Edited version of your written advice

Authorisation Number: 1012886885501

Date of advice: 29 October 2015

Ruling

Subject: Supply of medical aids and appliances

Question

Is the supply by you of the Air Pump a GST-free supply under section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, your supply of the Air Pump is not GST-free under section 38-45 of the GST Act. You are making a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

You are an Australian company that is registered for GST.

You supply various medical aids and appliances including the Air Transfer System.

The parts of the Air Transfer System are the Transfer Mattress and the Air Pump.

The manufacturer of the Air Pump is based overseas and is not registered for GST in Australia.

The Air Pump is marketed by a team of sales representatives who sell directly to hospitals and nursing homes.

You sell the Transfer Mattress and the Air Pump either together or separately. You advised that the hospital or nursing home may have a number of Transfer Mattresses but would only need at least one Air Pump.

The Air Transfer System is used to assist with lateral transfers and repositioning anywhere in the hospital or nursing home.

After the patient is placed on the Transfer Mattress, air from the Air Pump will inflate the mattress.

Your contention:

The Air Pump is designed specifically as an accessory to and for use in conjunction with a specific range of product which are classified as GST-free transfer sheet, mat or belt under Item 92 of Schedule 3. The Air Pump cannot be used for any other purpose or in conjunction with any other product. For this reason, the supply should be GST-free.

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 Subsection 38-45(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(2).

A New Tax System (Goods and Services Tax) Act 1999 Section 38-45.

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

A New Tax System (Goods and Services Tax) Act 199 Schedule 3 table item 92.

Reasons for the decision

GST is payable if an entity is making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 defined term in the GST Act.)

The supply of the Air Pump satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act as follows:

• the supply is made for consideration

• the supply is made in the course of your enterprise

• the supply is connected with Australia because the Air Pump is made in Australia to the recipient, and

• you are registered for GST.

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

Under subsection 38-45(1) of the GST Act, 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.

Medical aids or appliances which satisfy all the elements of subsection 38-45(1) are GST-free at all stages of the supply chain. The supply is GST-free no matter who makes the supply or who the supply is made to.

Item 92 in the table in Schedule 3 to the GST Act (Item 92) lists transfer sheets, mats and belts.

Air Pump systems are not items that are listed in Schedule 3 or in the GST Regulations, nor is there a general class of goods listed which covers them. Therefore, the issue to be considered is whether the Air Pump forms part of the GST-free supply of the transfer sheet, mat or belt.

The term 'transfer sheets' is not defined in the GST Act. Generally, where a term is not defined in the relevant Act, it is usually interpreted in accordance with its ordinary meaning, unless it has a special or technical meaning. Where a term has a special or technical meaning, it is necessary to determine its meaning by reference to the industry to which that term relates (Herbert Adams Pty Ltd v FCT (1932) 47 CLR 222).

It is considered that transfer sheets, mats or belts are those that may be used to assist in the transfer of patients. The various purposes of a transfer sheet sheets, mats or belts include:

• repositioning a care patient in bed,

• manoeuvring a care patient in bed, and

• lateral transfer of a care patient from a bed to a stretcher or other surface.

The Air Pump is designed for use in conjunction with the Transfer Mattress, an item which may be GST-free under Item 92 of Schedule 3.

However, the Air Pump is a stand-alone device. It is an entirely separate piece of equipment to the Transfer Mattress, and performs a completely distinct function from that of the Transfer Mattress (air from the Air Pump will inflate the Transfer Mattress).

The Air Pump does not form an additional or extra part of the equipment of a Transfer Mattress nor is it dependent upon, or subordinate or auxiliary to, the Transfer Mattress. Although at times the Air Pump performs the first step in the patient transfer process, that is to inflate the mattresses/positioning devices in case the mattresses does not have the correct air pressure, the Air Pump is also utilised on its own to just perform the task of air supply.

Whilst the process of inflating the Transfer Mattress may accompany the process of transferring patients, the Air Pump itself does not contribute to the working of the Transfer Mattress if the mattress is already inflated to the correct pressure. Although the two devices may be interdependent or used in conjunction with each other to complete the transfer of a patient, each device performs a separate and distinct process, which may or may not need to be combined to necessitate a successful patient transfer.

Therefore, it is considered that the Air Pump is not a transfer sheet, mat and belt, and is therefore not covered by Item 92.

You contend that because the Air Pump is designed specifically as an accessory to and for use in conjunction with the Transfer Mattress which is classified as a GST-free transfer sheet, mat or belt under Item 92 of Schedule 3, the Air Pump should also be GST-free.

Some items in Schedule 3 list accessories of certain medical aids and accessories. However, Item 92 does not cover accessories.

As the Air Pump is not covered by Schedule 3, the supply is not GST-free under subsection 38-45(1) of the GST Act.

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 term 'spare part' is not defined in the GST Act. As such, it is necessary to rely on the ordinary meaning of that phrase. The Macquarie Dictionary , 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales defines 'spare part' as, amongst other things, 'a part which replaces a faulty, worn, or broken part of a machine...'

The Air Pump is not supplied to replace an existing part that is faulty, worn or broken part of the Transfer Mattress. As such, it is not considered to be a 'spare part' for the purposes of the GST Act. Hence, the supply does not satisfy the requirements of subsection 38-45(2) of the GST Act.

The supply of the Air Pump is not GST-free under subsections 38-45(1) or (2) of the GST Act. The supply is not GST-free under any other provision of Division 38 of the GST Act. Furthermore, the supply is not input taxed under Division 40 of the GST Act. Therefore, as all the requirements of section 9-5 of the GST Act are met, the supply of the Air Pump is a taxable supply.