Edited version of your written advice

Authorisation Number: 1051209009739

Date of advice: 30 March 2017

Ruling

Subject: GST and medical aids

Question 1

Is the supply of X range of electronically operated adjustable beds a GST-free supply when supplied as either an adjustable base only or as part of a complete ensemble (mattress and adjustable base)?

Answer

Yes. The supply of X range of electronically operated adjustable beds is a GST-free supply when supplied as either an adjustable base only or as part of a complete ensemble (mattress and adjustable base).

Question 2

Is the supply of X range of electronically operated adjustable beds a GST-free supply where the adjustable base includes drawers?

Answer

No, the supply of X range electronically operated adjustable beds, where the adjustable base includes drawers, is not a GST-free supply.

This would be a mixed supply that is partly GST-free and partly taxable. The supply of the beds is GST-free but the supply of the drawers is taxable. GST is payable to the extent that the supply if taxable. The part of the consideration that is for the taxable drawers needs to be worked out, with the cost to be apportioned between the beds and the drawers.

Question 3

Is the supply of Y range of electronically operated adjustable beds a GST-free supply when supplied as either an adjustable base only or as part of a complete ensemble, which includes the wooden base?

Answer

No, the supply of Y range electronically operated adjustable beds, which includes the wooden base, is not a GST-free supply.

It is a mixed supply. The supply of the beds as either an adjustable base only or as part of a complete ensemble (2 single mattresses and 2 adjustable bases) is GST-free and the supply of the wooden base is taxable.

GST is payable to the extent that the supply if taxable. You need to apportion the consideration for a mixed supply between the taxable (the wooden base).and non-taxable parts (the mattress and adjustable base) to find the consideration for the wooden base

Relevant facts and circumstances

You are an Australian company which is registered for goods and services tax (GST) and imports and sells a range of bed products in Australia.

You intend to introduce two new ranges of electronically operated adjustable beds, the X range and the Y range.

The X range:

The electronically operated adjustable beds are specifically designed for people with an illness or disability.

You provided a list of design features for the X range electronically operated adjustable beds.

In addition to the design features, a new feature that can be added is built in drawers.

The drawers do not alter the essential character of the bed and only serves as an incidental feature to increase the functionality of the bed.

The Y range:

The Y range electronically operated adjustable bed sits inside a wooden bed base.

The Y range beds are specifically designed for people with an illness or disability.

You provided a list of design features for the Y range electronically operated adjustable beds

The wooden base does not alter the essential character of the bed and serves to increase the look and functionality of the bed.

Both the X and Y range can be assembled with a mattress and sold as a package or alternatively, the electronically adjustable base can be sold separately.

You provided a list of design features for the mattresses. You stated that the design features of the mattress are better suited for medical purposes than a traditional spring mattress.

You provided a list of medical conditions that the adjustable characteristics of the bed may assist with.

Whilst the beds were designed for people with an illness or disability, the beds may also be used by people without an illness or disability.

You sell the beds to retailers and do not sell directly to the public itself. Accordingly, you do not maintain a sales breakdown or data in relation to who purchases the products.

The recommended retail price of the adjustable base is significantly higher than a standard base.

You advised that, due to the adjustable features of the bed and the comparatively high costs of these beds compared to normal beds that do not have such design features, you consider that the bed is not widely used by people without an illness or disability. However, you acknowledged that a small portion of users of the bed may not be ill or disabled.

You confirm that you do not have any agreements in place with any of the recipients to treat the supply of the beds as a taxable supply.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-80

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-45(1) and Schedule 3;

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-45(3).

Reasons for decision

Question 1

Summary

The supply of X range of electronically operated adjustable beds is a GST-free supply when supplied as either an adjustable base only or as part of a complete ensemble (mattress and adjustable base).

Detailed reasoning

GST is payable on a taxable supply under section 9-5 of the 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 the indirect tax zone; 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 section 195-1 of the GST Act)

The facts indicate that you satisfy the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act as you make the supply of X range bed for consideration; the supply is made in the course of your enterprise business of importing and selling beds; the supply is connected with the indirect tax zone (as the X range bed is made available in Australia); and you are registered for GST.

