Edited version of your written advice

Authorisation Number: 1012999111192

Date of advice: 19 April 2016

Ruling

Subject: GST and invoicing for supplies of a medical practice

Question:

How should an Australian entity (you) invoice for supplies that it makes, and treat the acquisition of the management services/room from a Medical Centre?

Answer:

Where you are the principal (and the Medical Centre is acting as your agent) in relation to medical services to a patient, your supply of the medical services is GST-free. You (or the Medical Centre on your behalf) will invoice the patient for the supply of the medical services. You will include the total amount for the supply of the medical services in your activity statements.

You will be entitled to claim an input tax credit (GST credits) for any GST paid on the acquisition of the management services/room from the Medical Centre. The Medical Centre is required to issue you with a tax invoice for the total administration/room fee.

Relevant facts:

You are a service company for Dr X. You are registered for GST.

You (via Dr X) work at a Medical Centre. The Medical Centre is registered for GST.

You advise that the Medical Centre is withholding incorrect amounts of GST from the payments made to you.

Under your current agreement, you are entitled to receive A% of the gross medical income, and the Medical Centre is entitled to receive B% as a management and room rental fee.

You provide a sample invoice issued by the Medical Centre. In the example invoice, the amounts are shown as Y.

You also provide a sample tax invoice as to what you believe should be the correct method to invoice for your services and show the acquisition of the management service/room from the Medical Centre. In the example invoice, the amounts are shown Z.

Additional information

You provided a copy of an agreement between you and the Medical Centre, which needed clarification as to the actual legal arrangement between the parties.

You confirm that the legal arrangement between you, the Medical Centre and the patients, is that you are the entity that makes the supplies of the medical services to the patients. You are the principal and the Medical Centre acts as your agent in relation to these supplies to patients.

You advise that the arrangement between you and the Medical Centre is not an employee/employer relationship. You also advise that the arrangement between you and the Medical Centre is not one in which the Medical Centre contracts you for the professional services, and then the Medical Centre is the entity that agrees to supply the medical services to the patients (that is, you do not perform the medical services on behalf of the Medical Centre).

You have your own medical provider number, and advise that you are the entity supplying the medical services to the patients.

For the sample invoice in question, you confirm that the medical services to the patients are services for which a 'Medicare benefit' was payable.

You confirm that you (via Dr X) have your own Medicare provider number, you provide the medical services to your patients, and the income from the patients belongs to you (Dr X and his company). You then pay the administration (management)/rent fees to the Medical Centre as they provide you with the room and administration services.

You require a ruling in particular to the invoicing done by the Medical Centre which is provided to you to account for your (via Dr X) supply of the medical services and the acquisition of the management services/room from the Medical Centre. There is no dispute in relation to the GST treatment of the medical services to patients.

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, Section 11-5

A New Tax System (Goods and Services Tax) Act 1999, Section 17-5

A New Tax System (Goods and Services Tax) Act 1999, Section 29-70

A New Tax System (Goods and Services Tax) Act 1999, Section 38-7

Reasons for decision

GST-free medical services

Section 38-7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides a supply of a medical service is GST-free. 'Medical service' is defined to mean:

(a) service for which Medicare benefit is payable under Part II of the Health Insurance Act 1973, or

(b) any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

The definition of a 'medical service' has two limbs. Any service that falls within either the first or second limb of the definition, is GST-free.

The services in question are services for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973, and is therefore GST-free.

Where you are the principal (and the Medical Centre is acting as your agent) in relation to the medical services to a patient, the supply that you make to the patient is treated as GST-free. You (or the Medical Centre as agent on your behalf) will invoice the patient for the supply of the medical services. You (as the principal) must include the total amount for the medical services in your activity statements.

In your example invoices, if the gross medical income of $A is for the supply of medical services to your patients, you are required to record and report this amount in your activity statement as
GST-free supplies.

Acquisition of the Medical Centre's management services/room

Under section 11-20 of the GST Act, you are entitled to claim input tax credits (GST credits) on any creditable acquisitions you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a) you acquire 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 are liable to provide consideration for the supply; and

(d) you are registered or required to be registered for GST.

You acquire a thing for a 'creditable purpose' to the extent that you acquire it in carrying on your enterprise (eg. business). You do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed, or the acquisition is of a private or domestic nature.

The facts indicate that in relation to your acquisition of the Medical Centre's management services/room, you satisfy all the requirements of a creditable acquisition because:

• you acquire the supply from the Medical Centre for your medical practice (and not for making input taxed supplies or for private purposes);

• you are charged GST on the supply made by the Medical Centre to you;

• you provided consideration for the supply; and

• you are registered for GST

Accordingly, you are entitled to claim a GST credit on the creditable acquisition of the management services/room from the Medical Centre.

The supplier of a taxable supply (in this circumstance, the Medical Centre) is required to issue a tax invoice within 28 days of request by a recipient. You will be required to obtain and hold a valid tax invoice from the Medical Centre in order to claim the GST credit on your activity statements.

In your example invoices, if your gross medical income is $A (GST-free) for the supply of medical services to your patients, and the parties agree that the Medical Centre is entitled to consideration of B% (with $B being the value of the supply) plus GST, the Medical Centre is required to record and issue you with a tax invoice for the total price of $C ($B plus GST) for their supplies to you. You will report this amount in your activity statement to claim the GST credit.

Summary

Where you are the principal (and the Medical Centre is acting as your agent) in relation to the supply of medical services to patients, the total amount recorded for your GST-free supply of medical services to the patients is $A on your activity statement. The total amount recorded for your creditable acquisition of the management/room from the Medical Centre is $C (being $B plus GST). The Medical Centre is required to issue you with a valid tax invoice for this acquisition in order for you to claim the GST credits.