Edited version of your private ruling

Authorisation Number: 1012567645096

Ruling

Subject: GST and supply of medical aids and appliances

Questions

What are the GST implications of the following scenarios?

1. A ceiling hoist and special purpose tracking are being installed simultaneously. The installation is integral to the function of the hoist. Are the installation and incidentals GST-free?

Answer

Yes, the supply of the installed ceiling hoist and the special purpose tracking is GST-free including the charge for installation and any incidental consumables.

2. A consumer with a disability is receiving a reissue ceiling hoist from a government agency. Special purpose tracking designed for that hoist is being purchased and installed for that hoist with most or all paid for by the government agency. The person or organisation funding the item is immaterial. The installation is necessary for the hoist to function. Are the installation and incidentals GST-free?

Answer

Yes, the supply of the installed special purpose tracking is GST-free including the charge for installation and any incidental consumables.

3. A nursing home is being constructed. Special purpose tracking and rail trolleys are installed that are only suitable for use with ceiling hoists. Sometimes the hoists and tracking are purchased by the builder; other times the special purpose tracks and rail trolleys are purchased by the builder and the hoists are purchased by the nursing home. The track and rail trolley are special purpose and designed only for the ceiling hoist. Is the supply of the tracking and rail trolleys and the installation GST-free?

Answer

Yes, where there is a single supply of the installed special purpose tracking and rail trolleys, the supply is GST-free including the charge for the installation.

4. A ceiling hoist is faulty. It needs a special purpose part replaced such as a PCB (Circuit board), lifting strap or hand control. The purpose of the labour is to install the special purpose part. Is the supply of the parts and labour GST-free?

Answer

Yes, the supply of the spare parts, including the labour, is GST-free.

5. A power point is being installed for specific use in conjunction with a ceiling hoist. It is mounted on the ceiling or wall adjacent to the end of the track. The power point is a generic item that could be used for other things. Is the supply of the power point taxable?

Answer

Yes, the supply of the power point, including the labour, is taxable.

6. A ceiling hoist is not functioning because the batteries are defective. The batteries are generic. Is the supply of the battery and the labour taxable?

Answer

Yes, the supply of the battery, including the labour, is taxable.

7. A ceiling hoist needs a number of repairs including specific purpose PCB, lifting strap and generic batteries. The greatest value and impact on function are the special purpose parts. Is the supply of the special purpose parts and the labour in replacing them GST-free? Is the supply of the batteries and the labour in replacing them taxable?

Answer

The supply is partly GST-free and partly taxable.

8. A ceiling hoist is not defective, but to comply with Standards and often, Government regulations, a service check of the hoist and/or tracking by a qualified technician is required periodically. The hoist is found to be functioning correctly. No parts are required. The only thing supplied is the labour. Is the labour GST-free?

Answer

No, the supply of labour is not GST-free. It is a taxable supply.

9. A new ceiling hoist or special purpose spare parts for a repair are sent via a transport company and freight is charged. Is the delivery taxable?

Answer

Yes, the delivery is taxable.

10. Is the hiring and installation a ceiling hoist GST-free? Is the delivery taxable?

Answer

The supply is partly GST-free and partly taxable.

Relevant facts and circumstances

You supply medical aids and appliances of the kinds listed in the table in Schedule 3 of the A New Tax System (Goods and Services Tax) Act (GST Act).

The majority of your sales are to distributors who sell to consumers, but you also have sales to end users.

The above scenarios specifically relate to disability ceiling hoists covered by item 88 in the table in Schedule 3 of the GST Act (item 88).

In all the scenarios above the reference to "tracking" is specific purpose tracking designed and produced specifically for ceiling hoists and also are only ever used for ceiling hoists.

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 9-80.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(2).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(3).

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.

Reasons for decision

GST is payable if an entity is making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 in the GST Act.)

In your case, the supply in each of the scenarios presented satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act. That is, the supply is made for consideration, the supply is made in the course or furtherance of your enterprise, the supply is connected with Australia and you are registered for GST. The supply, in the circumstances described, is not input taxed. It remains to be determined if the supply is GST-free.