However, the supply by you of X range bed is not a taxable supply to the extent that that supply is GST-free or input taxed.

There are no provisions in the GST Act which require you to treat the supply of the beds as input taxed. What remains to be determined is whether the supply of the beds by you is GST-free.

GST-free supply

Division 38 of the GST Act sets out the supplies that are GST-free. Medical aids and appliances are covered by section 38-45 of the GST Act, which states:

(1) A supply is GST-free if:

(a) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and

(b) the thing supplied is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability.

(2) A supply is GST-free if the thing supplied is supplied as a spare part for, and is specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection (1).

(3) However, a supply is not GST-free under subsection (1) or (2) if the supplier and the *recipient have agreed that the supply, or supplies of a kind that include that supply, not be treated as GST-free supplies.

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

Schedule 3 to the GST Act and the GST Regulations contain a list of medical aids and appliances which are generally used by people with various illnesses or disabilities. However, Schedule 3 to the GST Act and the GST Regulations do not operate in isolation to make the listed items GST-free. The supply of any item listed in Schedule 3 to the GST Act or the GST Regulations as medical aids or appliances must also satisfy all of the requirements in subsection 38-45(1) of the GST Act in order for that supply to be GST-free, i.e. the medical aid or appliance must be specifically designed for people with an illness or disability and must not be widely used by people without an illness or disability.

Additionally, subsection 38-45(3) of the GST Act states that a supply of a medical aid or appliance is not GST-free if the supplier and the recipient have agreed that the supply, or supplies of a kind that include that supply, not be treated as a GST-free supply.

Schedule 3 to the GST Act:

Schedule 3 to the GST Act lists a number of medical aids or appliances under various categories. One such category is:

Mobility of people with disabilities - physical: bedding for people with disabilities

and two of the nine items listed under that category are:

59. manually operated adjustable beds

60. electronically operated adjustable beds

Section 182-15 of the GST Act provides that a category heading in Schedule 3 is not an operative part of the GST Act but may be used, per subsection 182-10(2) of the GST Act either to confirm a provision's meaning is the ordinary meaning conveyed by its text (taking into account its context and the purpose or object underlying the provision) or determine a provision's meaning if the provision is ambiguous or obscure.

The relevant category heading in Schedule 3 (i.e. 'mobility of people with disabilities - physical: bedding for people with disabilities') provides some guidance in interpreting item 60 - 'electronically operated adjustable beds'.

The opening words used in the category heading (i.e. 'mobility of people with disabilities - physical') indicate that the nine medical aids or appliances listed under that category should have design features which assist with the mobility of people who have a physical disability.

The category heading then refers to 'bedding for people with disabilities'. There are seven other category headings in Schedule 3 which begin with 'mobility of people with disabilities - physical' and then refer to various classes of medical aids or appliances which assist with the mobility of people with physical disabilities such as 'physical seating aids', 'physical walking aids', 'wheelchairs and accessories' etc. The nine medical aids and appliances listed under the category heading include three types of bed (manually operated adjustable, electronically operated adjustable and hospital-type) plus six items which form part of or are used in conjunction with a bed. This suggests that 'bedding' is intended to include a bed and an item which forms part of or is used in conjunction with a bed.

In our view the category heading indicates that the ordinary meaning of 'electronically operated adjustable beds', taking into account its context and the purpose or object underlying that provision, refers to beds which are both adjustable and operated electronically in a manner designed to assist with the mobility of people with a physical disability. People with a physical disability often experience difficulty getting in and out of bed and may be incapable of doing so unassisted. By using the remote control to electronically operate an adjustable bed a person with a physical disability may reach a sitting or semi-standing position which assists that person to get in and out of the bed unaided, thereby assisting with the mobility of that person.

