Edited version of your private ruling

Authorisation Number: 1012593544415

Subject: Backdating of GST registration, supply of other health services

Question 1

Will the Commissioner of Taxation (Commissioner) backdate the Applicant's registration for Goods and Services Tax (GST) to 1 June 2012?

Answer

The Commissioner declines to rule on whether the Commissioner will backdate the Applicant's registration for GST.

Question 2

Are supplies of physiotherapy services made by the Applicant to patients between 1 June 2012 and 30 June 2013 GST-free supplies pursuant to subsection 38-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, supplies of services made by the Applicant to patients between 1 June 2012 and 30 June 2013 are GST-free supplies pursuant to subsection 38-10(1) of the GST Act.

Question 3

Is the Applicant entitled to claim input tax credits in respect of acquisitions made pursuant to a Service and Facility Agreement entered into by the Company and the Applicant in mm/yyyy?

Answer

Yes, provided that the applicant is registered for GST with effect from 1 June 2012, the Applicant is entitled to claim input tax credits in respect of acquisitions made pursuant to the Agreement.

Relevant facts and circumstances

Applicant:

The Applicant has been registered as a therapist since mm/yyyy.

Agreement:

In mm/yyyy the Applicant executed a Service and Facility Agreement (Agreement) between the Applicant and the Company which is stated to commence in mm/yyyy.

The Agreement recites that the Applicant is a physiotherapist registered in New South Wales, that the Company lease or owns premises throughout Australia at which the Company maintains staff and provides facilities to enable medical practitioners, physiotherapists and other health professionals to conduct their practices and is engaged in providing administrative and managerial services, and that the Applicant wishes to engage the Company's services.

The Agreement states that the Applicant engages the Company to provide the Applicant with a fully serviced consulting room at the location specified in item 2 of the Schedule to the Agreement (Centre) for 76 hours per fortnight. The services to be provided by the Company include provision of premises and equipment, maintenance of premises and equipment, and carrying out all administrative operations on behalf of the Applicant for the Applicant's practice (including scheduling patient appointments, billing and collecting fees, banking fees collected, accounting to the Applicant for the Applicant's payments after deduction of the company's service fee, arranging payment of creditors, providing reception services, ordering supplies and maintaining books of account).

The Agreement states that the Company makes the common areas at the Centre jointly available to the Applicant, that the Company is responsible for all sundry and office expenses incurred in providing the services under the Agreement (including Workcover, payroll tax, superannuation and fringe benefits tax), and that the Company owns the medical records of patients who receive services at the Centre and will grant access to anyone entitled at law to have access to those records.

The Agreement further states that the Company agrees to collect all of the fees due to the Applicant for professional services provided at the Centre and account to the Applicant monthly for those fees less the Company's service fee. The Agreement obliges the Applicant to pay the Company service fees for patient treatment, stock sales and medical reports as specified in the Schedule and authorises the Company to retain the service fees out of monies invoiced and collected by the Company on behalf of the Applicant.

The Agreement obliges the Applicant to maintain adequate sickness and accident insurance and professional indemnity insurance with an insurer approved by the Company and to observe all the policy directives issued by the Company from time to time and states that the relationship between the Applicant and the Company is that of independent contractors with the Company providing services to the Applicant in the conduct of the Applicant's practice and that nothing in the Agreement constitutes the parties as partners, joint venturers, principal and agent, or employer and employee.

The agreement obliges the Applicant to hold an unrestricted registration within the particular state and to conduct himself in a proper manner and in keeping with any applicable code of ethics. The Agreement states that if the supply of services by the Company is a taxable supply the amount payable by the Applicant to the Company will increase by the applicable amount of GST and that if the Applicant is registered for GST the Applicant can claim a credit for any GST through the lodgement of a Business Activity Statement.

Physiotherapy practice:

It was stated in the ruling request that between 1 June 20XX and 30 June 20YY the Applicant conducted the Applicant's physiotherapy practice predominantly at the Centre and, in accordance with the Agreement, the Applicant maintained their own insurance. The Company collected fees due to the Applicant for professional services supplied at the Centre and the Applicant's name and provider number appeared on invoices issued by the Company to the Applicant's clients. The Company remitted monthly takings to the Applicant's bank account net of the service fee payable by the Applicant to the Company pursuant to the Agreement.

It was stated in the ruling request that the Applicant's annual turnover was less than $75,000 and that the Applicant therefore was not obliged to register for GST.

Tax invoice issued by the Company to the Applicant:

The Applicant provided a copy of a tax invoice issued by the Company to the Applicant for mm/yyyy which indicates that the Company charged the Applicant a service fee plus GST. The tax invoice also indicates that the Applicant's billings for mm/yyyy were paid to the Applicant by the Company after the Company deducted the Company's service fee.

Submissions:

It was submitted that the Applicant was carrying on an enterprise as at 1 June 20XX and therefore may be registered for GST pursuant to section 23-10 of the GST Act.

