Edited version of your private ruling

Authorisation Number: 1012442382874

Ruling

Subject: GST and various supplies relating to GST-free medical aids and appliances and/or spare parts

Questions

1. Is your supply of repair services (including labour, service, and components) of GST-free medical aids and appliances and/or spare parts (products) a GST-free supply?

2. Is your supply of testing and installation services of your products, to your Australian customers, a GST-free supply?

3. Is your supply of delivery services, when you deliver the products to your clients' premises, a GST-free supply?

4. Is your supply of travel charges to a customers' premises to install, test, or repair of the products GST-free supply?

5. Is your supply of consultancy services (administrative costs in preparing quotes and obtaining GST-free spare parts) to customers, a GST-free supply?

Answers

1. The repair service of a medical aid/appliance would usually be considered a mixed supply of GST-free medical aid/appliance and taxable supply of repair service. In some circumstances, the repair service can form a part of the supply of a medical aid or appliance and be GST-free. This would be where the repair is considered as being integral, ancillary or incidental to the dominant part of the supply of a medical aid or appliance. Please see the reasons for the decision.

2. Please see general guidance provided for different scenarios of testing and installation services of the products.

3. No, your supply of delivery of the products is not a GST-free supply, it is a taxable supply.

4. No, your supply of travel charges to customers' premises to install, test, or repair of the products is not a GST-free supply, it is a taxable supply.

5. No, your supply of consultancy services (administrative costs in preparing quotes and obtaining GST-free spare parts) to customers is not a GST-free supply, it is a taxable supply.

Relevant facts and circumstances

You are an Australian company and you are registered for GST.

You sell and hire rehabilitation equipment and other daily living aids to hospitals, nursing homes, and disabled individuals. You service, modify and repair rehabilitation equipment and living aids.

You do not seek a ruling on whether the products that you supply are GST-free medical aids or appliances or spare parts specifically designed for a GST-free medical aid or appliance.

You provided the ATO with invoices that include labour, repairs and delivery charges.

Your consultancy services refer to your administrative costs in preparing quotes and obtaining GST-free spare parts for a medical aid or appliance.

In relation to delivery, you have a showroom and a website. The products are supplied to customers at the showroom/retail outlets. Alternatively, you will deliver the products at the customer's request. Delivery service is optional.

You have not provided an invoice or detail of your installation services. You wish to receive general guidance on this installation service and the testing service. The testing relates to the supply of installation of the medical aid or appliance and is part of the Quality Assurance process relating to the supply of installation of the medical aid or appliance.

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, Section 38-45

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

A New Tax System (Goods and Services Tax) Act 1999, Schedule 3

Reasons for decision

A supply 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 satisfied. Section 9-5 of the GST Act 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 under section 195-1 of the GST Act)

Based on the facts provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as the supply made by you will be for consideration, made in the course of an enterprise carried on by you, you will supply the services in Australia, and you are registered for GST.

Section 38-45 of the GST Act states:

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.

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

1. Repair service:

Issue 2.a.15 in GST Health Industry Partnership - Issues Register states:

Repairs to GST-free medical aids and appliances (which may include the supply of spare parts)

Where specifically designed spare parts (for example artificial teeth and clasps) are supplied in one transaction which also includes labour/service components (such as the installation of the specifically designed spare parts), the GST treatment of the transaction will depend on how the supply is characterised.

The characterisation will depend on the circumstances of each transaction and reference should be made to public ruling GSTR 2001/8 This ruling explains how you apportion the consideration for a supply that includes taxable and non-taxable parts and also when apportionment is not required.

Goods and Service Tax Ruling (GSTR) 2001/8 state:

Mixed supply

16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

16A Paragraphs 45 to 54C of this Ruling explain how to identify whether a supply has separately identifiable parts.

Composite supply

17. In this Ruling, the term 'composite supply' is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. Paragraphs 55 to 63 explain what integral, ancillary or incidental parts are.

18. A composite supply is either taxable or non-taxable. It may also be a part of a larger mixed supply.

18A. You need to consider all of the circumstances of a supply to work out whether the supply is mixed or composite. GST is only payable on the taxable part of a mixed supply. If a composite supply is taxable, then GST is payable on the whole supply. If a composite supply is non-taxable, then no GST is payable on the supply.

