Edited version of your written advice

Authorisation Number: 1051223224385

Date of advice: 10 May 2017

Ruling

Subject: Goods and services tax (GST) and test strips

Question 1

Is GST payable on your sales of the test strip?

Answer

Yes.

Question 2

Is GST payable on your importation of the test strip?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You will import a test strip product into Australia and sell it in Australia.

The test strip is used in ascertaining health related information.

The test strip is for use by the wider public including healthy people who want to monitor their health and live a healthier lifestyle.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 13-5(1)

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 42-5

A New Tax System (Goods and Services Tax) Act 1999 Part 3-2

A New Tax System (Goods and Services Tax) Act 1999 subsection 182-10(2)

A New Tax System (Goods and Services Tax) Act 1999 section 182-15

Reasons for decisions

Question 1

Summary

Your sales of the product are not GST-free under section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because the product is not specifically designed for people with an illness or disability and it is widely used by people without an illness or disability.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of 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 term defined in the GST Act)

The indirect tax zone means Australia.

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is:

● you will supply the test strips for consideration; and

● the supplies will be made in the course or furtherance of an enterprise that you carry on; and

● the supplies are connected with the indirect tax zone; and

● you are registered for GST.

There are no provisions of the GST Act under which your sales of the product are input taxed. Therefore, what remains to be determined is whether your sales of the product are GST-free.

The relevant provision dealing with GST-free sales of medical devices in your case is section 38-45 of the GST Act.

A supply of goods is GST-free under subsection 38-45(1) of the GST Act if certain requirements are met. It states:

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.

Item 36 in the table in Schedule 3 to the GST Act (Item 36) lists 'test strips' and this item is listed under the category heading of 'Diabetes' in the second column of Schedule 3.

ATO Interpretative Decision ATO ID 2002/534 considers whether the scope of Item 36 is restricted to diabetes test strips.

Section 182-15 of the GST Act provides that the second column of Schedule 3 to the GST Act is not operative and can only be considered for the purposes for which an explanatory section may be considered under subsection 182-10(2) of the GST Act. An explanatory section may only be considered:

● in determining the purpose or object underlying the provision;

● to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision;

● in determining the provision's meaning if the provision is ambiguous or obscure; or

● in determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

The meaning of the phrase 'test strip' is clear and unambiguous. It is not necessary to consider the category heading in the second column for any of the purposes listed in subsection 182-10(2) of the GST Act to interpret the meaning of 'test strip'. This means that Item 36 is not restricted to diabetes test strips and covers other types of test strips.

Your product is a test strip and therefore, it is covered by Item 36. Hence, you meet the requirement of paragraph 38-45(1)(a) of the GST Act.

In accordance with issue 1.c. of the Pharmaceutical Health Forum - issues register, 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 it's 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.

In accordance with paragraph 5.27 of the explanatory memorandum to the A New Tax System (Goods and Serve Tax) Bill 1998, certain aids and appliances designed for people with an illness or disability which are not of a kind ordinarily used in the wider community are GST-free.

The test strip is for use by the wider public including healthy people who want to monitor their health and live a healthier lifestyle. Therefore, your product is not specifically designed for people with an illness or disability and it is widely used by people without an illness or disability. Hence, you do not meet the requirements of paragraph 38-45(1)(b) of the GST Act.

As you do not meet all of the requirements of subsection 38-45(1) of the GST Act, your sales of the product are not GST-free under that provision.

There are no provisions of the GST Act under which your sales of the product are GST-free.

Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sales of the product.

Question 2

GST is payable by you on your taxable importations.

You make a taxable importation where you meet the requirements of subsection 13-5(1) of the GST Act, which states:

You make a taxable importation if:

(a) goods are imported; and

(b) you enter the goods 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.

You will import the product for use in Australia. Therefore, you meet the requirements of paragraphs 13-5(1)(a) and 13-5(1)(b) of the GST Act.

Section 13-10 of the GST Act specifies what importations are non-taxable importations. It states:

An importation is a non-taxable importation if

(a) it is a non-taxable importation under Part 3-2; or

(b) it would have been a supply that was *GST-free or *input

taxed if it had been a supply.

In accordance with section 42-5 of the GST Act (which forms part of Part 3-2 of the GST Act), an importation of goods is a non-taxable importation for GST purposes if certain specified Customs Duty exemptions apply. No such Customs Duty exemptions apply to your product. You are not making a non-taxable importation under Part 3-2 of the GST Act. Therefore, you do not meet the requirement of paragraph 13-10(a) of the GST Act.

Your sale of the product is not GST-free or input taxed. Therefore, your importation of the product is not a non-taxable importation under paragraph 13-10(b) of the GST Act.

As the requirements of subsection 13-5(1) of the GST Act are met, GST is payable on your importation of the product.