Edited version of your written advice

Authorisation number: 1051295096755

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Date of advice: 17 October 2017

Ruling

Subject: GST and third party procured psychology services

Question 1

Are you liable to charge GST when you invoice the third party entity?

Answer

Yes, you are liable to charge GST when you invoice the third party entity as you are making a taxable supply of services to the entity of supplying psychology services to individual patients.

Question 2

Are you entitled to claim GST credits when the subcontractors invoice you for providing the psychology services?

Answer

Yes if you have made a creditable acquisition.

Relevant facts and circumstances

About you

● You are registered for GST.

● You were established in order to apply for a tender process.

● Having been successful in the tender process you will be providing psychology services to certain target groups.

● You will be engaging with subcontractors to deliver the services.

● You have commenced the arrangements and said that you are charging GST to the third party entity, and the subcontractors (who are registered for GST purposes) are charging you GST as well.

● You provided copies of contracts.

Subcontractor arrangement

● You will be providing the psychology services to your clients through subcontractors.

● The subcontractor will invoice you after providing a session to the client and you will then invoice the third party entity.

Between subcontractor and patient

● You said that when the patient attends the psychology session they are required to sign some paperwork but are not charged for the session.

Relevant legislative provisions

A New Tax System (Goods And Services Tax) Act 1999

Section 9-5

Section 11-5

Section 23-5

Subsection 38-10(1)

Section 38-60

Section 195-1

Section 995-1 of the Income Tax Assessment Act 1997

Reasons for decision

Question 1

Are you liable to charge GST when you invoice the third party entity?

Answer

Yes, you are liable to charge GST when you invoice the third party entity as you are making a taxable supply of services to the entity of supplying psychology services to individual patients.

Detailed Reasoning

Taxable supply

You are liable for GST on any taxable supplies that you make.

Section 9-5 provides that you make a taxable supply if:

a) you make the supply for consideration

b) the supply is made in the course or furtherance of an enterprise that you carry on

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.

In your case, the services you provide are for consideration, they are in the course of your psychology practice in Australia and you are registered for GST. Therefore, your supplies will be taxable supplies unless they are either input taxed or GST-free. There is no provision in the GST Act or any other Act that would make your supplies input taxed.

Accordingly what is left to be determined is whether the supply of your services is GST-free.

Psychology Services

Subsection 38-10(1) allows for certain health services to be GST-free. This subsection provides that a supply is GST-free if:

a) it is a service of a kind specified in the table in this subsection, or of a kind specified in the A New Tax System (Goods and Services Tax) Regulations 1999

b) the supplier is a recognised professional in relation to the supply of services of that kind, and

c) the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply.

These three requirements are discussed below.

Requirement a) - Specified in the regulations

To meet this condition, the service provided must be one of those services listed in the table in subsection 38-10(1) (the table) and not just similar to one of those services.

There are 21 items listed in the table. Psychology services are listed at item 16 in the table. As such the requirements in paragraph 38-10(1)(a) are met.

Requirement b) - Recognised professional

A person is a recognised professional in relation to the supply of psychology services if:

(a) the service is supplied in a State or Territory in which the person has a permission or approval, or is registered, under a State law or a Territory law prohibiting the supply of services of that kind without such permission, approval or registration, or

(b) the service is supplied in a State or Territory in which there is no State law or Territory law requiring such permission, approval or registration, and the person is a member of a professional association that has uniform national registration requirements relating to the supply of services of that kind.

The GST legislation focuses on the professional status of the person who actually performs the services and requires that person to be a recognised professional in relation to supplying services of the kind specified in the table. That is, even though you are a company supplying the psychology services to patients, which is not itself a recognised professional, the GST Act looks at the person who actually performs the psychology services to determine whether that person is a recognised professional in relation to supplying services of that kind.

Furthermore, to practice as a psychologist, the person must hold current registration. Psychologists are nationally registered through the Australian Health Practitioners Regulation Agency (AHPRA) via the Psychology Board of Australia.

Provided your subcontractors who are delivering the psychology services are registered with AHPRA, they will meet this requirement.

Requirement c) - Appropriate treatment of the recipient of the supply

Appropriate Treatment

Appropriate treatment is provided where a recognised professional assesses the recipient’s state of health and determines a course of treatment, in an attempt to preserve, restore or improve the physical or psychological wellbeing of the recipient. Appropriate treatment includes the principles of preventative medicine.