An X range bed, when supplied as a complete ensemble (mattress and adjustable base), clearly falls within the words 'electronically operated adjustable beds' in Schedule 3. The position is less clear where the X range bed is supplied as an electronically operated adjustable base only, but the use of 'bedding' in the relevant category heading and the listing of both types of beds and items which form part of or are used in conjunction with a bed under that category heading indicate that 'electronically operated adjustable beds' should be interpreted to include the supply of an X range electronically operated adjustable base only.

Specifically designed for people with an illness or disability

The matters taken into account in determining whether a medical aid or appliance is specifically designed for people with an illness or disability are discussed in the GST Pharmaceutical Health Forum Issues Register (issue 1.c.):

What factors should be taken into account in determining whether a medical aid or appliance is specifically designed for people with an illness or disability?

In determining whether a medical aid and appliance is specifically designed for people with an illness or disability reference should be made to the designer's/ manufacturer's intention of how the good is to be used and its features. Indicators of the designer's/manufacturer's intention of how a good is to be used include how the good is marketed and the type of retail outlets at which the goods can be purchased.

You provided a list of design features of an X range bed (whether sold as a complete ensemble (mattress and adjustable base) or electronically operated adjustable base only).

You submitted that those design features made an X range bed capable of providing assistance to people with an illness or disability for a number of specific reasons. You also submitted that the mattress (sold together with the adjustable base) has design features which complement the adjustable base and are better suited for use with an adjustable base than traditional spring mattresses.

In our view those design features indicate that both the X range complete ensemble and the electronically operated adjustable base are specifically designed for people with an illness or disability. We consider that the design features of both the complete ensemble and the adjustable base satisfies the requirement of being specifically designed for people with an illness or disability.

Not widely used by people without an illness or disability

Factors taken into account in determining whether a medical aid or appliance is not widely used by people without an illness or disability are discussed in Issue 1.d in the ATO's GST Pharmaceutical Health Forum Issues Register which states:

What factors should be taken into account in determining whether a medical aid or appliance is widely used by people without an illness or disability?

In determining whether a medical aid and appliance is used by people without an illness or disability reference should be made to how the wider community uses these goods. That is, the common purpose for which the goods are purchased.

Subsection 38-45(1) of the GST Act does not require the GST treatment of a medical aid and appliance to be determined by reference to the actual use for which an item is being purchased but rather focuses on the purpose for which the wider community purchases these products.

Accordingly, it is considered that irregular and uncommon use of a medical aid and appliance in a way contrary to its manufactured purpose will not prevent the good from being GST-free.

As you sell the X range beds to retailers rather than directly to the public, you do not hold records of the common purpose for which the beds are purchased. You advised, however, that the retail prices of the adjustable base is significantly higher than the retail prices of a standard base.

Taking into account the design features of the X range bed and the higher cost of electronically operated adjustable beds as compared to standard beds, we accept your submission that the beds are not widely used by people without an illness or disability.

Subsection 38-45(3):

You advised that you do not have any agreements in place whereby you and a recipient of a supply by you of a X range complete ensemble or electronically operated adjustable base have agreed that that supply not be treated as GST-free.

Conclusion:

Accordingly, the supply by you of an X range of beds (either as a complete ensemble or as an electronically operated adjustable base only) is a GST-free supply pursuant to subsection 38-45(1) of the GST Act.

Question 2

Summary

The supply of the X range of electronically operated adjustable beds, where the adjustable base includes drawers, is not a GST-free supply.

This would be a mixed supply that is partly GST-free and partly taxable. The supply of the beds is GST-free but the supply of the drawers is taxable. GST is payable to the extent that the supply if taxable. The part of the consideration that is for the taxable drawers needs to be worked out, with the cost to be apportioned between the beds and the drawers.

Detailed reasoning

You state that a new feature that can be added to the X range of beds is built-in drawers. The drawers add additional storage to the bed but do not alter the essential character of the bed and only serve as an incidental feature to increase the functionality of the bed.

