or all three'. Accordingly, a device with a primary function of monitoring a patient's heartbeat, is a heart monitor and is covered by Item 1.
You advised that the ECG machines are designed for people with an illness or disability and are not widely used by people without an illness or disability. Therefore, the requirements of paragraph 38-45(1)(b) of the GST Act are satisfied. A supply of an ECG machine is therefore a GST-free supply under subsection 38-45(1) of the GST Act.
Spare parts
You advised that you supply paper for use in connection with ECG and similar machines. You do not however, supply the machines themselves. A supply of paper is not a supply of a medical aid or appliance and does not satisfy the requirements of subsection 38-45(1) of the GST Act.
It is necessary to determine whether your supply of paper satisfies the requirements of subsection 38-45(2) of the GST Act as a supply of spare parts for ECG and similar machines.
The term 'spare part' is not defined in the GST Act. The Macquarie Dictionary (2001), 5th edition, defines a spare part, amongst other things as 'a part which replaces a faulty, worn, or broken part of a machine'.
We consider that your specialised paper does not replace a faulty, worn or broken part of an ECG machine. Therefore, it does not satisfy the definition of a 'spare part' as given in The Macquarie Dictionary.
In general, a spare part is an integral part of a machine or appliance, without which the machine or appliance will not work. In this case the ECG machines will work without the paper. However, the results will not be recorded.
Therefore, even though this paper is specifically manufactured for ECG machines, the paper cannot be treated as a spare part of an ECG or similar machine. It is simply an ancillary item to be used in ECG and similar machines.
The supply of specialised paper to be used in ECG and similar machines cannot be treated as a supply of spare parts for ECG and similar machines. Accordingly, the supply of your specialised paper cannot be treated as a GST-free supply of spare parts under subsection 38-45(2) of the GST Act.
Based on the information provided, we consider that the supply of your specialised paper is not a GST-free supply.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - Section 38-45