Edited version of your written advice

Authorisation Number: 1012918783121

Date of advice: 30 November 2015

Ruling

Subject: Whether importation of a drug is a non-taxable importation

Question 1

For the purposes of section 13-10 of the A New Tax System (Good and Services Tax) Act 1999 (GST Act) is the importation of a drug a non-taxable importation?

Answer

No, for the purposes of section 13-10 of the GST Act the importation of a drug is not a non-taxable importation.

Relevant facts and circumstances

A private ruling application was lodged by a transport and customs broker on behalf of the Hospital asking whether an exemption code applies to the importation of a drug by the Hospital on behalf of a specific patient. The ruling request referred to the Category A Form (see below) and noted that the drug is a prescription medicine which the patient cannot purchase from overseas because the drug can only be supplied under a prescription from a doctor.

BMO Exemption:

The exemption code refers to an exemption, pursuant to paragraph 13-10(1)(b) of the GST Act in conjunction with section 38-50 of the GST Act, from payment of the GST levied on importation of certain drugs and medicinal preparations. The relevant section of the Department of Immigration and Border Protection's website dealing with 'GST Exemptions (non-taxable importations)' states:

In general, drugs and medicinal preparations imported by a business entity are taxable importations. Certain drugs and medicinal preparations imported by the person who will consume those goods may, however, be exempt in particular circumstances (see below).

Category A Form - Special Access Scheme:

The Category A Form is required by paragraph 19(1)(a) of the Therapeutic Goods Act 1989 (TGA) which states:

(1)  The Secretary may, by notice in writing, grant an approval to a person for the importation into, or the exportation from, Australia or the supply in Australia of specified therapeutic goods that are not registered goods, listed goods or exempt goods:

                     (a)  for use in the treatment of another person; or

                     (b)  for use solely for experimental purposes in humans;

and such an approval may be given subject to such conditions as are specified in the notice of approval.

The Category A Form - Special Access Scheme attached to the ruling request was completed and signed by the doctor who prescribed the drug. The Category A Form states:

Category A patients are defined in the legislation as 'persons who are seriously ill with a condition from which death is reasonably likely to occur within a matter of months, or from which premature death is likely to occur is the absence of early treatment'.

The Category A Form provides fields for recording the patient and product details. For privacy reasons only the patient's initials are required.

The Category A Form also requires a medical practitioner to certify as follows:

In my opinion the patient above is a Category A patient as defined in regulation 12A of the Therapeutic Goods Regulations 1990;

I am prepared to prescribe the medicine requested; and

I have obtained the informed consent of the patient, or the patient's legal representative, to the proposed treatment.

Non-negotiable Waybill:

A Non-Negotiable Waybill was attached to the ruling request. It identifies the Production Pharmacy at the Hospital as the consignee.

Invoice:

A copy of an invoice was also attached to the ruling request. The invoice is addressed to the Hospital's Production Pharmacy.

Permit to Import Quarantine Material:

A copy of a Permit to Import Quarantine Material was also attached to the ruling request. The permit was issued by the relevant Department. The permit described the importer as 'Dr X, Hospital Pharmacy Department'. The Permit authorised the importer to import a Human Therapeutic (the drug) subject to a number of conditions.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 13-10.

Reasons for decision

Summary

The importation of the drug is a non-taxable importation only if, had that importation been a supply, it would have been GST-free or input taxed.

A supply of the drug would not have been input taxed. Nor would a supply of the drug have been GST-free. Although paragraph 38-50(6)(a) of the GST Act makes a supply of a drug or medicinal preparation that is the subject of an approval under paragraph 19(1)(a) of the TGA GST-free, subsection 38-50(7) would not have been satisfied as the supply would have been made to the Hospital rather than to an individual for private or domestic use or consumption. Consequently the importation of the drug is not a non-taxable importation.

This does not result in any additional cost to the patient as the Hospital can claim an input tax credit for the GST levied on importation of the drug and the supply of the drug by the Hospital to the patient is GST-free under paragraph 38-50(6)(a) and subsection 38-50(7) of the GST Act.