Under subsection 38-45(1) of the GST Act, the supply of a medical aid or appliance is GST-free where the medical aid or appliance:

· is covered by Schedule 3 to the GST Act (Schedule 3), or specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations),

· is specifically designed for people with an illness or disability, and

· is not widely used by people without an illness or disability.

Medical aids or appliances which satisfy all the elements of subsection 38-45(1) are GST-free at all stages of the supply chain. The supply is GST-free no matter who makes the supply or to whom the supply is made.

You have advised that this ruling request relates specifically to item 88 which lists 'manual, electric, ceiling track or pool hoists specifically designed for people with disabilities'.

Installation

The GST Act does not provide for the supply of labour services in relation to medical aids and appliances to be GST-free. For example, labour for the installation of a GST-free medical aid or appliance that is not provided by the supplier of the medical aid or appliance, or that is provided by the same supplier but in a later transaction that is distinct and separate to the supply of the medical aid or appliance, does not form part of the GST-free supply of the medical aid or appliance and is not GST-free under subsection 38-45(1) of the GST Act.

However, where the medical aid or appliance is supplied together with a labour component as part of one single transaction, the GST treatment of that transaction will depend on how the supply is characterised. A supply of a medical aid or appliance together with a labour component may be characterised in one of three ways:

1. The main supply is the GST-free medical aid or appliance and the labour is integral, ancillary or incidental to that main supply. In this case there is a single GST-free supply of a medical aid or appliance (which includes the labour); or

2. The main supply is the labour (as is usually the case for repair work) and the GST-free medical aid or appliance (or most commonly, its GST-free spare part) is integral, ancillary or incidental to that main supply. In this case there is a single taxable supply of labour and the GST-free aid/appliance or spare part also taxable; or

3. There are separately identifiable supplies of GST-free medical aids/appliances and labour, neither of which is integral, ancillary or incidental to the other. In this case the supplies are partly taxable and partly GST-free and must be apportioned on a reasonable basis.

What does integral, ancillary or incidental mean?

Goods and Services Tax Ruling GSTR 2001/8 provides guidance in determining whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply.

Indicators that a part of a supply is integral, ancillary or incidental to the dominant part of the supply include the following:

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

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

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

· a supplier would reasonably conclude that it does not constitute for customers an aim in itself but is a means of better enjoying the dominant thing supplied.

Issue 4.1.13 of the Health Industry Partnership - issues register lists scenarios which address the situations when installation will form a part of the supply of a medical aid or appliance and be GST-free.

Consumables

Where, in the course of supplying a medical aid or appliance, a supplier consumes various things, there is only one overall supply of the listed item. Things made and consumed in the process of constructing and supplying a medical aid or appliance form part of the one overall GST-free supply of that product.

Examples of things consumed in the process of constructing and supplying a GST-free medical aid or appliance include oil, lubricant, glue and generic parts like screws and wires. Consumable items are acquired with the intention that they will be destroyed, consumed or expended. They do not retain their individual character or nature when a new medical aid or appliance is supplied or when a repaired medical aid or appliance is returned to its owner.

However, where these things are supplied separately to the medical aid or appliance, they are only GST-free if they are specifically designed spare parts of that medical aid or appliance.

Spare parts for GST-free medical aids and appliances - subsection 38-45(2)

Under subsection 38-45(2), a spare part for a GST-free medical aid or appliance is also GST-free if is specifically designed as a spare part for that GST-free medical aid or appliance and is supplied for that purpose.

For GST purposes, a 'spare part' is a part that can be used to replace a faulty, worn or broken part of another thing. The part need only be capable of replacing the faulty, worn or broken part. It does not actually have to be used for that purpose.

Spare parts which are specifically designed as spare parts for a GST-free medical aid or appliance, are GST-free at all points in the supply chain.

Spare parts that are not specifically designed to replace a faulty, worn or broken part of a GST-free medical aid or appliance are not GST-free. This means that things like generic screws which are not specifically designed for a GST-free medical aid or appliance are not GST-free spare parts. However, as outlined above, things used and/or consumed in the construction and overall supply of a GST-free medical aid or appliance are part of that overall GST-free supply. Therefore, whilst a generic screw when supplied on its own is not a GST-free spare part because it is not specifically designed for that purpose, it would be GST-free if that screw formed part of the supply of the medical aid or appliance.