Differentiating between mixed and composite supplies

19. Where a transaction comprises a bundle of features and acts, you must consider all of the circumstances of the transaction to ascertain its essential character. You also need to consider the effect the GST Act has on the supply or any of its individual parts. You can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were a separately identifiable part of a mixed supply) does not exceed the lesser of:

• $3.00; or

• 20% of the consideration for the total supply.

22. If you choose not to apply this approach, then you need to make an objective assessment about whether the thing is integral, ancillary or incidental.

GSTR 2001/8 further explains what integral, ancillary or incidental parts are as follows:

52. The Commissioner's view is that a supply has separately identifiable parts where the parts require individual recognition and retention as separate parts, due to their relative significance in the supply. This view applies where the supply is comprised of a mix of separate things, such as various combinations of goods and services, including the provision of advice.

54. Any of the separately identifiable parts that comprise a mixed supply may themselves be composite, being comprised of a dominant part and an integral, ancillary or incidental part….

Integral, ancillary or incidental parts

55. Some supplies include parts that do not need to be separately recognised for GST purposes. We refer to these parts of a supply as being integral, ancillary or incidental. In a composite supply, the dominant part of the supply has subordinate parts that complement the dominant part. If such a supply is analysed in a commonsense way, it can be seen that the supply is essentially the provision of one thing. It need not be broken down, unbundled or dissected any further. For this reason, a composite supply may appear, at first, to have more than one part, but is treated as if it is the supply of one thing.

58. You will need to consider all of the facts to determine whether the supply that you make has any parts that are integral, ancillary or incidental.

59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a commonsense and practical approach, indicators that a part may be integral, ancillary or incidental include where:

· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

· it represents a marginal proportion of the total value of the package compared to the dominant part; or

· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

· it contributes to the proper performance of the contract to supply the dominant part.

59A. The factors listed in paragraph 59 of this Ruling are not necessarily the only ones that may be taken into account in properly characterising a supply. In any given case there may be other particular circumstances that are relevant. It may also be necessary to weigh up those factors which may point to part of a supply being integral, ancillary or incidental against the relative significance of the parts in the supply and therefore consider whether the parts should be recognised as separate parts. It is a question of fact and degree whether a supply is mixed or composite.

60. As a means of minimising compliance costs, you may treat something (or things taken together) as being integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:

· $3.00; or

· 20% of the consideration of the total supply.

Examples of mixed supplies

73. Terrence supplies a promotional pack that consists of 'Toff's Tea' and a china cup and saucer. The tea is GST-free, and the cup and saucer are taxable. Each part of the supply has significant value. This is a mixed supply because the tea, and the cup and saucer are separately identifiable, and each would not be considered merely incidental or ancillary to the other.

Examples of composite supplies

Example 9 - delivery of GST-free goods

77. A customer of 'Net-it-out' places an order for GST-free food through the internet. Net-it-out supplies the goods to the customer's doorstep for the price listed on its internet site. In this case, Net-it-out is making a supply of delivered GST-free goods, and has no liability to account for GST on the delivery of them. In this case, delivery is an integral, ancillary or incidental part of a supply as the supply is of delivered goods

Example 13 - fitted car parts

81. Justine sells tyres for a price that includes fitting and balancing. The fitting and balancing of the tyres are necessary procedures in providing the tyres, and are not supplies in their own right. The fitting and balancing represents a small proportion of the value of the transaction for the supply of tyres and is integral, ancillary or incidental to the supply of the tyres. The essential character of the transaction between Justine and Madge is the taxable supply of tyres. In similar circumstances, the fitting of a windscreen, battery or muffler would also be integral, ancillary or incidental to the supply of those parts. In this example, all the parts of the supply are taxable and it would therefore be of no consequence if the fitting and balancing of the tyres was a separately identifiable part

Issue 4.a.2 in the GST Health Industry Partnership - Issues Register provides guidance for determining whether the repair of medical aids and appliances is GST-free under section 38-45 of the GST Act.

4.a.2. Where a medical aid or appliance is repaired, will the repair be GST-free?

Non-interpretative - straight application of the law.

There is no provision for the labour component of repairs to be GST-free. By section 38-45(2) a spare part for, which is specifically designed as a spare part for, a GST-free supply under section 38-45(1) will be GST-free.

You provided 3 invoices for repair service.

