Edited version of your written advice

Authorisation Number: 1012764940761

Ruling

Subject: GST-free medical aids and appliances

Question 1

1. Are supplies of your medical aids and appliances GST-free under subsection 38-45(1) of the

A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supplies of your medical aids and appliances are GST-free under subsection 38-45(1) of the GST Act.

Question 2

2. Are supplies of spare parts for your medical aids and appliances GST-free under subsection 38-45(2) of the GST Act?

Answer

Yes, the supplies of spare parts for your medical aids and appliances are GST-free under subsection 38-45(2) of the GST Act.

Relevant facts and circumstances

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

• You manufacture and distribute high quality and specialised postural comfort products.

• Your distribution channel for your products is exclusively focused on health professionals throughout Australia and internationally.

• You manufacture and distribute a range of products which are designed for the rehabilitation and care of patients with degenerative or accident induced conditions.

• Your products are also designed for the care or relief of many other less severe conditions like injuries from which there is recovery after appropriate treatment. Further, many of your products are also designed to provide greater comfort for people with illness or disabilities, and which do not actually treat or heal the illness or disability.

• Your products are designed and manufactured expressly for use by persons who suffer from certain sickness or disablement and are of a kind not ordinarily used by persons who do not suffer from such conditions.

• The products are recommended (it is not a product for which a prescription is needed) by health therapists for use by people who have an illness or a disability, and this is where the majority of sales are made.

• Your products are kept on, and can be ordered from, the premises of health specialists.

• Your products are stocked at selected chemists and surgical supply companies where the patients can purchase them on the recommendation of their health care professional.

• The products are not available through conventional retail distribution. The reason is that they are of a specialised nature.

• There is no agreement between you and the recipient of the supply that the supply will not be treated as a GST-free supply.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) 1999 Act subsections 38-45(1) & (2)

Reasons for decision

Question 1

Subsection 38-45(1) of the GST Act provides that 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.

Your medical aids and appliances are specified in an Item in the table in Schedule 3.

As your medical aids and appliances satisfy an Item in the table in Schedule 3 they will be a GST-free supply if they meet the further requirements that '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.'

The GST Pharmaceutical Health Forum Issues Register is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953. The following issues provide guidance in relation to the above requirements:

Issue 1.c.

What factors should be taken into account in determining whether a medical aid or appliance is specifically designed for people with an illness or disability?

In determining whether a medical aid and appliance is specifically designed for people with an illness or disability reference should be made to the designer's/manufacturer's intention of how the good is to be used and its features. Indicators of the designer's/manufacturer's intention of how a good is to be used include how the good is marketed and the type of retail outlets at which the goods can be purchased.

Issue 1.d.

What factors should be taken into account in determining whether a medical aid or appliance is widely used by people without an illness or disability?

In determining whether a medical aid and appliance is used by people without an illness or disability reference should be made to how the wider community uses these goods. That is, the common purpose for which the goods are purchased.

Subsection 38-45(1) does not require the GST treatment of a medical aid and appliance to be determined by reference to the actual use for which an item is being purchased but rather focuses on the purpose for which the wider community purchases these products.

Accordingly, it is considered that irregular and uncommon use of a medical aid and appliance in a way contrary to its manufactured purpose will not prevent the good from being GST-free.

You stated that the products:

• are not available through conventional retail distribution channels. The reason is that being of a specialised nature;

• are very often individually recommended by health professionals as being of a suitably customised style for the specific needs of a particular patient as an aid to recovery. In other words a qualified health professional is often the person who directs the patient

• are designed and manufactured expressly for use by persons who suffer from sickness, disease or disablement and are of a kind not ordinarily used by persons who do not suffer from such conditions;

• are recommended by health therapists for use by people who have an illness or a disability;

• are kept on, and can be ordered from, the premises of health specialists

• are stocked at selected chemists and surgical supply companies where the patients can purchase them on the recommendation of their health care professional.

The product descriptions on your website in some cases highlight features of your products that could be beneficial or relevant to anyone, rather than people with an illness or disability. This needs to be balanced against the abovementioned factors, such as the majority of sales are via specific distribution channels by way of recommendations of health professionals to people with an illness or disability (which is a factor mentioned in 1.c above) and the designers stated intention.

In view of the above facts, in particular product designer's statements and the specific distribution channels that are used, we consider that these medical aids and appliances are specifically designed for people with an illness or disability.

Similar considerations apply to determining if the products are widely used by people without an illness or disability. Whilst the marketing on the website may highlight features that may be of interest to people without an illness or disability, this needs to be balanced against other factors, in particular that majority of sales are via specific distribution channels by way of recommendations of health professionals to people with an illness or disability. On balance, it is accepted that the purpose for which the wider community purchases these products is in relation to an illness or disability. Therefore, the medical aids and appliances are not widely used by people without an illness or disability. Therefore, the supplies of the medical aids and appliances are GST-free pursuant to subsection 38-45(1) of the GST Act.

Question 2

Subsection 38-45(2) of the GST Act provides that a supply of a spare part will be a GST-free supply if the spare part is:

• supplied as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act; and

• specifically designed as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act.

The first requirement is that the thing supplied must be supplied as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act.

The term 'spare part' is not defined in the GST Act. Therefore, it is necessary to rely on the ordinary meaning of that phrase. The Macquarie Dictionary (1997) defines 'spare part' as, amongst other things, 'a part which replaces a faulty, worn, or broken part of a machine...'. Accordingly, a part need not actually be replacing something which is faulty, worn or broken to qualify as a spare part, but just be capable of doing so. Therefore, it needs to be determined if your spare parts are 'part' of the relevant product.

In this case the spare parts are supplied with the relevant product when it is originally sold, and it is expected that the relevant product would not be used without such parts. The spare parts are also designed to fit the specific and unique shapes of your products.

As the spare parts are supplied as an integral part of the products when they are originally sold, it follows that the spare parts are accepted to be 'part' of the relevant product.

Therefore the replacement parts are supplied as a spare part for the relevant products and satisfy the first requirement.

The second requirement in subsection 38-45(2) of the GST Act is that the spare part must be specifically designed as a spare part for the GST-free medical aid or appliance. That is a spare part that is 'generic' in nature and not specifically designed would not meet this requirement.

The replacement parts are specifically designed for use with your products and cannot be used for any other purpose. Therefore, the replacement parts are specifically designed as spare parts for the purposes of subsection 38-45(2) of the GST Act.

We consider the replacement parts are GST-free supplies of spare parts as they are used to replace a faulty, worn or broken part of a medical aid or appliance.

As all of the requirements in subsection 38-45 (2) of the GST Act are met, you are making a GST-free supply under subsection 38-45(2) of the GST Act, when you supply the replacement parts.