Edited version of your written advice

Authorisation Number: 1012825944816

Date of service: 18 June 2015

Ruling

Subject: Goods and services tax (GST) and dental hygienist services

Question

Is GST payable on the transfer payment you receive from a dentist in respect of dental hygienist services you provide?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You are a service entity, providing services including dental materials, premises, equipment and clerical and clinical staffing to a number of dentists.

The majority of the dentists are not connected to you. All of the dentists are registered for GST.

You also employ a number of dental hygienists who perform dental treatments for the patients of the various dentists. The dental hygienists are recognised professionals.

You meet the costs of employing the dental hygienists and related expenses and receive the income from the provision of dental hygiene services.

It is common practice, although not always the case that during or following the hygienist appointment, the patient will also have an examination carried out by the respective dentist as part of their regular dental check-up.

To enable the patient to claim benefits from their private health insurer, the invoice for the hygienist services provided must include the respective dentist's provider number (the dentist is regarded as the hygienist's supervisor for that particular patient). You would also prefer for patient convenience and simplicity to raise just one invoice to the patient (ie if the patient has received services from the dentist and hygienist, to raise one invoice with the two components separately shown or in the case of hygienist services only, the single component). In the majority of cases, the health fund benefit and the remaining fee are then transferred electronically (at the time of raising the invoice) from the health fund and patient to the respective dentist.

The dentist is not entitled to the income from the patient for the dental hygienist services. You are entitled to this income.

At month end, you currently raise an invoice to each dentist for the services provided and the hygienist income collected by the dentist on your behalf. GST is then applied to the total. It has been suggested that in regard to the hygienist income component, each dentist is acting as your agent.

The dentist determines what dental hygiene services are provided to the patient.

The dentist has a supervisory arrangement with the dental hygienist, but the dentist does not physically supervise the dental hygienist.

The dentist does not contract you to supply the services of a dental hygienist.

There is no written or verbal contract between the dentist and you under which:

• you are required to supply the services of a dental hygienist to the dentist which the dental hygienist would provide to the patient; and

• the dentist agrees to be liable to pay you for these services.

The dentist does not engage you to provide the services of a dental hygienist. The dentist refers the patient to seek dental hygiene treatment from a dental hygienist employed by you. The patient calls the practice '(practice name)' to make a time with a dental hygienist.

The dentist is not liable to pay you for the work of a dental hygienist. You would only seek payment from the patient.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 38-10

Reasons for decision

Summary

GST is not payable on the transfer payment because you do not make a taxable supply to the dentist in return for this transfer payment.

Detailed reasoning

GST is payable on taxable supplies.

You make a taxable supply if you meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an

*enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) 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.

(* Denotes a term defined in section 195-1 of the GST Act)

Issue 1.a.25 of the Health Industry Partnership Issues Register sets out a scenario in which a health professional collects a fee owing by a patient to a third party health professional and forwards it on to the third party as a matter of administrative convenience. It states:

1.a.25 A surgeon, acting as agent for the patient, engages the services of a medical practitioner as a surgical assistant. After the operation has been performed, at the request of the surgical assistant, the surgeon bills the patient and includes both the surgeon's fee and the surgical assistant's fee. When payment is received, the surgeon passes on the surgical assistant's fee which was included in the invoice to the patient. The surgeon does not charge an administration fee for handling the billing, and so on. Does the transaction between the surgeon and the surgical assistant attract GST?

For source of ATO view, refer to Part 3 of GSTR 2006/9 - Goods and services tax: supplies

This question focuses on identifying:

• Whether there is a supply by the surgeon to the patient and a supply by the surgical assistant to the patient (which is merely billed through the surgeon), or

• Whether there is a supply by the surgical assistant to the surgeon and the surgeon supplies all of the services to the patient.

In determining the GST treatment of the services provided by the surgical assistant and billed by the surgeon to the patient, it is necessary to identify who is the recipient of the services rendered by the surgical assistant.

On the facts provided in the question, the recipient of the services provided by the surgical assistant is the patient. The surgeon is merely a conduit through which the patient pays for the surgical assistant's services. That is, the surgeon merely collects both fees from the patient for administrative convenience. As the payment by the surgeon to the surgical assistant represents consideration for the medical services supplied to the patient, the payment will be GST-free where the requirements of section 38-7 are satisfied.

It is important to emphasise that each case needs to be considered on its merits. If the facts of a particular supply differ from those stated in this question, the supply may not be GST-free. For example, the surgical assistant will be making a supply to the surgeon rather than the patient where

(a) the surgeon engages the surgical assistant to provide something to them or to someone else (for example, their patient)

(b) the surgeon, by agreement with the surgical assistant, determines what is required to be provided to them or to the patient

(c) the agreement creates a binding obligation between that surgeon and the surgical assistant for the thing to be provided to them or to the patient.