Invoice 1 outlines the removal of an old pan carrier on the shower commode and a new replacement pan carrier for the client. You have not charged separately for your repair service, and the price in the invoice is the replacement cost of a new pan carrier. You did not charge GST on this amount since it is a supply of a spare part of a medical aid/appliance.

Invoice 2 is for the repair of seat padding on a medical aid. The price on the invoice is the GST inclusive repair cost.

Invoice 3 shows you charged no GST on the cost of a shower chair, you charged GST on the repair cost to remove a spare part and fit a new spare part to the shower chair.

We agree with your GST treatment of the above three invoices. In the first invoice, we characterise the repair service as a composite supply, the dominant part of the supply (the supply of the new pan carrier) has subordinate parts (the labour to replace the new pan carrier) that complement the dominant part. The labour cost is a necessary procedure in providing the new pan carrier, and is not a supply in its own right. The labour service represents a small proportion of the value of the transaction for the supply of the new pan carrier and is integral, ancillary or incidental to the supply of the new pan carrier. The whole supply is essentially the provision of one thing, the new pan carrier. If the pan carrier is a GST-free medical aid/appliance, then the supply is GST-free.

In the second invoice, there is one single supply of repair services, it is the labour component of the repair service, and it is a taxable supply (Issue 4.a.2 in the GST Health Industry Partnership - Issues Register).

In the third invoice, your supply is characterised as a mixed supply of GST-free spare part of medical aid/appliance and taxable supply of repair service.

Accordingly, if you replace spare parts specifically designed for a GST-free medical aid or appliance, your supply of the spare parts will be GST-free. However, if you supply the repair of the products, the labour component of repairs does not satisfy all of the requirements of subsection
38-45(1) of the GST Act, and is not GST-free. Nor is that supply GST-free under any other provision of the GST Act. Your supply of repair of the products to a customer in Australia is a taxable supply and you are liable to pay GST on that supply.

2. Testing and Installation service

Taxable supply:

The testing and installation service of medical aid/appliance could be considered a mixed supply of a GST-free medical aid/appliance and taxable supply of testing and installation service.

GST-free supply:

In some circumstances, the testing and installation will form a part of the supply of a medical aid or appliance listed in Schedule 3 in Section 38-45 of the GST Act and be GST-free. In these scenarios, the testing and installation service of medical aid/appliance is considered as being integral, ancillary or incidental to the dominant part of the supply of a medical aid or appliance and hence, be a GST-free supply.

Per your request, we provide several scenarios for your guidance.

Issue 4.a.13 in the GST Health Industry Partnership - Issues Register provides guidance for determining whether the installation of medical aids and appliances is GST-free under section 38-45 of the GST Act.

4.a.13. Is the installation of medical aids and appliances GST-free under section 38-45?

This issue is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

Yes, in some circumstances installation will form a part of the supply of a medical aid or appliance listed in Schedule 3 and be GST-free. The following scenarios address the situations of the cost of installation. If installation is incurred in the course of carrying on an enterprise and is not covered by the following scenarios then the recipient of the installation would be entitled to claim an input tax credit for the GST paid by it.

1. A medical aid or appliance is built up in situ from various components to form part of the structure of a building or fixture or to form an integral part of other goods. The supply of the installed medical aid or appliance in this instance will be GST-free and would include a charge for installation.

2. A medical aid or appliance is built up in situ from a kit. The kit is incomplete in that it requires additional components and other things such as switches, wiring, plugs or connectors and the expertise of the installer. After construction is completed it is identifiable as a particular medical aid or appliance. The supply of the installed medical aid or appliance will be GST-free and would include a charge for installation.

3. A complete device (being a medical aid or appliance listed in Schedule 3) is attached to a building or fixture or attached to other property/goods. Where that attachment is not necessary for the aid or appliance to be able to be used for the function for which it is designed, the installation charge is a taxable supply and the supply of the medical aid or appliance itself is GST-free.

4. Schedule 3 contains certain items which include the word 'modifications', for example item 58 refers to 'motor vehicle modifications'. Where the item in Schedule 3 provides expressly for 'modifications' in the description of the item, both the provision of goods and any charge for installation in order to make the modification is GST-free.

