Edited version of your private ruling

Authorisation Number: 1012522617487

Ruling

Subject: GST and nursing agency services

Question:

Can an Australian entity (you) invoice the hospitals for the nursing agency services with goods and services tax (GST) charged on the commission/profit margin portion only and not the total invoice (which includes the nurses wages and superannuation)?

Answer:

No, you are supplying the (labour-hire) services of the nurses to the hospitals which are not GST-free and therefore you are required to charge GST on the total invoice(s) for these services to the hospitals.

However, in circumstances where you have an arrangement with the hospitals to supply a placement service supply and the nurses have a separate arrangement/agreement with the hospitals, you are only required to charge GST on your supply of the placement services only. The nurses and/or hospitals would have to determine their own GST obligations (if any) in relation to their services to the hospitals.

Relevant facts:

An Australian entity (you) carries on a business of providing nursing agency services. You are registered for goods and services tax (GST).

You provide nurses to the hospitals. Currently, you invoice the hospitals for your commission/profit margin amount and the wages and superannuation that are paid to the nurses.

You explain your business model (arrangements) as follows:

· The hospitals require nurses to fill ad‐hoc shifts that become available at short notice.

· The nurses want to find ad‐hoc casual work.

· You act as a go-between for these two parties (the hospital and nurse).

· When the nurse contacts you to find a shift they are added to an availability list for the type of work they want to do. The hospitals ring you to see if there is anyone available to suit their needs.

· You instruct the hospital who is available and they have the choice to accept or reject that nurse. When the hospital is satisfied with their choice you then contact the nurse to see if they will attend that hospital. The nurse has total discretion to say yes or no to the shift on offer by the hospital.

· When a match between the nurse(s) and the hospital is made the nurse attends at the hospital's designated time, gives the nursing services required by the hospital, under their rules and procedures. When the shift is completed the nurse leaves and the arrangement between the nurse and the hospital is over.

· You then invoice the hospital for the work completed by the nurses. Your invoice to the hospital currently includes nurse's payroll, superannuation and your commission/profit margin. GST is currently charged on all components of the invoice including wages and superannuation.

You advise that your commission/profit margin is charged to the hospitals for the following services carried out:

· Matching the hospitals and the nurses

· Managing the payment of the nurse's payroll on behalf of hospitals

· Sending payment summaries at the end of the financial year to the nurse and the Australian Taxation Office (ATO), on behalf of all the different hospitals that the nurses have attended during the year

· Payment of all PAYG, GST and superannuation of behalf of the hospitals.

You clarified that the payments of the nurses' payroll (wages, superannuation, and so on) would be done by or through you, and the payment summaries (and other reporting obligations) would be done by you and lodged in your name.

You explain that the nursing agency services to the hospitals have been operating for a long time, and the purpose of these services is the efficiency for all the parties.

You advise that you do not employ the nurses (that is, not your employees). You do not provide a quota of nurses to any hospital nor promise any quota of shifts to nurses. The nurse does not commit to participating in any structured work arrangements. All work is ad hoc as per the needs of the nurse and hospitals on the day. You have no control over what the nurse does when attending a shift. You have no control of the hours or the environment in which the nurse works and the patients they attend to. All nurses act under strict procedures laid down by the hospitals and under the specific instruction of doctors. You have no access to the workplace in which the nurses work and have no way of influencing anything that happens to the nurses within the hospital walls.

Your understanding is that the arrangement may not be in the form of a labour hire arrangement when applying the 'control tests'. That is, you do not control the nurses and what they do at the hospitals.

Other than the hospital information and invoicing rates (for the nurses) provided to the hospitals, you inform that you have no other written agreements/contracts with the hospitals. The hospitals accept and cancel shifts as they wish on a daily basis. Nurses attend shifts under their own choice and accept and cancel shifts as they wish on a daily basis. There are no agreements/contracts with patients or any other entities what‐so‐ever. The two parties you liaise with are the nurses and hospitals, solely at their discretion as to their level of participation.