Detailed reasoning

Section 13-5 of the GST Act provides that an entity makes a taxable importation if:

• goods are imported, and

• the entity enters the good for home consumption (within the meaning of the Customs Act 1901 ).

However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

Under section 13-10 of the GST Act an importation is a non-taxable importation if:

• it is a non-taxable importation under Part 3-2 of the GST Act, or

• it would have been a supply that was GST-free or input taxed if it had been a supply.

Part 3-2 of the GST Act lists importations that are non-taxable so as to complement concessions in the Customs Tariff Act 1995 and is not relevant to the importation in present case. Consequently the importation of the drug is a non-taxable importation only if, had that importation been a supply, it would have been a GST-free supply or an input taxed supply.

Division 40 of the GST Act deals with input taxed supplies, none of which apply to the supply of a drug or medicinal preparation.

Section 38-50 of the GST Act outlines the circumstances in which the supply of a drug or medicinal preparation is GST-free. Paragraph 38-50(6)(a) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free if the drug or medicinal preparation is the subject of an approval under paragraph 19(1)(a) of the TGA and any conditions to which the approval is subject have been complied with. However, subsection 38-50(7) states that a supply of a drug or medicinal preparation covered by section 38-50 is GST-free if, and only if:

• the drug or medicinal preparation is for human use or consumption, and

• the supply is to an individual for private or domestic use or consumption.

Paragraph 251 of Goods and Services Tax Ruling GSTR 2003/15 (GSTR 2003/15) states:

In determining whether an importation, if it had been a supply, would have been GST-free or input taxed, the Commissioner considers that you need to hypothesise that the importation were a supply to the importer. If this hypothetical supply to the importer would have satisfied one of the exemptions in Chapter 3 of the Act, the importation is non-taxable.

Where a medical practitioner, pharmacist or hospital imports a drug in order to on-supply that drug to a patient, subsection 38-50(7) of the GST Act is not satisfied. The supply of the drug to a medical practitioner or pharmacist is not a supply to an individual for their private or domestic use or consumption and would not be GST-free under section 38-50 of the GST Act. As such, the importation of the drug under those circumstances is a taxable importation.

This distinction is reflected in the paragraph at the beginning of the section of the BMO dealing with drugs and medicinal preparations:

In general, drugs and medicinal preparations imported by a business entity are taxable importations. Certain drugs and medicinal preparations imported by the person who will consume those goods may, however, be exempt in particular circumstances (see below)

In the present case the documents supplied with the ruling request indicate that, if the importation of the drug was a supply, it would have been made to the Hospital's pharmacist or medical practitioner, rather than to the patient: The Non-Negotiable Waybill describes the consignee as 'Production Pharmacy, Hospital', the Invoice is addressed to 'Hospital Production Pharmacy' and the Permit to Import Quarantine Material describes the importer as Dr X, Hospital and states:

You are authorised to import the following material under the listed conditions.

We therefore consider that the importation of the drug is not a non-taxable importation under paragraph 13-10(b) of the GST Act.

We acknowledge that in the present case it would have been be possible for the prescribing doctor to complete the Category A Form - Special Access Scheme and for the patient to import the drug. Subsection 18(1) of the TGA provides for the Therapeutic Goods Regulations 1990 to exempt specified therapeutic goods and Item 1(b) in Schedule 5 to the Therapeutic Goods Regulations 1990 exempts therapeutic goods that are imported for use in the treatment of the importer or the importer's immediate family such as injections that contain material of human or animal origin that are the subject of an approval under section 19 of the TGA. However the documentation supplied indicates that that did not occur.

The Hospital may have requested a ruling on the ground that the GST levied on importation of the drug is an extra cost to the patient. That is not the case because the Hospital is entitled to claim an input tax credit for the GST levied on importation of the drug and the subsequent supply of the drug by the Hospital to the patient is GST-free under section 38-50 of the GST Act.