5. Where the item in Schedule 3 or in the regulations provides for 'customised modifications for the aids or appliances' the carrying out of that modification will be GST-free. Additionally, where the medical aid or appliance is to be incorporated into other goods or property in order to enable its use, the supply of modifications, by necessity, made to those other goods or property will also be GST-free, for example modifications such as the strengthening of the framework of a shower recess for the purpose of installing a load bearing shower rail will be GST-free. However the mere installation of goods after modification (such as, screwing or attaching the item to a wall) will be subject to GST.

We have provided you with written general guidance as above. Written general guidance provides you with general principles of the operation of the law. Written general guidance does not interpret the law or apply it to your factual situation. The decision as to how those principles apply to your circumstances remains with you.

3. Delivery service:

Paragraphs 1 and 2 of Goods and Service Tax Determination (GSTD) 2002/3 "Goods and services tax: how do I account for GST when I supply taxable goods, non-taxable goods and delivery services together?" state:

1. Delivery services are often associated with the supply of goods. Where you supply goods delivered to an address specified by your customers, the facts will determine whether the goods and delivery are separate supplies, separately identifiable parts of a mixed supply, or a composite supply of delivered goods.

Supplies of goods and delivery services

2. You may make supplies of goods and delivery, or arranging delivery, under separate contractual arrangements. Alternatively, you may supply goods and a separate service of delivery under one contract where the goods and the delivery service are separately identifiable parts of a mixed supply. We consider that delivery is a separately identifiable part of a mixed supply where it is significant and could realistically be made as a separate supply. A delivery service is significant where it is an aim in itself. That is, your customers have a genuine choice under the contract about whether you deliver their goods. Such a choice is indicated where:

· your customers are not obliged to use your delivery service; and

· you provide reasonable access, at no extra charge, to customers who choose to make their own arrangements to collect the goods.

A delivery service may be a significant part of a mixed supply even if no separate amount is charged for the delivery.

You state that in relation to delivery of the products, you have a showroom and a website. The products are supplied to customers at the showroom/retail outlets. Alternatively, you will deliver at the customer's request. Delivery is optional.

Paragraphs 13 to 16 of GSTD 2002/3 states

Example 2 - optional delivery, separate charge

13. Lay hires out medical aids and appliances. They have a showroom and a website. They also issue catalogues to hospitals and medical centres.

14. The goods are supplied to customers at the showroom. Alternatively, Lay will deliver at the customer's request. Lay's GST inclusive delivery charges are:

· in the metropolitan area a flat fee of $5.50 applies, irrespective of how many aids or appliances are delivered; and

· outside the metropolitan area the fee is $15.

15. Felix hires a wheelchair and ventilator, both GST-free. Felix lives outside the metropolitan area and he arranges for Lay to deliver the appliances to his home. He is invoiced for:

16. Lay is making separate supplies of goods and a delivery service. The goods are GST-free, but the delivery service is taxable. Lay's GST liability on the supplies to Felix is $1.36.

Inn addition, paragraph 6 of GSTD 2002/3 states:

Supplies of goods and delivery services

6 Where you supply a delivery service that is a separate supply, or a separate part of a mixed supply, the supply of the service will be taxable regardless of whether the service is associated with the supply of taxable or non-taxable goods

You provided the ATO with 2 invoices showing delivery charge of a medical aid per hourly rate. In these two invoices, you charged a separate amount for the delivery and included GST on the cost of delivery.

We agree with your GST treatment of the above 2 invoices because we consider that the supply of the goods and the delivery services are separate supplies. Your delivery service is optional to customers and may depend on the distance of customers' premises to your retail outlets/showroom. Hence, your supply of delivery of the products to a customer in Australia is a taxable supply and you are liable to pay GST on that supply.

4. Travel charges to customers' place to install, test, or repair of the medical aid/appliance

We consider that a supply of travel service to install/repair the products is a separate supply to the supply of installation, testing or repairing in relation to the products. Where you supply travel service that is a separate supply, or a separate part of a mixed supply, then the travel service would be a taxable supply because there is no provision in the GST Act or any other Act which provide for travel service to install/repair medical aid/appliance in Australia to be GST-free.

5. Consultancy services

You state that your consultancy services include administrative costs in preparing quotes and obtaining GST-free spare parts. At the moment, you absorb consultancy charges into the labour component of your invoices.

We consider this service is a separate supply from the supply of the GST-free spare parts. There is no provision in the GST Act or any other Act for the administrative costs in preparing quotes and obtaining GST-free spare parts to be GST-free.