Repair services

There is no provision in the GST Act which specifically provides for the supply of repair services to GST-free medical aids and appliances to be GST-free.

Where the specifically designed spare parts are supplied together with a labour component (for example, installation or fitting service) that is not GST-free, the GST treatment will depend on how the supply is characterised, as outlined above.

It is the supplier of the service that must determine whether they are making a supply of specifically designed spare parts to which the labour is integral, ancillary or incidental, or a supply of labour with the specifically designed spare parts integral, ancillary or incidental to the supply of the service.

The guide GST and medical aids and appliances (Nat4651) lists instances where the supply of parts and labour in the course of repairing a GST-free medical aid and appliance is taxable.

Delivery

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.

Goods and Services Tax Determination GSTD 2002/3 outlines how to account for GST when you supply taxable goods, non-taxable goods and delivery services together.

Apportionment

Where a supplier makes a supply which is partly taxable and partly GST-free (a mixed supply), the supplier will need to apportion the consideration charged for the supply between the GST-free and taxable parts pursuant to section 9-80.

A reasonable basis for apportionment must be used and each case must be determined on its own facts. Records must be kept that explain the method of apportionment used. Goods and Services Tax Ruling GSTR 2001/8 gives further guidance on mixed supplies and apportionment.

As a means of minimising compliance costs, part of a supply may be treated as being integral, ancillary or incidental to the other part 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.

This approach may be adopted to treat a supply as a composite supply (that is, either wholly GST-free or taxable), although it might otherwise be considered as a mixed supply. However, if the consideration for a part exceeds the lesser of $3.00 or 20% of the consideration for the total supply, it does not necessarily mean that the part is not integral, ancillary or incidental.

Charging GST on a GST-free medical aid or appliance or a specifically designed spare part

In some circumstances, it may be difficult to determine those supplies that are GST-free and those that are taxable.

Subsection 38-45(3) allows a supplier and recipient to agree not to treat supplies, or a particular supply, as GST-free. For example, if a supply of a medical aid or appliance is made to another business, both businesses can agree to treat the supply as taxable.

GST implications of the scenarios:

1. A ceiling hoist and special purpose tracking are being installed simultaneously. The installation is integral to the function of the hoist. Are the installation and incidentals GST-free?

The supply of the labour by itself would be a taxable supply.

Where there is single supply of a fully functioning ceiling hoist, it is considered that there is a composite supply, the dominant part of which is a supply of the ceiling hoist. The labour is part of that composite supply and it would not be necessary to apportion the supply into taxable or non-taxable parts.

In the scenario presented, the supply and installation of the ceiling hoist and the special purpose tracking is in a single transaction and the installation is directly related to the supply of the ceiling hoist and the special purpose tracking. In this instance, we consider that the installation is integral, ancillary or incidental to the supply of the ceiling hoist and the special purpose tracking as it merely complements that dominant part of the supply.

The supply of the installed ceiling hoist and the special purpose tracking, is GST-free including the charge for installation and any incidental consumables.

2. A consumer with a disability is receiving a reissue ceiling hoist from a government agency. Special purpose tracking designed for that hoist is being purchased and installed for that hoist with most or all paid for by the government agency. The person or organisation funding the item is immaterial. The installation is necessary for the hoist to function. Are the installation and incidentals GST-free?

Similar to scenario 1 above, where there is a single supply of the installed special purpose tracking and the installation merely complements that dominant part of the supply, the supply is GST-free including the charge for installation and any incidental consumables. The fact that the supply is paid for by a third party does not affect the GST implications of the supply.

3. A nursing home is being constructed. Special purpose tracking and rail trolleys are installed that are only suitable for use with ceiling hoists. Sometimes the hoists and tracking are purchased by the builder; other times the special purpose tracks and rail trolleys are purchased by the builder and the hoists are purchased by the nursing home. The track and rail trolley are special purpose and designed only for the ceiling hoist. Is the supply of the tracking and rail trolleys and the installation GST-free?

Similar to scenarios 1 and 2 above, where there is a single supply of the installed special purpose tracking and rail trolleys and the installation merely complements that dominant part of the supply, the supply is GST-free including the charge for the installation.