Goods and Services Tax Ruling (GSTR) 2001/8 discusses the issue of apportioning the consideration for a supply that includes taxable and non-taxable parts. The ruling explains how to identify whether a supply includes taxable and non-taxable parts. Such supplies are termed mixed supplies. It also describes the characteristics of supplies that appear to have more than one part but that are essentially supplies of one thing. These supplies are referred to as composite supplies.

If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then that supply is composite. You need to consider all of the circumstance of a supply to determine whether the supply is mixed or composite. If a composite supply is taxable, then GST is payable on the whole supply. If a composite supply is non-taxable, then no GST is payable on the supply as a whole.

Therefore, we need to consider whether your supply of the X range of beds with adjustable base which includes drawers is a mixed supply or a composite supply.

The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental is a question of fact and degree. Paragraph 55 of GSTR 2001/8 states:

Some supplies include parts that do not need to be separately recognised for GST purposes. We refer to these parts of a supply as being integral, ancillary or incidental. In a composite supply, the dominant part of the supply has subordinate parts that complement the dominant part. If such a supply is analysed in a common sense way, it can be seen that the supply is essentially the provision of one thing. It need not be broken down, unbundled or dissected any further. For this reason, a composite supply may appear, at first, to have more than one part, but is treated as if it is a supply of one thing.

All facts must be considered in determining whether a supply has any parts that are integral, ancillary or incidental.

Further paragraph 59 of GSTR 2001/8 states:

No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a common sense and practical approach, indicators that a part may be integral, ancillary or incidental include where:

● you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

● it represents a marginal proportion of the total value of the package compared to the dominant part; or

● it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

● it contributes to the proper performance of the contract to supply the dominant part.

On that basis, a part of a supply will be integral, ancillary or incidental where it is insignificant in value or function, or merely contributes to or complements the use or enjoyment of the dominant part of the supply.

In relation to mixed supply, GSTR 2001/8 states:

Separately identifiable parts

45. In many circumstances, it will be a matter of fact and degree whether the parts of a supply are separately identifiable, and retain their own identity.

45A. In Re Food Supplier and Commissioner of Taxation (Food Supplier), promotional items packaged with food had intrinsic value, would not be consumed with the food and were mostly unconnected with the food. This was so even when, for example, the main item was a jar of coffee and the promotional item was a mug in which coffee might be served. In these circumstances the Tribunal found that the supply of the promotional items packaged with the food items was a mixed supply. In such a case, it could not be said that the food component was the dominant part of the supply and the promotional item was ancillary or incidental to the supply of the food.

51. In Customs and Excise Commissioners v . Wellington Private Hospital Ltd (Wellington), Millett LJ also considered the question of separate identity:

'The proper inquiry is whether one element of the transaction is so dominated by another element as to lose any separate identity as a supply for fiscal purposes, leaving the latter, the dominant element of the transaction, as the only supply. If the elements of the transaction are not in this relationship with each other, each remains as a supply in its own right with its own separate fiscal consequences.'

Millett LJ also found that courts need to ask whether one part is connected with the other, or whether the two parts are 'physically and economically dissociable'.

52. The Commissioner's view is that a supply has separately identifiable parts where the parts require individual recognition and retention as separate parts, due to their relative significance in the supply. This view applies where the supply is comprised of a mix of separate things, such as various combinations of goods and services, including the provision of advice.

We consider that the drawers are not integral, ancillary or incidental to the main design features of the adjustable base being adjustable lumbar support, head and leg elevation and head tilt support. The drawers are not interdependent or connected to the base. The drawers would be considered a separately identifiable part, since the function of drawers is for storage.

Conclusion

Hence, this would be a mixed supply that is partly GST-free and partly taxable. The supply of the beds is GST-free pursuant to subsection 38-45(1) of the GST Act but the supply of the drawers is taxable pursuant to section 9-5 of the GST Act. Section 9-80 of the GST Act explains the value of taxable supplies that are partly GST-free. The part of the consideration that is for the taxable drawers needs to be worked out, with the cost to be apportioned between the beds and the drawers. Please refer to GSTR 2001/8, paragraphs 81A-81T in relation to apportionment under section 9-80 of the GST Act.

