Edited version of your private ruling

Authorisation Number: 1012590379236

Ruling

Subject: The supply of medical appliances

Questions

Question 1

Is the supply of the Blood Glucose Meter package GST-free?

Question 2

Is the supply of the Blood Glucose Test Strip package with a sterile lancet GST-free?

Question 3

Is the supply of the Control Solutions Package GST-free?

Answers

Questions 1 and 2

The supply of the Blood Glucose Meter package and the Blood Glucose test strip package with free sterile lancet are GST-free.

It should be emphasised that items which are GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are GST-free at all points in the supply chain.

Question 3

The supply of the Control solutions package is not a GST-free supply. When you register or become required to be registered for GST, the supply of the Control solutions package will be a taxable supply on which GST must be paid.

Relevant facts and circumstances

· You conduct an enterprise of selling the following products:

- Glucose Meter package,

- Blood Glucose test strip package with sterile lancet,

- Control solutions package.

· You are registered for the goods and services tax(GST).

· You import the products and sell the products in Australia.

· The Blood Glucose Meter package contains the following items:

- a blood glucose meter

- check strips to check the meter functionality

- lancing device,

- sterile lancets

- battery for the meter

- casing bag for the meter

The above products are sold together in a package.

· The Blood Glucose Test Strip package contains the following items:

- blood glucose test strips

· The control solution package:

The solution is a liquid which can be used as a quality control check to verify if the blood glucose meter and test strips are working correctly.

The required amount of the solution will be put into a blood glucose test strip which will then be tested in the glucose meter.

Relevant legislative provisions

Section 38-7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Reasons for decision

Question 1

The supply of a medical aid or appliance is GST-free if it satisfies the requirements of subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Subsection 38-45(1) states:

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.

It should be emphasised that items which are GST-free under subsection 38-45(1) of the GST Act are GST-free at all points in the supply chain.

Blood Glucose Meter package

You advised that the blood glucose meter package that you supply contains:

- a blood glucose meter

- check strips to check the meter functionality

- lancing device,

- sterile lancets

- battery for the meter

- casing bag for the meter

Item 34 to 38 of Schedule 3 of the GST Act lists a variety of medical aids or appliances that fall within the category of Diabetes as GST-free. These items include 'glucose monitors' at Item 38, finger prickers at items 34 and test strips at item 36. Such goods are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability. Accordingly, supplies of these items are GST-free under subsection 38-45(1) of the GST Act.

It is noted that in this case, the glucose test strips and the lancing device and lancets form component parts of the glucose meter and where supplied as part of a 'kit', are GST-free under Item 38 of Schedule 3 to subsection 38-45(1) of the GST Act. However, as stated above, even if the lancing device and lancets and the glucose test strips were not supplied as a component part of the glucose meter, the supply of the glucose test strips and the lancing device and lancets would still be GST-free under Items 34 and 36 respectively, of Schedule 3 to subsection 38-45(1) of the GST Act.

However, carry cases and batteries for glucose meters are not listed as medical aids and appliances in Schedule 3, to subsection 38-45(1) of the GST Act. 

Where you supply a kit containing both taxable and GST-free goods, it is necessary to determine whether the supply is a mixed supply or a composite supply.

A supply is a mixed supply if it contains separately identifiable taxable and non-taxable parts. A composite supply is a supply that contains a dominant part, but also includes something that is integral, ancillary or incidental to that part. A composite supply is treated as a supply of one thing. Whether GST is payable on a composite supply depends on the GST treatment of the dominant part of the supply.

Whether a part is integral, ancillary or incidental to another part is a question of fact and degree and requires analysis of all the facts and the context within which the supply is made.

No single factor will provide the sole test as to whether a part of a supply is integral or incidental to the dominant part of the supply. You must give regard to all the circumstances involved in the supply. Indicators that a part may be integral or incidental include where:

- 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; or

- 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.

Therefore, it is considered that a part of a supply will be integral or incidental where it is insignificant in value or function, or merely complements the dominant part of the supply.

Undertaking an objective analysis, the batteries are necessary to the kit as a whole. The batteries are necessary for the functioning of the glucose meter. Also, the batteries contribute to the overall performance of the supply and would not constitute for the customers an aim in themselves, but rather a better means of enjoying the glucose meter supplied.

This reasoning can also be extended to the carry case. The function of the carry case is to protect the glucose meter and hold the other items that are supplied in one place. Therefore, we are of the view that the carry case contributes to the overall performance of the supply and does not constitute for the customer an aim in themselves, but rather a better means of enjoying the glucose meter supplied.

Further, we are of the view that the check strips represent a marginal proportion of the value of the overall package.

Therefore, we are of the view that the supply of the kit is a composite supply. The dominant part of the supply is the glucose meter. The supplies of the check strips, lancing device and sterile lancets, carry cases and batteries are merely integral, ancillary and incidental to the supply of the glucose meter. Accordingly, supplies you make of the kits are GST-free.

However, it should be noted that this analysis relates solely to the supply of the kit as a single composite supply. If the parts of the supply not listed in Schedule 3 of the GST Act, namely, the check strips, carry cases and batteries are sold separately, the supply will be taxable where the requirements of section 9-5 are met.

Question 2

Blood Glucose Test Strips

As mentioned above, test strips are covered under Item 34 in Schedule 3 to the subsection 38-45(1) of the GST Act and as such the supply of such items is GST-free.

Question 3

The control solution package

Control solution is not listed as medical aids and appliances in Schedule 3, to subsection 38-45(1) of the GST Act.

Accordingly, you are required to pay on the supply of the Glucose control solution if the supply is considered as a taxable supply. A taxable supply is defined in section 9-5 of the GST Act as follows:

You make a taxable supply if:

c) you make the supply for *consideration; and

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

e) the supply is *connected with Australia; and

f) 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.

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)

The supply of the solution will meet the requirements of section 9-5 of the GST Act, as you supply the product for a particular fee, in the course of your enterprise, the supply is connected with Australia and you are registered for GST.

The supply is not GST-free or input taxed under any other provision of the GST Act.