However, where more than one supplier is engaged in the supply and installation of a GST-free medical aid or appliance or spare part, it is necessary to consider what is being supplied by each of those suppliers. There may be a supply of medical aid or appliance and/or parts or there may be a supply of labour/installation or a combination of both. The supplies in these instances may be GST-free or taxable depending on the exact nature of the supply in question.

4. A ceiling hoist is faulty. It needs a special purpose part replaced such as a PCB (Circuit board), lifting strap or hand control. The purpose of the labour is to install the special purpose part. Is the supply of the parts and labour GST-free?

Where there is one transaction for the supply of specifically designed spare parts which also includes a labour component (such as the installation of the specifically designed spare parts), the labour is considered to be integral, ancillary or incidental to the main supply of the spare part. There is a single supply of a GST-free spare part, which includes the labour.

5. A power point is being installed for specific use in conjunction with a ceiling hoist. It is mounted on the ceiling or wall adjacent to the end of the track. The power point is a generic item that could be used for other things. Is the supply of the power point taxable?

The supply of a power point, which is a generic item, is not GST-free. It is a taxable supply.

6. A ceiling hoist is not functioning because the batteries are defective. The batteries are generic. Is the supply of the battery and the labour taxable?

Generic batteries are not GST-free as they are not 'specifically designed for people with an illness or disability' and would be 'widely used by people without an illness or disability'. The supply of the battery and the labour to replace the defective battery is taxable.

7. A ceiling hoist needs a number of repairs including specific purpose PCB, lifting strap and generic batteries. The greatest value and impact on function are the special purpose parts. Is the supply of the special purpose parts and the labour in replacing them GST-free? Is the supply of the batteries and the labour in replacing them taxable?

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

The supplier of the service must determine whether they are making a supply of specifically designed spare parts to which the labour is integral, ancillary or incidental, or a supply of labour with the specifically designed spare parts integral, ancillary or incidental to the supply of the service.

Where there is one transaction for the supply of the specifically designed spare parts which also includes a labour component of fitting those parts, the labour is considered to be integral, ancillary or incidental to the main supply of the spare part. There is a single supply of a GST-free spare part, which includes the labour. The separate supply of the generic batteries, including the labour component, is taxable. Hence, the supply outlined in this scenario is partly GST-free and partly taxable.

However, where the dominant part of the supply is of labour with the specifically designed spare parts integral, ancillary or incidental to the supply of the service, the supply would be a taxable supply of labour

8. A ceiling hoist is not defective, but to comply with Standards and often, Government regulations, a service check of the hoist and/or tracking by a qualified technician is required periodically. The hoist is found to be functioning correctly. No parts are required. The only thing supplied is the labour. Is the labour GST-free?

In servicing a medical aid and appliance, it is considered that the supply of labour would generally be the dominant part of the supply. In addition, it is likely that any parts used to effect repairs as part of the service would be either generic in nature or integral, ancillary or incidental to the supply of the labour. That is, generally the supply would be a taxable supply of labour. However, this will need to be determined by the supplier on a case by case basis.

In this scenario there is a single supply of labour which is taxable.

9. A new ceiling hoist or special purpose spare parts for a repair are sent via a transport company and freight is charged. Is the delivery taxable?

In scenario 9, the supply of the delivery service is a separate supply to the supply of the GST-free medical aid or appliance or the GST-free spare part. Hence, the supply of the delivery service is taxable.

10. Is the hiring and installation a ceiling hoist GST-free? Is the delivery taxable?

Subsection 38-45(1) states that the supply of a medical aid and appliance is GST-free where the requirements of the subsection are met. The section does not require that the medical aid or appliance be purchased to be GST-free. Where the purchase of a medical aid or appliance is GST-free, it is accepted that the hire of the same medical aid or appliance will also be GST-free.

Where there is a single supply of the hiring of an installed ceiling hoist, the supply is GST-free. Where the supply of the delivery service is a separate supply to the supply of the GST-free ceiling hoist, the delivery service is a taxable supply. Hence, the supply outlined in this scenario is partly GST-free and partly taxable.

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The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.