Edited version of your written advice

Authorisation Number: 1051193778589

Date of advice: 24 February 2017

Ruling

Subject: GST Treatment of Product X and other items you import

Issue - GST Treatment of Product X and other items you import

Question

Are you making a non-taxable importation of Product X and other supplies including the tools, kits etc. you import?

Note: Product X refers to a particular device which you sell.

Answer

No, you are not making a non-taxable importation when you import Product X and other supplies.

See our reasons for decision.

Relevant facts and circumstances

About you

● You are a company that specialises in the distribution of Product X and other supplies to health professionals.

Importation

● You import all items you sell in your business

● Currently you pay GST on the importation of such supplies

Documentation

● You provided sample invoices of your purchases, Customs forms and a certificate from the Australian Register of Therapeutic Goods

Your Query

● You believe Product X can be classed as a medical aid which is GST Free. 

● You currently sell the products to health professionals as GST-Free as you are not currently registered for GST.

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 Schedule 3 and

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 38-45.01.

ATO view documents

● ATO Interpretative Decision 2002/80 Goods and Services Tax: GST and the importation of footwear designed to be fitted with an orthotic 

● ATO Health Industry Partnership - issues register available on the ATO website

Reasons for decision

Importation

Section 13-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the importation of goods into Australia is subject to GST if they are entered for home consumption within the meaning of the Customs Act 1901. However, an importation is not subject to GST if it is a non-taxable importation.

Under paragraph 13-10(b) of the GST Act, an importation is a non-taxable importation if the thing imported would have been GST-free or input taxed if it had been supplied within Australia. Therefore, it needs to be determined whether Product X and other items including the tools, kits, sealants etc, would have been GST-free or input taxed if the imported items had been supplied within Australia.

Taxable supplies

Under section 9-5 of the GST Act, you make a taxable supply when you make a supply:

● for consideration

● in the course or furtherance of your enterprise

● the supply is connected with Australia, and

● 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.

There are no provisions in the GST Act that will make your supply input taxed under Division 40.

As such, we have to consider whether the supply is GST-free under Division 38 of the GST Act.

Division 38

Under subsection 38-45(1) of the GST Act, the supply of certain medical aids or appliances is GST-free where the medical aid or appliance:

a) 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), and

b) is specifically designed for people with an illness or disability, and

c) is not widely used by people without an illness or disability.

Once an item meets all of the above elements then its supply will be GST-free all the way down the supply chain and not only when supplied to a person who has an illness or disability. One exception to this is when the supplier and the recipient agree to treat the supply as if it were taxable pursuant to subsection 38-45(3).

Schedule 3 of the GST Act

Item 41 of Schedule 3 to the GST Act states: 'surgical shoes, boots, braces and irons'. The phrase 'surgical shoes, boots, braces and irons' is not defined in the GST Act. Therefore, it is necessary to consider its ordinary meaning. This was considered in ATO Interpretative Decision 2002/80 Goods and Services Tax: GST and the importation of footwear designed to be fitted with an orthotic (ATO ID 2002/80). ATO ID 2002/80 states that:

“The Macquarie Dictionary (2015) defines 'surgical' as 'relating to or involving surgery' and surgical boot as 'a specifically constructed boot or shoe designed to support or correct a deformed foot'. Accordingly, it is considered that surgical shoes or boots are limited to those specially constructed shoes or boots designed to support or correct a deformed foot and those shoes and boots designed to be worn to support and protect a foot as a result of surgery. It would also be expected that the surgical shoes or boots would be a complete item that is custom made for a specific individual.”

Your case

Based on the information provided, Product X does not meet item 41 of Schedule 3. Further, it does not fit into any category of medical aids in Regulation 38-45.01 of A New Tax System (Goods and Services Tax) Regulations 1999 (GST Act Regulations). Therefore, it is not considered to be a GST-free medical aid as it does not meet the first limb of subsection 38-45(1) of the GST Act. The second and third limbs of subsection 38-45(1) will not be considered as the first limb was not met.

Please note that even though you provided a Certificate from the Australian Register of Therapeutic Goods, this does not enable Product X to be considered to be medical aids under the GST Act.

The supply of Product X will be a taxable supply if (you choose to register for GST purposes) as all the elements of section 9-5 of the GST Act will be satisfied.

Aside note

Product X supplied in the course of a GST-free health service provided by certain health practitioners or a GST-free medical service provided by medical practitioners are likely to be GST-free to individual patients under subsection 38-10(3) or subsection 38-7(3), respectively, of the GST Act .

Other items

The other items which you sell including the tools and kits are not listed in Schedule 3 to the GST Act or GST Regulations and therefore are not GST-free medical aids under subsection 38-45(1) of the GST Act, nor are they GST-free under any other section of the GST Act. Therefore they will be considered to be taxable supplies under section 9-5 of the GST Act.

This means that you are making taxable importations and therefore you must pay GST on the taxable importations as they would attract GST had they been bought in Australia.

GST on a taxable importation is payable by businesses, organisations and private individuals, whether they are registered for GST or not. As you are currently not registered for GST, you can choose to voluntarily register for GST purposes if you would like to claim GST credits on the importation and any other creditable acquisitions. However, you will need to remit one-eleventh of the consideration you receive (GST payable) in making your supplies of Product X and other items as they are taxable supplies.