You clarified that you are not aware of any separate written contracts/agreements between the nurses and hospitals.

You have provided a copy of a letter of introduction to the hospitals and examples of rates charged to the hospitals for nurses (which are based on classification, qualifications, days and times required). All rates are inclusive of nurse payroll, superannuation and workcover. You informed that approximately {X%} percent of these rates (ex GST) are for/cover nurses pay and superannuation.

You clarified that the rates quoted (and used to invoice the hospital for the nurses' services) are inclusive of wage, superannuation, and workcover for the nurses, and also your commission/profit margin.

The hospital information document provides the booking and cancellation requirements and states:

…

Bookings

Current registrations of nurses are scrutinised each year.

A cancellation fee is charged…

You perform a management service on behalf of the hospitals by providing a fully administered invoicing and payroll system inclusive of PAYG deductions, issuing of payment summaries, payment of superannuation entitlements and the payment of GST.

Invoices

The hospital is invoiced weekly according to the invoicing rates supplied GST is separately itemised and added to all invoices.

You have also provided a copy of the membership joining page (application) from your website which collects the details of the nurse(s) when joining. You inform that the only document that exists between the nurses and you are the membership joining page and the schedule of pay rates.

The membership application requests details of the nurse, including business and company details (such as ABN and GST registration status). The membership application states the following conditions for the nurse when working with you:

· I {nurse} agree that I am not employed by you and that I may come and go as I please and to choose the shifts, units and hospitals in which I wish to work.

· I will maintain a current registration with AHPRA [Australian Health Practitioners Regulation Agency] at all times.

· I will follow the protocols laid down by the hospitals in which I work at all times.

· I know of no reason that I would be deemed incompetent to work as a nurse.

There is no Medicare benefits paid to either the nurses or hospitals in relation to your agency nursing services.

There is no authority that impacts on the practices of nursing agencies in Australia. All nurses that attend shifts have current nursing registration with the Australian Health Practitioners Regulation Agency (AHPRA).

Approximately XX% of the invoice is for the nurse's wages and superannuation which are forwarded/paid to the nurses.

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 38-7

A New Tax System (Goods and Services Tax) Act 1999, Section 38-10

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

Reasons for decision

GST is payable on a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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 in section 195-1 of the GST Act)

Generally, it is the supplier who is liable to remit the GST to the ATO on any taxable supplies it makes.

One of the requirements for a taxable supply under paragraph 9-5(a) of the GST Act, is that the entity, being the supplier, makes a supply for consideration.

Goods and Services Tax Ruling GSTR 2006/9 discusses supplies. GSTR 2006/9 uses ten propositions to assist in analysing a transaction to identify the supply or supplies made in that transaction. The propositions are not universal as they may have exceptions or be qualified either by the operation of particular provisions of the GST Act, or by the facts and circumstances of a transaction.

Paragraph 52 of GSTR 2006/9 states:

Proposition 1: for every supply there is a supplier

52. The Commissioner considers that for every supply there is a supplier. The term 'supplier' is not defined in the GST Act. However, whenever the term is used in the Act it refers to the entity that makes a supply or is capable of making a supply.

The issue to be determined is which entity (whether you or the nurse(s)) is making the supply (supplier) to the hospitals.

From the facts provided, you supply nursing agency services by providing the nurses to the hospitals. Under your business model (arrangements), when a hospital requires a nurse to fill ad-hoc shifts, you match the hospital with a nurse (who wants to do the ad-hoc casual work, but are not your employees). When both parties (the hospital and nurse) agree to the arrangements (that is, selection of the nurse, and acceptance of the work at the hospital), the nurse attends the hospital to provide the nursing services (under instructions, rules and procedures of the hospital). You then invoice the hospital for the work completed by the nurses. Your invoice to the hospital covers nurse's payroll, superannuation, and your commission/profit margin. You forward/pay the wages and superannuation to the nurses.