It was also submitted that the services supplied by the Applicant to patients at the Centre are GST-free pursuant to subsection 38-10(1) of the GST Act on the basis that physio therapy is a service specified in item 17 in the table in subsection 38-10(1) and the Applicant is a registered therapist practising in a state of Australia and therefore a recognised professional. It was submitted that although the Company undertook scheduling of appointments and billing, the Company did that on behalf of the Applicant pursuant to the Company's obligations under the Agreement and that the Company did not engage the Applicant to provide physiotherapy services. Reference was made to clause 11 of the Agreement (i.e. that the company provides services to the Applicant in the conduct of the Applicant's practice). It was stated that the Applicant had confirmed that all services supplied by the Applicant to patients would generally be accepted in the physiotherapy profession as being necessary for the appropriate treatment of the patients.

In relation to whether the Applicant would be entitled to claim input tax credits if the Applicant was registered for GST with effect from 1 June 20XXit was submitted that the acquisition of the services and the right to use rooms at the Centre satisfied the requirements of section 11-5 of the GST Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, sections 25-10, 38-10 and 9-5.

Reasons for decision

Question 1 - backdating of GST registration

Summary

We decline to rule in relation to Question 1 for the reasons set out in the letter issued with this ruling.

Question 2 - GST-free supply of other health services

Summary

The services supplied by the Applicant are of a kind specified in the table in subsection 38-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the Applicant is a recognised professional in relation to the supply of services of that kind, and the supply of those services would generally be accepted by the physiotherapy profession as being necessary for the appropriate treatment of the recipient. Consequently the requirements of section 38-10 of the GST Act are satisfied and if the Applicant was registered for GST for the tax period(s) to which the supply of the services is attributable the supply made by the Applicant would be GST-free.

Detailed reasoning

GST-free supply of other health services:

Section 38-10 of the GST Act states that a supply is GST-free if:

a) it is a service of a kind specified in the table in subsection 38-10(1) or of a kind specified in the GST regulations; and

b) the supplier is a 'recognised professional' in relation to the supply of services of that kind; and

c) the supply would 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.

Paragraph 38-10(1)(a):

In relation to the requirement in paragraph 38-10(1)(a) that the supply is of a kind specified in the table in subsection 38-10(1), the ATO's Goods and Services Tax Industry Issues (GSTII) for Other Health Services (which is a public ruling for the purposes of the Taxation Administration Act 1953) states:

4. To qualify the service must be the provision of one of those actual services listed and not just something similar to one of the services. Support for this argument is found in the Table where it lists both 'Audiology' and 'Audiometry' at Item 3. If it were intended that it was sufficient that the supply of a service be similar to one mentioned in the table, one of the terms 'Audiology' or 'Audiometry' would be superfluous. Similarly, further down the table there is the inclusion of 'traditional Chinese herbal medicine' under 'Herbal medicine' in Item 8 of the table. One of these terms would be superfluous if the list was not strictly interpreted as the actual service listed in the table.

Item 17 in the table in subsection 38-10(1) refers to 'physiotherapy'.

The ATO accepts that a service is of a kind specified in that table where the supplier of the service supplies a service which is listed in that table and the service supplied is a standard technique or component of that listed service. We have searched the Australian Health Practitioner Regulation Agency's register of practitioners and confirmed that the Applicant is currently registered without restriction as a physiotherapist. Taking into account that the Applicant is so registered (and has been since mm/yyyy) plus the Applicant's obligations under the Agreement to hold an unrestricted registration and conduct themself in a proper manner befitting their position as a physiotherapist within a professional practice, we consider that the service supplied by Applicant during the term of the Agreement was 'physiotherapy' within the meaning of item 17 in subsection 38-10(1).

Paragraph 38-10(1)(b):

Paragraph 38-10(1)(b) of the GST Act requires the supplier to be a 'recognised professional' in relation to the supply of services of that kind. 'Recognised professional' is defined in section 195-1 of the GST Act:

Recognised professional: a person is a recognised professional, in relation to the supply of a service of a kind specified in the table in sub-section 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, or

(c) in the case of services covered by Item 3 in the table - the service is supplied by an accredited service provider within the meaning of section 4 of the Hearing Services Administration Act 1997

The GSTII states (Issue 2.a) that, in relation to paragraph (a) above, many State and Territory laws regulate the registration of persons for the services listed in the Table, that it is considered that the word 'prohibiting' includes a law that regulates the holding out of the provision of certain services, and that 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'. We understand that the registration of physiotherapists in a state of Australia is regulated by the specific state law, section 116 of which prohibits a person who is not a registered health professional from claiming to be a registered health professional. As noted above, we have searched the Australian Health Practitioner Regulation Agency's register of practitioners and confirmed that the Applicant is currently registered as a physiotherapist. We therefore consider that the Applicant is a recognised professional for the purposes of paragraph 38-10(1)(b).

