Edited version of private advice

Authorisation Number: 1012636937829

Ruling

Subject: GST and supply of prosthetic kits

Question

1. Is the supply of prosthetic kits a GST-free supply under section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Is the time charged by the Australian company to facilitate building exercises to assemble the prosthetic kits consideration for a GST-free supply?

Advice

1. Yes, the supply of prosthetic kits is a GST-free supply under section 38-45 of the GST Act.

2. The Australian company is supplying facilitation services when they charge for the time spent facilitating the building exercises.

The supply of facilitation services is a taxable supply under section 9-5 of the GST Act when the building exercises are done in Australia.

The supply of facilitation services is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act when the building exercises are done outside Australia.

Relevant fact

You are an Australian company and registered for goods and services tax (GST).

You sell prosthetic kits to clients who choose to assemble the prosthetic kits as a team-building activity. You receive payments for the sale. The prosthetic kit contains parts that need to be assembled.

The kits are either delivered to the purchaser's premises or to their conference venue. The people who have purchased those kits will assemble them at their team building session. The assembled kits are either sent directly overseas or back to you to send them overseas.

The assembled kits are distributed at no cost to the final recipients who are individuals living in poverty and located in a developing or third world country. The kits are fitted to the disabled person.

On occasion, the purchasers of the prosthetic kits require assistance in facilitating the team building activity of assembling the kits. When engaged to facilitate a session, you attend the client's nominated premises and sets up a help desk where participants can ask technical questions if they are having difficulties assembling the kits. You charge a fee for this service.

Your clients are either registered for GST or not registered for GST. The majority of the clients are Australian residents for Income Tax purposes. Some clients have ordered the kits from overseas.

From time to time you are also engaged by non-resident clients to facilitate sessions at overseas conferences. The majority of facilitated sessions occur in Australia.

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 38-190

Reasons for decisions

Question 1

Section 38-45 of the GST Act is about medical aids and appliances and states:

38-45 Medical aids and appliances

1) A supply is GST-free if:

a) it is covered by Schedule 3 (medical aid 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 for 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.

Item 83 of Schedule 3 refers to 'Artificial limbs and associated supplements and aids'. The description column adjoining this item states 'an artificial limb includes and artificial arm or leg but excludes surgically implanted prostheses (for example artificial hips and knees)'.

Stedman's Medical Dictionary defines "upper limb" as "the shoulder, arm, forearm, wrist and hand".

From the information received, the prosthetic kit contains parts which are specifically designed to function as an artificial item when assembled. In this instance, the supply of the artificial item will fall within Item 83 of Schedule 3. Paragraph 38-45(1)(a) of the GST Act is satisfied.

Further paragraph 38-45(1)(b) is also satisfied as the artificial item is specifically designed for people without a these body parts.

Accordingly, the supply of the artificial kit is GST-free under subsection 38-45(1) of the GST Act.

Question 2

Characterisation of supply

From the facts given you assist clients by facilitating the team building activity of assembling the kits and you are paid for this service. In this instance you are providing facilitation services to the attendees of the team building session.

GST status of the facilitating services

GST is payable on a taxable supply. An entity makes a taxable supply under section 9-5 of the GST Act if:

a) the entity makes the supply for consideration; and

b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and

c) the supply is connected with Australia; and

d) the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

Based on the facts given, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a) you supply the facilitation services for consideration; and

b) the supply is made in the course of a business that you carry on;

c) the supply is connected with Australia as it is made through a business that you carry on in Australia; and

d) you are registered for GST.

However, the supply is not a taxable supply to the extent that it is input taxed or GST-free. The supply of facilitation services is not input taxed under the GST Act.

When the supply of your facilitation service is done in Australia, the supply is a taxable supply as there is no provision in the GST Act that makes the supply GST-free when the supply is provided in Australia.

However, the GST Act does have provisions that make supplies to non-residents GST-free. Relevant to your supply of facilitation services to non-residents located outside Australia is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

GST-free

Under item 2 a supply of things other than goods or real property that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free where:

a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

Only one of the above paragraphs needs to be satisfied for the supply to be GST-free.

However, a supply is GST-free under item 2 to the extent that it is not negated by subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

Based on the information received, your supply of facilitation services to non-resident entities who are located outside Australia at the time of the supply, satisfies the requirements in paragraph (a) of item 2 as:

• the non-resident entities are not in Australia in relation to the supply as they are located outside Australia when you supply the services overseas; and

• the supply of facilitation services is neither a supply of work performed on goods situated in Australia when it is done nor a supply directly connected with real property situated in Australia.

Accordingly, the supply of facilitation services is GST-free under paragraph (a) of item 2 of the GST Act to the extent it is not negated by subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Subsection 38-190(2) of the GST Act is not applicable as your supply of facilitation services is not a supply of a right or option to acquire something the supply of which would be connected with Australia.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C.

Subsection 38-190(2A) of the GST Act is not applicable as your supply of facilitation services does not relate to the making of supply of real property located in Australia that would be input taxed under Subdivision 40-B or 40-C.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A), a supply covered by Item 2 is not GST-free if:

• it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and

• the supply is provided or the agreement requires it to be provided, to another entity in Australia.

Subsection 38-190(3) only applies to a supply covered by item 2. If a supply satisfies the requirements of item 2 and is therefore GST-free, that supply is covered by item 2.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable as the non-resident entity is not asking you to provide your facilitation services to entities located in Australia.

Summary

Your supply of facilitation services is a taxable supply under section 9-5 of the GST Act when provided in Australia.

Your supply of facilitation services is GST-free under item 2 when provided outside Australia.