The hospital is invoiced weekly according to the invoicing rates quoted for the services of the nurses. You informed that approximately XX percent of these rates (ex GST) are for/cover nurses' wages and superannuation. This would indicate that the remaining percentage of these rates charged to the hospital would be your commission/profit margin. You have confirmed that the rates quoted to the hospitals are inclusive of nurse's wages, superannuation and your commission/profit margin. You advise that your commission/profit margin is charged to the hospitals for the services carried out in matching the hospitals and the nurses, and other management/administrative tasks done for/on behalf of all the different hospitals.

Labour hire arrangements

The facts outlined above indicate that you, the nurses and hospitals may have a labour-hire arrangement(s) in place in relation to the supply of the services of the nurses.

To explain labour-hire arrangements, the ATO factsheet PAYG withholding and labour-hire firms states:

What is a labour-hire or on-hire arrangement?

You operate a labour-hire firm, if under a labour-hire arrangement:

· you arrange for workers to perform work or services directly for clients

· the client pays you for this service

· you pay the worker for work performed for, or services provided to, the client

· the worker is not an employee of the client

· you may or may not employ the worker.

A diagram of the arrangement was provided.

Labour-hire can be called different names, including employment agent/agency, contract management, and recruitment services.

Taxation Ruling TR 2005/6: PAYG- withholding from payments to employees discusses the who is an employee within the ordinary meaning of that expression (paragraphs 17 to 19) and the key indicators of whether an individual is an employee or independent contactor (including the 'control test' for an 'employee' at paragraph 26 onwards). Superannuation guarantee SGR 2005/2: work arranged by intermediaries also discusses tripartite working arrangements and employment relationship.

Although you have stated that the nurses are not your employees (taking into consideration the control test), this does not mean that there is no labour-hire arrangement in place (as per the factsheet above, you may or may not employ the worker, being the nurse) for GST (and PAYG) purposes.

We consider the GST implications of the labour-hire arrangements in relation to GST.

Goods and Services Tax Determination GSTD 2000/12 covers whether the provision of labour hire services is a taxable supply. Paragraph 1 of GSTD 2000/12 provides that the labour-hire service provided by a labour hire firm (the firm) to the end consumer (the user) of the firm's service is a taxable supply (provided all the requirements in section 9-5 of the GST Act are satisfied).

Paragraphs 3, 4 and 9 of GSTD 2000/12 state:

3. The firm, with respect to the worker:

· advertises, screens, and selects;

· coordinates appointments with the user of the service;

· pays salary and other costs;

· withholds Pay As You Go (PAYG) withholding amounts and sends those amounts to the Australian Taxation Office (ATO); and

· is the party to whom the user seeks a remedy if the worker does not perform as required.

4. The firm, with respect to the user:

· is the party to whom the worker is contracted;

· is the party with whom the user contracts; and

· invoices the user for the time the worker is appointed. The service fee is based on the wages and related costs of the worker borne by the firm.

9. Under a labour hire arrangement the entity paying the worker is the firm and the payments to the workers will be subject to withholding under the PAYG withholding system.

Paragraph 10 of GSTD 2000/12 provides an example:

Example

10. Staffprovider Ltd is registered for GST purposes, and keeps a database of skilled persons who are willing for their services to be provided to third parties. Staffprovider arranges with Corporate Pty Ltd, which is registered for GST purposes, to provide to it the services of a computer programmer in return for payment of $ 2,200 per month. Staffprovider arranges with Jane for her to do computer programming, for $1,001 per month for Corporate. Staffprovider must withhold PAYG amounts of $87 per month from payments it makes to Jane under the arrangement with her. GST of $200 is payable by Staffprovider on the monthly service fee of $ 2,200, (which is calculated in relation to wages and other costs) charged for the service provided to Corporate.