It is clear from the GSTII that it is important that the supplier of other health services is a recognised professional. In the present case that raises the issue of whether the Applicant or the Company supplies the physiotherapy services. The GSTII discusses (Issue 2.a.10) a situation where a company, trust or partnership (which is registered for GST) supplies massage physiotherapy services and engages individual massage therapists (who are not registered for GST) to perform the services. The GSTII states that there are two supplies - a supply by the company etc. to the patient and a supply by the therapist to the company etc. The GSTII states that the supply by the therapist is not GST-free under subsection 38-10(1) but that the supply by the company etc. to the patient may be:

For the purposes of the application of section 38-10(1)(b), it is considered that the focus is not whether the entity itself is a recognised professional. It is considered that the relevant issue to be determined is whether the performer of the service is a recognised professional in respect of one of the listed services or, where the performer is not the relevant recognised professional, the performer is directly supervised the relevant recognised professional.

Issue 2.a.10 in the GSTII refers to Part 3 of goods and Services Tax Ruling GSTR 2006/9 which includes Proposition 11:

Proposition 11: the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply

Based on the Agreement and the information provided in the ruling request, we consider that in the present case the Applicant, not the Company, is the supplier of the physiotherapy services. Clause 11of the Agreement states that the Company and the Applicant are independent contractors and that the Company supplies services to the Applicant in the conduct of the Applicant's practice and denies that the Applicant is an agent for the Company. In addition the copy of the tax invoice issued by the Company to the Applicant for the mm/yyyy period indicates that the Company makes a taxable supply of services to the Applicant. Consequently we consider that the Applicant (not the Company) supplies the physiotherapy services and that the requirement that the supplier is a 'recognised professional' in relation to that supply is therefore satisfied.

Paragraph 38-10(1)(c):

In relation to the requirement in paragraph 38-10(1)(c) that a supply of other health services would 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, the GSTII for Other Health Services states:

10. 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.

11. '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.

12. 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 and there is no appropriate treatment involved so that such a supply will be taxable.

13. As can be seen from the above, the words 'appropriate treatment' are interpreted the same way for section 38-10(1)(c) as the term appears in the definition of 'medical service' for section 38-7.

Pursuant to clause 14.2 of the Agreement the Applicant is obliged to conduct themself in a proper manner befitting their position as a physiotherapist within a professional practice, abide by any applicable code of ethics and not engage in non-professional personal or commercial activities. We therefore consider that the physiotherapy services supplied by the Applicant would be generally accepted in the physiotherapy as being necessary for the appropriate treatment of the recipient.

Question 3 - entitlement to claim input tax credits on acquisitions made pursuant to Agreement

Summary

Assuming that the Applicant's application for GST registration is successful and is backdated to 1 June 20X, the requirements of section 11-5 of the GST Act will be satisfied in relation to the acquisition of services by the Applicant from the Company and the Applicant will be entitled to claim input tax credits.

Detailed reasoning

The Applicant requested a ruling confirming that the Applicant is entitled to input tax credits for acquisitions made pursuant to the Agreement. Pursuant to clause 1 of the Agreement the Applicant acquires from the Company a fully serviced consulting room at the Centre, provision and maintenance of premises and equipment, scheduling of patient appointments, billing services, banking and accounting services and other services. Pursuant to clause 7 and item 4 of schedule 1 to the Agreement the Applicant pays the Service Fee to the Company in return for those services.

Subsection 7-1(2) of the GST Act states that entitlements to input tax credits arise on creditable acquisitions and creditable importations. Section 11-5 states that an entity ('you') makes a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply; and

(d) you are registered or required to be registered.

This ruling is made subject to an assumption that the Applicant's application for GST registration is successful and is backdated to 1 June 20XX. If that is the case the requirement in section 11-5(d) will be satisfied.

Paragraph 11-5(a) requires that the Applicant acquires the services from the Company for a creditable purpose. Section 11-15 of the GST Act states:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

'Enterprise' is defined in section 9-20 of the GST Act as, inter alia, an activity or series of activities done in the form of a business and 'business' is defined in section 195-1 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee. We are satisfied that the Applicant was obliged under the Agreement to carry on a practice as a physiotherapist (i.e. a profession) and clause 11 of thy Agreement states that the Applicant was not an employee. Consequently we are satisfied that the Applicant carried on an enterprise. We are also satisfied that the Applicant acquired the services from the Company in carrying on that enterprise and that paragraph 11-5(a) is satisfied.

Paragraph 11-5(b) requires that the supply of the services by the Company to the Applicant is a taxable supply. The copy of the tax invoice issued by the Company to the Applicant in mm/yyyy indicates that the supply of services was a taxable supply within the meaning of section 9-5 of the GST Act (i.e. made for consideration, in the course of an enterprise carried on by the Company, connected with Australia, and made by a GST registered entity) and we have confirmed that the Company has been registered for GST since mm/yyyy. We therefore consider that paragraph 11-5(b) is satisfied.

Paragraph 11-5(c) requires that the Applicant provides consideration for the supply of services made by the Company. Clause 7 of the Agreement obliges the Applicant to pay the service fee as consideration for the services supplied by the Company and authorises the company to deduct the service fee out of monies collected by the Company on the Applicant's behalf. Consequently we are satisfied that the Applicant provides consideration for the supply of services by the Company.