Question 3

Summary

The supply of the Y range of electronically operated adjustable beds is a mixed supply, where the supply of the beds as either an adjustable base only or as part of a complete ensemble is GST-free, and the supply of the wooden base is taxable. GST is payable to the extent that the supply if taxable. You need to apportion the consideration between the taxable part (the wooden base) and the GST-free part (the mattress and adjustable base).

Detailed reasoning

GST is payable on a taxable supply under section 9-5 of the 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 defined term in section 195-1 of the GST Act)

The facts indicate that you satisfy the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act as You make the supply of Y range bed for consideration; the supply is made in the course of your business of importing and selling beds; the supply is connected with the indirect tax zone (Australia); and you are registered for GST.

However, your supply of the Y range of beds is not a taxable supply to the extent that that supply is GST-free or input taxed.

There are no provisions in the GST Act which require you to treat the supply of the beds as input taxed. What remains to be determined is whether your supply of the beds is GST-free.

GST-free supply:

Division 38 of the GST Act sets out the supplies that are GST-free. Medical aids and appliances are covered by section 38-45 of the GST Act.:

Schedule 3 to the GST Act and the GST Regulations contain a list of medical aids and appliances which are generally used by people with various illnesses or disabilities.

Schedule 3 to the GST Act:

Schedule 3 to the GST Act lists a number of medical aids or appliances under various categories. One such category is:

Mobility of people with disabilities - physical: bedding for people with disabilities

and two of the nine items listed under that category are:

59. manually operated adjustable beds

60. electronically operated adjustable beds

A Y range bed, when supplied as an adjustable base only or as part of a complete ensemble (mattress and adjustable base), falls within the words 'electronically operated adjustable beds' in Schedule 3.

Specifically designed for people with an illness or disability

The design features of a Y range bed, whether sold as a complete ensemble (mattress and adjustable base) or electronically operated adjustable base only include an adjustable lumbar support for the lower back; head and leg elevation to promote circulation; and head tilt support.

You submitted that those design features made a Y range bed capable of providing assistance to people with an illness or disability by allowing those people to get in and out of bed unaided and/or allowing them to sleep or rest with the upper or lower body in an elevated position so as to alleviate the effects of a number of medical conditions. You also submitted that the mattress (sold together with the adjustable base) has design features which relieve pressure and compliment the adjustable base and are better suited for use with an adjustable base than traditional spring mattresses.

In our view those design features indicate that both the Y range bed complete ensemble and the electronically operated adjustable base are specifically designed for people with an illness or disability.

Not widely used by people without an illness or disability

As you sell the Y range beds to retailers rather than directly to the public, you not hold records of the common purpose for which the beds are purchased. You advised, however, that the retail prices of the queen sized adjustable base is $m, whereas the retail prices of a standard queen size base are sold on average for $n.

Taking into account the design features of a Y range bed and the higher cost of electronically operated adjustable beds as compared to standard beds, we accept your submission that the beds are not widely used by people without an illness or disability.

Subsection 38-45(3):

You advised that you do not have any agreements in place whereby you and a recipient of a supply of a Y range bed (complete ensemble or electronically operated adjustable base) have agreed that that supply not be treated as GST-free.

Wooden base:

You have stated that the wooden base of the Y range bed does not alter the essential character of the bed and serves to increase the look and functionality of the bed.

Following the reasoning in question 2 (about the drawers), we consider that the wooden base is not integral, ancillary or incidental to the main design features of the adjustable base being adjustable lumbar support, head and leg elevation and head tilt support. The wooden base is not interdependent or connected to the bed. The wooden base would be considered a separately identifiable part.

Subsection 38-45(3):

You do not have any agreements in place whereby you and a recipient have agreed that that supply not be treated as GST-free.