The facts indicate that you screen the registrations of the nurses; you arrange for the nurses (being the workers) to perform work or services directly for the hospitals (being the clients); you invoice the hospitals and the hospitals pay you for these services in accordance with the hospital agency rates (which is inclusive of all payments to/for the nurses and your commission/profit margin); you pay the nurses for work performed for, or services provided to, the hospitals; and you (in your name) have been responsible for any reporting obligations to the ATO for the services of the nurses.

Although the nurses are not your employees, you have also informed that the nurses are not employees of the hospitals (that is, there are no separate written contracts/agreements entered into between the nurses and hospitals). Given the information provided, we consider that there would be an understanding (or oral agreement) between you and the nurses as to how much they are paid in return for their services, for which you are liable to pay (forward to) them. Further, even though there is no specific 'written' agreement for the supply to the hospitals, there is an understanding between you and the hospitals as to what is to be provided (the nurses) and how much is paid for the services of the nurses.

Accordingly, there is a labour hire arrangement(s) for the supply of the services of the nurses to the hospitals in return for the invoicing rates quoted/charged, and you are the entity (supplier) making the supply of the nursing services to the hospitals. In this circumstance, there is no separate supply of your agency services.

The facts provided indicate that you have satisfied all the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because the supply is for consideration; the supply is made in the course of your business; the supply is connected with Australia (as the services are performed in Australia or made through a business in Australia), and you are registered for GST. Therefore, the supply of the services of the nurses is taxable unless the supply is GST-free or input taxed.

The supply of the services of the nurses to the hospitals is not input taxed. We consider whether the supply is GST-free.

GST status of the supply of nursing services to the hospitals

Subdivision 38-B of the GST Act covers the supplies of health services and goods which are GST-free. Of relevance to the supply of nursing services are subsections 38-7(1) and 38-10(1) of the GST Act.

Subsection 38-7(1) of the GST Act

Subsection 38-7(1) of the GST Act states that a supply of a 'medical service' is GST-free. 'Medical service' is defined in section 195-1 of the GST Act:

Medical service means:

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

(b) 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.

You advise that there is no Medicare benefits paid to either the nurses or hospitals in relation to your agency nursing services.

ATO Interpretative Decision ATO ID 2003/1157 covers the medical services to a health service provider.

Where no Medicare benefit is payable on the supply of the services of the nurses made to the hospitals, or the supply is not made by (or on behalf of) a medical practitioner/approved pathology practitioner (and not for the appropriate treatment of the recipient of the supply), the supply is not GST-free under subsection 38-7(1) of the GST Act.

The GST-free supply of other health services under subsection 38-10(1) of the GST Act is also taken into consideration.

Subsection 38-10(1) of the GST Act

A supply of health service is GST-free when it satisfies all the requirements in subsection 38-10(1) of the GST Act. The requirements of subsection 38-10(1) of the GST Act are:

(a) the service is specified in the table in this subsection, or in the GST regulations; and

(b) the supplier is a recognised professional for the services in question; and

(c) the supply would generally be accepted, in the supplier's profession, as being necessary for the appropriate treatment of the recipient of the supply.

All the elements of subsection 38-10(1) of the GST Act must be satisfied in order for a supply to be GST-free under this subsection.

Issue 2 of the ATO Health Industry Partnership - Issues Register covers the GST-free supply of other health services.

Service of a kind specified

Item 10 in the table in paragraph 38-10(1)(a) of the GST Act ('Table') lists 'nursing' as a specified service for the purposes of this paragraph.

Accordingly, the supply of nursing services to the hospital(s) satisfies the requirement under paragraph 38-10(1)(a) of the GST Act.

