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Ruling

Subject: GST and medical services

Question 1

Is the supply of your services to the clinic GST-free under section 38-7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are registered for GST

You are a contractor to the clinic

A is a doctor and is your sole director

A works in the clinic and the payments for A's services were paid by the clinic to you

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 9-30(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-7(1).

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

Health Insurance Act 1973

Reasons for decision

Summary

The services provided by you to the clinic do not fall within the definition of a 'medical service' as defined in the GST Act. You provide contracted professional medical services to the clinic. Therefore, the supply of such services by you will be taxable supplies and GST will apply.

Detailed reasoning

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) Act you make a taxable supply if:

the supply is made for consideration;

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

the supply is connected with Australia; and

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 services to the clinic 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 services satisfies all the requirements of paragraphs 9-5(a) to (d) of the GST Act, as follows:

You make a supply of services and in return you will receive consideration for the supply by way of payment;

You supply the services in the course or furtherance of your business (enterprise);

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

You are registered for GST in Australia.

Hence, your supply of professional services to the clinic is taxable to the extent that it is not GST-free or input taxed.

The supply of services by you 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

Section 38-7 of the GST Act provides that a supply of a medical service is GST-free.

Under section 195-1 of the GST Act, a medical service is defined to mean:

a service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973; 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.

However, under subsection 38-7(2) of the GST Act, a medical service is not GST-free under subsection 38-7(1) of the GST Act if:

it is a supply of a professional service rendered in prescribed circumstances within the meaning of regulation 14 of the Health Insurance Regulations made under the Health Insurance Act 1973 (other than prescribed circumstances set out in regulations 14(2)(ea), (f) and (g); or

it is rendered for cosmetic reasons and it is not a professional service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973.

Therefore, provided subsection 38-7(2) of the GST Act is not satisfied it is appropriate to consider subsection 38-7(1) of the GST Act.

The definition of a 'medical service' has two limbs. Any service that falls within either the first or second limb of the definition is GST-free.

Explanation of definition's first limb

A service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973, is GST-free under the first limb of the definition. Any service, for which a Medicare benefit is not payable, must be addressed under the second limb of the definition. For the first limb it should be noted that unlike the second limb, the supply does not have to be made by a *medical practitioner or *approved pathology practitioner.

Note: The * denotes a defined term in the GST Act

Explanation of definition's second limb

The second limb of the definition of '*medical service' contains a number of elements. All of these elements must be satisfied before a service will be a medical service under the second limb.

The first element is that the service must be supplied by or on behalf of a *medical practitioner or an *approved pathology practitioner. The second element is that the service supplied must be generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

Meaning of 'service supplied by or on behalf of a *medical practitioner or *approved pathology practitioner'

The phrase 'on behalf of' for the purposes of the definition of '*medical service' means the performance of a component of the service provided by a practitioner that is not necessarily supervised by that practitioner. An example is where a laboratory technician assists in undertaking pathology testing of specimens.

However, 'on behalf of' does not include a service performed on referral by another person. A service performed on referral by another person, is not a component of the supply being provided by the first practitioner. The service being provided by the second person will be a separate supply, the GST-free status of which must be examined by reference to the supply by that second person.

Meaning of 'generally accepted in the medical profession as being necessary for the appropriate treatment'

The above requires interpretation as to what is meant by 'generally accepted' and 'appropriate treatment'.

'Appropriate treatment' will be established where the practitioner assesses the recipient's state of health and determines a process to pursue in an attempt to preserve, restore or improve the physical or psychological wellbeing of the recipient and will include subsequent supplies for the assessed process. 'Appropriate treatment' includes the principles of preventative medicine.

In addition, the definition requires the treatment must be generally accepted in the medical profession as being necessary. The particular service being provided by the *medical practitioner or *approved pathology practitioner and the circumstances in which it is provided must be generally accepted by the medical profession. The words 'generally accepted in the medical profession' indicate that it will ultimately be the medical profession that determines what services will be generally accepted.

Meaning of 'the *recipient of the supply'

Section 195-1 defines '*recipient' in relation to a supply to mean the entity to which the supply was made. In some circumstances, the '*recipient of the supply' is not the patient of the practitioner but is a third party such as an employer. 'Appropriate treatment' will not include supplies undertaken for a third party that does not encompass the concept of treatment.

For example, an insurance company is a third party who may be the actual '*recipient of the supply', where an assessment of a person is made for insurance purposes. There is no actual treatment involved and such a supply will be taxable.

Your situation

In your situation, you are contracted by the clinic to provide medical services to their patients. You are making a supply of professional services of delivering medical services to the clinic. It is the clinic that bills the patient and receives payment from the patient. You are then paid by the clinic for this supply. When you provide your services to the clinic, this is not a component of the supply of a medical service being provided to the patient. The service being provided by you will be a separate supply, the GST-free status of which must be examined by reference to the supply itself.

You are making a separate supply of professional services and the clinic is the recipient of this supply, thus you are making a supply to an entity (not to the patient). As such, the supply is not for the appropriate treatment of the 'recipient' of the supply. The services you supply to the clinic do not fall under paragraph (b) of the definition of 'medical service' in section 195-1 of the GST Act. Therefore, the supply of your services is not GST-free under section 38-7 of the GST Act.

You are not making a GST-free supply of medical services when you supply your services to the clinic and in return receive consideration for this supply.

There are no other provisions in the GST Act under which the supply of your services to the clinic is GST-free.

As the supply of your professional services satisfies all the requirements of section 9-5 of the GST Act, you are making a taxable supply and you are liable to remit GST equal to 1/11^th of the professional fees you receive from the clinic.