In addition, the legislation requires that the treatment be generally accepted in the psychology profession as being necessary for the treatment of the patient. The words 'generally be accepted, in the profession' indicate that it will ultimately be the psychology profession that determines what services will be generally accepted.

However, the requirement in paragraph 38-10(1)(c) is that there be appropriate treatment of the 'recipient of the supply'. Therefore, it is necessary to determine who is the recipient of your supply.

Recipient

Generally, in relation to the supply of health services under the GST Act, the supply is only GST-free where an individual receiving that service or specific health treatment is the recipient of that supply. This outcome results from the specific wording in some health provisions, whilst in other provisions it is due to the nature of the services themselves.

The GST Act defines 'recipient' in relation to a supply to mean the entity to which the supply was made.

Where there are only two parties to the supply of services (the entity that supplies the health service and the patient), generally there is a single supply to which the GST Act applies and the recipient of that supply is the patient.

This means that where you are engaged by the patients to provide psychology services to them the requirements in paragraph 38-10(1)(c) are met. Accordingly, as all of the requirements of subsection 38-10(1) are satisfied, the supply of your psychology services to individual patients will be GST-free.

However, where there is a third party payer involved in the transaction, there may be one or more supplies for GST purposes. The supply made to the third party will not be GST-free under section 38-10 as business entities cannot receive treatment. However, in some cases the supply to the third party will be GST-free under section 38-60.

Therefore, it is necessary to determine what is being supplied and to whom. For example, tripartite arrangements may result in a supply of services to a third party by an entity that supplies GST-free health services to a patient.

Third party arrangements

A third party will be the recipient of your supply where:

a) the third party engages you to make, or to be available to make, a supply to them or to someone else

b) the third party, by agreement with you, determines the nature of the supply that is required or permitted to be made to them or to someone else, and

c) there is a binding obligation between that third party and you for the supply (such that the third party has obtained a contractual right for the supply to be made) and the third party is liable to provide payment.

Where all the above elements are satisfied there will be a supply made to the third party. Depending on the arrangements between the parties, you may be making another supply where a patient receives treatment services.

In your case

● You provide psychology services to patients who are referred to you by third party entity under the contractual arrangement you have entered into with them. Your subcontractors assess the patient and determine the appropriate course of treatment for them.

● The third party entity has engaged you to deliver such services to certain target groups.

● The third party entity has specified the nature of services to provide to the patient.

● The contract sets out service delivery targets to meet the required outcomes and performance criteria.

Based on the information provided, the third party entity is the recipient of your supply of services of supplying psychology services to individual patients. Under the arrangements, you are also making a supply of psychology services to individual patients.

GST-Free Third Party arrangements

Section 38-60 provides that the service provided to certain third parties that procure health supplies to individuals will be GST-free to the extent that the underlying health supply to the individual is GST-free. This is limited to situations where the third party is either:

● an insurer in settling a claim under an insurance policy;

● an operator of a statutory compensation scheme;

● a compulsory Third party scheme (CTP) operator under a CTP scheme; or

● an Australian Government agency (AGA).

In your case, based on the information available, our view is that the third party entity is not any of the above entities.

Question 2

Are you entitled to claim GST credits when the subcontractors invoice you for providing the psychology services?

Answer

Yes if you have made a creditable acquisition.

Detailed Reasoning

GST Credits

Section 11-1 says you are entitled to GST credits for your creditable acquisitions.

A creditable acquisition is defined by section 11-5 as:

(a) anything you acquire solely or partly for carrying on your enterprise; 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 purposes.

You meet requirements a, c and d respectively as you are:

● utilising the services by the subcontractors to carry on your enterprise of providing psychology services;

● you will pay the subcontractors (provide consideration) when they invoice you;

● and you are registered for GST purposes.

To satisfy requirement (b) we need to determine if the subcontractors are providing you a taxable supply under section 9-5.

In your case

● As explained in the reasoning under Question 1 about third party arrangements, you are engaging the subcontractors to provide psychology services on your behalf.

● You are specifying the nature of the supply to be made.

● There is a written agreement between you and the subcontractor binding them to provide the psychology services.

● Once they provide a session, they will invoice you as per your agreement.

As a result, they are making a supply of professional services to you as they cannot provide psychology treatment services to you as you are a company (explained in Question 1).

This means they are making taxable supplies to you if the requirements of section 9-5 are met.