Recognised professional

Paragraph 38-10(1)(b) of the GST Act requires the supplier of the service of the kind specified in the Table to be a recognised professional. Recognised professional is defined in section 195-1 of the GST Act as:

... a person is a *recognised professional, in relation to the supply of a service of a kind specified in the table in subsection 38-10(1), if:

(a) the service is supplied in a State or Territory in which the person has a permission or approval, or is registered, under a *State law or a *Territory law prohibiting the supply of services of that kind without such permission, approval or registration, or

(b) the service is supplied in a State or Territory in which there is no State law or Territory law requiring such permission, approval or registration, and the person is a member of a professional association that has uniform national registration requirements relating to the supply of services of that kind,

(c) …

In relation to paragraph (a) above, many State and Territory laws regulate the registration of persons for the services listed in the Table. It is considered that the word 'prohibiting' includes a law that regulates the holding out of the provision of certain services. Such restrictions will be sufficient for the purposes of paragraph (a) of the definition of 'recognised professional' and to constitute an act 'prohibiting the supply'.

Where a person other than the recognised professional provides a component of the supply, for section 38-10 of the GST Act that component will not be GST-free unless that person is also a recognised professional, or the component of the supply is directly supervised by the recognised professional or is GST-free under another provision. It is considered that a person will be directly supervised where the *recognised professional:

(a) attends the patient at the commencement of the treatment and at the subsequent commencement of each new treatment, and

(b) is readily available for the whole of the time that the assistant is working with the patient, and

(c) that the *recognised professional be available to take appropriate action in the case of an emergency, and

(d) determines all of the appropriate treatment to be provided by the assisting person, and

(e) can satisfactorily prove that they monitor the services of the unqualified staff.

You advise that there is no authority that impacts on the practices of nursing agencies in Australia. Further all nurses that attend shifts at the hospitals have current nursing registration with the Australian Health Practitioners Regulation Agency (AHPRA).

The nurse(s) will be a recognised professional in relation to the nursing services and paragraph 38-10(1)(b) of the GST Act is satisfied.

Generally accepted and appropriate treatment of the recipient

Paragraph 38-10(1)(c) of the GST Act requires that the supply must generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply. This paragraph requires interpretation as to what is meant by 'generally accepted' and 'appropriate treatment of the recipient'.

It is considered that for a supply to be 'generally accepted', the particular service being provided and the circumstances in which it is provided must be generally accepted by the particular health profession. That is, in this circumstance, it will be the nursing profession that ultimately determines what services will be generally accepted.

In addition, the definition requires that the service be for the 'appropriate treatment of the recipient' of the supply. It is considered that 'appropriate treatment' will be established where the recognised professional 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 that recipient insofar as that recognised professional's particular area of training allows and will include subsequent supplies for the determined process. The term 'appropriate treatment' includes the principles of preventative medicine. Such treatment must be generally accepted in the profession associated with supplying services of that kind, as being necessary. 'Appropriate treatment' will not include supplies undertaken for a third party, which does not encompass treatment.

A supply can only be one of 'treatment' if it is made to the person requiring that treatment. For example, a supply of health care to an elderly person requiring assistance to dress a wound is considered to be appropriate treatment. Therefore, 'treatment' cannot, by its nature, be something that is supplied to a business entity.

The 'recipient' of the supply is further explained below.

Recipient of the supply

Section 195-1 of the GST Act defines 'recipient' in relation to a supply to mean 'the entity to which the supply was made'. Where there are only two parties involved, generally there is a single supply to which the GST Act applies. For example, where those two parties are a health professional and a patient, the recipient of the single supply is the patient. That supply is a GST-free health service where the requirements of section 38-10 of the GST Act are met.

Arrangements involving three or more parties are commonly referred to as tripartite arrangements. One form of tripartite arrangement is where a supply is made to one entity under the terms of a contract, but the supply is provided to another entity. The term 'provided' here is used to contrast with the term 'made'. It distinguishes between the contractual flow of the supply to the recipient (the entity to whom the supply is made) and the actual flow of the supply to another entity (the entity to whom the supply is provided). For example, the health professional arranges with a health provider to provide medical treatment to a patient.

