Edited version of private advice

Authorisation Number: 1012648472493

Ruling

Subject: GST and supply of medical services

Question

Can you claim the X% amount of the total income received from customers and retained by the Health Company as a non-capital purchase in your activity statement?

Advice

No. Based on the information received, the X% amount of the total income received from customers and retained by the Health Company is not consideration for any creditable acquisition that you have made under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant fact

You are registered for the goods and services tax (GST) and your business activity is a medical service.

You have an Agreement with a Health Company and have provided us with a copy of the Agreement.

In the Agreement, the Health Company is referred as 'the Principal' and you are referred as 'the contractor'. The Agreement provides amongst other things the following:

• The principal operates a Health Company (the company) at the premises referred to in in Item 1 of the Schedule (the premises).

• The principal has engaged the contractor to provide and the contractor agrees to provide medical services at the premises on the terms set out in the Agreement for the financial benefits of the contractor and the principal.

• The principal will provide the facilities described in Item 2 of the Schedule for the use of the contractor.

• The principal authorises the contractor to access the company premises for the purpose of providing the services described in Item 3 of the Schedule (the services) at the company.

• The contractor agrees that the principal may acknowledge publicly the engagement of the contractor by the principal and the provision of the services by the contractor at the company.

• During the term the contractor shall provide the services at the company during the times specified in Item 6 of the Schedule or as otherwise agreed between the parties from time to time.

• The principal may give to the contractor directions, instructions and information regarding the policy then applying for the provision of the services at the company (Company Policies) and the contractor must comply with the Company Policies. The contractor's compliance with the Company Policies will not relieve or reduce the contractor's sole responsibility for all services performed by the contractor.

• In addition to its other obligations under clause 5, the contractor:

a) shall immediately notify the principal of any potential, threatened or actual inquiry, complaint, suit, hearing or investigation by any person or governmental or other authority in respect of the company or the contractor in the contractor's capacity as a provider of the services);

b) will not be absent from the company during the contractor's agreed hours of work except as otherwise contemplated herein or except in the case of incapacity of the contractor by reason of illness or injury or in the event of the death or serious illness or injury to a member of the contractor's immediate family;

c) shall cooperate fully with the principal or any employee or consultant retained by the principal to enhance the company;

d) will endeavour to preserve and promote the company;

e) keep or cause to be kept complete and accurate records of all work performed by the contractor;

f) will not remove client records or equipment from the company without the consent of the principal;

g) shall at all times dress and keep the contractor's appearance in a manner appropriate to the company and will always appear well groomed.

• The contractor agrees to provide services to clients of the company who are referred to the contractor. Such clients will remain clients of the principal and the company (and not of the contractor).

• All client records made by the contractor for any clients services by the contractor will remain the exclusive property of the principal.

• In consideration for the contractor providing the services at the company, the principal shall pay to the contractor the contractor's fees and the contractor shall be entitled to receive the contractor's fees on the fees payment date in each week.

• The contractor's fees shall be a gross entitlement and the principal will not be liable to make income tax deductions or to pay any superannuation contributions, workers compensation insurance payments, income protection insurance payments, sick leave, carer's leave, annual leave or long service leave.

• The contractor's fees do not include any GST on the fees or the supply of the contractor's services. That tax must be added to the fees and paid by the principal to the consultant at the same time as the contractor's fees is paid.

• 'Contractor's fees' are defined to mean Y% of the total professional fees generated by the contractor.

• 'Professional fees' means all billings directly generated by the contractor in connection with the services rendered by the contractor at the company, as well as fees charged through any other facilities used by the contractor and credited to the company.

• The parties agree that the principal may in its sole discretion hire or engage additional contractors or other professionals as employees or independent contractors at the company.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

Reasons for decision

Entitlement to GST credits

Under section 11-20 of the GST Act a GST registered entity is entitled to input tax credits (GST credits) for any creditable acquisitions (purchases) that they make. The entity claims the GST credits for the creditable acquisitions as either capital or non-capital purchases when completing their activity statement.

Under section 11-5 of the GST Act an entity makes a creditable acquisition if:

a) the entity acquires 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 liable to provide consideration for the supply; and

d) you are registered or required to be registered.

Under subsection 11-5(1) of the GST Act, an entity acquires a thing for a creditable purpose to the extent that the entity acquires it in carrying on their enterprise.

However, under subsection 11-5(2) of the GST Act, an entity does 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.

Before deciding whether you can claim the amount as a non-capital purchase in your activity statement, we need to determine whether the X% of the total income received from the customers and retained by the Health Company is consideration for a creditable acquisition you have made. We do this by considering the arrangement that is in place under the Agreement you have with the Health Company.

What is the arrangement under the Agreement?

From the information in the Agreement, we consider the following supplies are made:

• a supply of professional services by you to the Health Company and the consideration for your supply is the contractor's fees, which in the agreement is defined to mean Y% of the total professional fees.

• a supply of medical services by the Health Company to the customers.

'Professional fees' in the agreement is defined to mean all billings directly generated by you in connection with the services you rendered at the premises as well as fees charged through any other facilities used by you and credited to the Health Company. In this instance, the professional fees are consideration for the supply of medical services made by the Health Company to the customers.

When the Health Company retains the X% of the income received from the customers, the retained amount forms part of the total consideration received by the Health Company in regard to the supply of medical services they make to the customers in their own right. In this instance, you have not made any acquisition in relation to the retained income. It is the customers who have made acquisitions of medical services from the Health Company.

Summary

To summarise, you cannot claim the X% income retained by the Health Company as a non-capital purchase in your activity statement as based on the facts given the X% retained income is not consideration for a creditable acquisition that you have made.