In accordance with paragraph 122 of Goods and Services Tax Ruling GSTR 2006/9, when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

Paragraphs 157 to 164 of GSTR 2006/9 discuss tripartite arrangements involving health services. They state:

Examples applying the proposition: when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow)

Example 4: ambulance services supplied to hospital

157. A, a supplier of ambulance services, enters into an agreement with B, a hospital, under which A agrees to provide ambulance services as and when B requests them and B agrees to pay for the services. B is not an Australian government agency.The obligations under the agreement between A and B are binding.

158. Pursuant to the agreement, A transfers C, a patient, from hospital B to another hospital. The transfer of C is in the course of C's treatment and B pays A to provide A's services to C.

159. The recipient of A's supply of ambulance services is hospital B. A's supply is made to B and provided to C.

160. One of the requirements under subsection 38-10(5) for a supply of an ambulance service to be GST-free is that the service is supplied in the course of treating the recipient of the supply. As hospital B is the recipient of the supply, not the patient, and there is no treatment of the hospital, the supply of the ambulance service is not GST-free.

Example 5: occupational therapist

161. A, an occupational therapist, is engaged by B, a company, to assess the needs of C, its employee. C suffers from multiple sclerosis and needs to use a wheelchair. A and B enter into an agreement which requires A to undertake an assessment of C's condition, to give recommendations in a report to B and for B to pay for the service.

162. A's supply of services is made to B. Although C may benefit from these services, it is B who contracts for the supply of these services and is the recipient of the supply.

163. This supply is not GST-free under subsection 38-10(1). This is because paragraph 38-10(1)(c) requires the supply to be generally accepted in the relevant profession as being necessary for the appropriate treatment of the recipient of the supply. B is the recipient of the supply. The supply is not for the treatment of B. Paragraph 38-10(1)(c) is not satisfied.

164. If C engages the occupational therapist to supply its services and B merely pays the therapist on behalf of C, the recipient of the occupational therapist's services is C. This supply will be GST-free if all of the

Paragraph 221B of GSTR 2006/9 discusses tripartite arrangements where a customer receives a supply; another entity pays for the supply and there is no binding obligation between the payer and the supplier for the supplier to make a supply to the customer. It states:

221B. The Commissioner considers that the following factors, in combination, may point to a supply being made by the supplier to the payer under a tripartite arrangement that involves a supply by the supplier to the customer, even where there is no binding obligation between the payer and the supplier for the supplier to make a supply to the customer:

(a) there is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies by the supplier to particular third parties or a class of third parties;

(b) the pre-existing framework or agreement:

(i) identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies made to them come within the scope of the framework or agreement; and

(ii) specifies that the payer is under an obligation to pay the supplier if there is a relevant supply by the supplier to a third party and also sets out a mechanism by which such payment is authorised;

(c) the framework or agreement and the mechanism for authorising the payment are in existence before the supply by the supplier to the third party (that is, the supplier knows in advance that the payer is obliged to pay some or all of the consideration in the event of the supply to the third party);

(d) the supplier makes the supply to the third party in conformity with the pre-existing framework or agreement between the parties; and

(e) the obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier. Rather, once the supply becomes a supply to which the framework or agreement applies, the framework or agreement establishes a liability owed by the payer (not the third party) to the supplier in the event that there is a supply by the supplier to the third party.

You provide dental hygienist services to the patients.

Although the dentists determine what dental hygienist services are provided to the patients, the dentists do not contract you to supply dental hygienist services.

The dentist does not engage you to provide the services of a dental hygienist. The dentist refers the patient to seek dental hygiene treatment from a dental hygienist employed by you. The patient calls the practice '(practice name)' to make a time with a dental hygienist.

You do not have an obligation to the dentist to perform dental hygienist services.

The dentist is not liable to pay you for the work of a dental hygienist. You would only seek payment from the patient.

You are not making a supply to the dentist, as:

• the dentist does not contract you to perform dental hygienist services, and

• the dentist is not liable to pay you for the services you provide to the patients.

Therefore, the payment the dentist makes to you is an administrative arrangement to pay on behalf of the patient for a liability the patient owes to you for a supply you make to the patient. In regards to the payment for the dental hygienist services, the dentist is merely acting as a conduit through which payment for these services is made as a matter of administrative convenience. Hence, the transfer payment is not consideration for a supply you make to the dentist. Therefore, you are not making a taxable supply to the dentist in return for the transfer payment. Hence, GST is not payable on the transfer payment.

Additional information

The payment made by the patient for dental hygienist services is consideration for a GST-free supply under subsection 38-10(1) of the GST Act because:

• the payment is consideration for a supply of professional dental health services

• the dental hygienists are recognised professionals, and

• the dental hygienist services provided to the recipient of the supply (the patient) would generally be accepted in the dental hygienist profession as being necessary for the appropriate treatment of this recipient.