The GST status of each supply is considered separately. A supply from the health professional to a third party is taxable where the requirements of section 9-5 of the GST Act are met, whilst a supply to a patient is a GST-free health service where the requirements of subsection 38-10(1) of the GST Act are met.

 A third party will be the 'recipient of a supply' by the health provider where:  

· the third party engages the health provider to provide something to them or to someone else

· the third party, by agreement with the health provider, determines what is to be provided to them or to someone else, and

· there is a binding obligation between the third party and the health provider for the thing to be provided and the third party is liable to provide payment.

The supply of a health service is only GST-free when supplied to the individual requiring that treatment or specific health service, whereas the supply to the third party is not 'necessary for the appropriate treatment of the recipient of the supply' under subsection 38-10(1) of the GST Act, because as a business entity, the third party cannot be the recipient of the 'treatment'. Accordingly, where a 'supply for consideration' is made to another business entity, the supply will not be GST-free under subsection 38-10(1) of the GST Act.

In summary, your supply of the (labour-hire nursing) services of the nurses to the hospitals is a single supply which is not GST-free. The supply of these services is a taxable supply under section 9-5 of the GST Act and you are required to charge GST on the total invoice(s) for these services to the hospitals.

Additional information - GST status of the supply of placement services only.

The alternative arrangement is that you are supplying a 'placement service only' to the hospitals and there is a separate supply by the nurses to the hospitals (that is, (a separate arrangement/agreement between the nurses and the hospitals).

Paragraphs 11 to 15 of GSTD 2000/12 state:

11. Alternatively, the firm may contract with the user to provide a placement service only. In such a case, the firm provides the service of introducing suitably qualified personnel to the user. The user then contracts directly with the placed worker for their labour. Provided the conditions set out in paragraph 6 above are satisfied, GST is payable by the firm on the service fee charged to the user.

12. Where the firm is only providing a placement service and the placed worker contracts directly with the user, the user will be paying the worker. These payments may be subject to withholding under the PAYG withholding system depending upon the contractual arrangements that have been entered into...

Example

13. Staffprovider Ltd is registered for GST purposes, and provides a placement and tendering service for third parties . Corporate Pty Ltd which is registered for GST purposes, contracts with Staffprovider for Staffprovider to place an additional staff member for its finance division. Staffprovider conducts a selection process and puts forward Diane as the most meritorious applicant. Corporate agrees and employs Diane under a contract of service (i.e ., as an employee ). GST of $ 300 is payable by Staffprovider on the placement fee of $ 3,300 charged for the service provided to Corporate.

14. Where the firm recruits an independent contractor for the user, the independent contractor, if registered or required to be registered, will be required to pay the GST on the taxable supply to the user.

Example

15. Staffprovider Ltd is registered for GST purposes, and provides a placement and tendering service for third parties. Corporate Pty Ltd which is registered for GST purposes, contracts with Staffprovider for Staffprovider to conduct a tendering process for an independent contractor to build a new factory on Corporate's premises. Staffprovider conducts a tender process and puts forward Linda's Building Services as the most competitive tenderer. Corporate agrees and enters a contract for service with Linda's Building Services, which is registered for GST purposes. GST of $ 200 is payable by Staffprovider on the tendering fee of $ 2,200 charged to Corporate. GST of $ 500 is also payable by Linda's Building Services on the fee for services of $ 5,500 charged for the service provided to Corporate.

Under this alternative arrangement, you would be supplying a placement service only to the hospitals, and there would be a separate agreement (separate supply) between the nurses and the hospitals. In this circumstance, you will be making a taxable supply of your placement services, and the nurses and/or hospital would need to determine their PAYG and GST obligations (if any) in relation to the supply of the nursing services.

As discussed above, the facts provided indicate that there is a labour-hire arrangement between you, the nurses and hospitals, rather than you supplying a placement service only and the nurses making a separate supply to the hospitals.

However, you may have (or enter into) different business arrangements between the nurses and the hospitals, which would need to be considered/determined on a case by case basis.