Edited version of your written advice

Authorisation Number: 1051356243681

NOTICE:

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 82854

Date of advice: 29 March 2018

Ruling

Subject: GST and medical aids and appliances

Question

Are you making a GST-free supply of medical aids and appliances and relevant spare parts when supplied to the following:

● to a person living with a disability;

● to an institution or agency that supplies to persons living with a disability;

● to a person living without a disability; and,

● to a retailer.

Answer

No, your supplies of products and relevant spare parts are not GST-free supplies of medical aids or appliances under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You are making taxable supplies.

Relevant facts and circumstances

About you

● You are registered for GST.

● You carry on the business of selling an extensive range of products to assist the elderly, frail, disabled, mobility and visually impaired.

● You market these products through websites, trade and healthcare/medical publications and an extensive national network of institutional, State and Federal government care providers, including the National Disability Insurance Agency (NDIA) and Department of Veterans’ Affairs (DVA), mobility aid retailers, health care agencies, aged care facilities, along with plumbing and hardware suppliers.

● You are a specialist supplier of these products to the elderly, frail and people living with a disability or medical condition.

Current products and GST Treatment

● You currently stock and sell a number of brands and various different models of your product.

● Functions and features vary between brands and models and are suited to the particular requirements of customers with medical conditions, frail or living with a disability.

● You prepare your own design and specifications for the some ranges of your product and these are manufactured overseas, exclusively for you to sell in Australia.

● You advised your designs get inspired by integrating new features which can help disabled/ill people but ultimately it enhances the product so that others can use them. For example, for one of your products, a remote control was added having been inspired to assist those with serious medical conditions.

Your customers

● You sell your products to a broad Australian market, made up as follows:

a) National Disability Insurance Agency (Registered Provider to NDIS)

b) Department of Veterans Affairs

c) State funded aids and equipment programs (now under NDIS)

d) Hospitals, nursing homes, aged care and respite care facilities

e) Care agencies

f) hospitality (hotels) and public

g) disability organisations

h) wholesale and retail disability and mobility shops and suppliers

i) referred clients of NDIS

j) referred clients of DVA and hospitals

k) referred clients of occupational therapists

l) individuals identified as having a handicap, medical or neurological disorder, with a disability caused by illness, accident or injury

m) retail

n) individuals whose status is unknown (due to privacy constraints)

● Sales to a) to l) above can be identified as being suppliers to people living with disabilities or to people living with disabilities.

● You have over sixty business customers in the above agencies and organisations who purchase your products regularly.

● From sales records for the last twelve months, you advised the above-mentioned business customers account for XX% of your 2017 customer list with a number of these customers (such as NDIS, DVA, State providers and aged care facilities) being quantity and/or repeat purchasers accounting for over XX% of 2017 sales.

● The remaining proportion, mainly individuals, did not disclose any information by which you could determine their physical or medical condition or the reason for purchasing your product. Privacy law does not permit you to ask a person’s condition or reason for purchasing products.

● You advised given that almost one in five Australians are living with a disability and over 78% of those have a physical disability (Australian Bureau of Statistics - 2015), it could be safely assumed that a considerable number of the remaining 42% (where no reason for purchase was disclosed) could also live with a physical disability or medical condition.

● You advised sales to NDIS involves NDIS funding up to around $XXX for the product with the customer having to pay the remainder. Sometimes a payment plan is entered into to assist the customer.

Reasons for Decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

Your supplies of products do not meet all of the criteria to be GST-free supplies of medical aids or appliances under subsection 38-45(1) of the GST Act. Therefore they are taxable supplies. The spare parts to these products do not satisfy subsection 38-45(2) therefore they are taxable supplies as well.

Detailed reasoning

Subsection 38-45(1) of the GST Act 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.

Schedule 3

It is accepted that the various products that you supply are covered by an item in Schedule 3. As such, paragraph 38-45(1)(a) of the GST Act is satisfied.

Not specifically designed for people with an illness or disability

As per issue 1c of the ATO’s Pharmaceutical Health Forum Issues Register available on ato.gov.au, 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 the good is to be used include how the good is marketed and the type of retail outlets at which the good can be purchased.

However, it is how it is designed that is the test. While marketing may be an indicator it is not determinative, particularly where the marketing is carried out by an entity other than the designer or manufacturer. For example, a retailer down the supply chain may have identified a market in respect of people with an illness or disability and as such, structured their marketing campaign around this. However, if the designer did not specifically design the product for use by people with an illness or disability the product will not be GST-free.

Your case

● You advised you design advancements to the products you sell which your manufacturers then produce.

● The advancements may get inspired from technologies to assist disabled/ill people.

● You sell to a number of parties with over 50% of sales being in relation to disabled/ill people.

● Even though your intention is to incorporate features and advancements to assist disabled/ill people, such features can be used by able persons as well.

Your manufacturers

You provided a letter from one of your manufacturers and they note that the products you sell provide the best possible solution for all users in particular the disabled and elderly.

The letter from your other manufacturer does not specifically mention that the products are for disabled/ill people. The letter generally talks about their work relationship with you.

Your website

You advised your designs are inspired by integrating new features which can help disabled/ill people but ultimately it enhances the product so that others can also benefit from it. For example, one product was designed with a remote control feature added in having been inspired to assist those with serious medical conditions.

We note that this product whilst having features that are suited to people with mobility/dexterity problems, it is not specifically designed for use by those people. The remote control would be a feature for people, whether disabled or not, who do not like having the controls attached to the product.

Likewise you market your other products on your website in a similar way.

After reviewing the information provided including how they are marketed, it is considered that the products you sell are not specifically designed for people with an illness or disability. Rather, the products are designed for anyone but it is recognised that the features they have can help disabled/ill people.

As such, paragraph 38-45(1)(b) of the GST Act is not satisfied and your supply of products are not GST-free supplies of a medical aid or appliance.

Not widely used by people without an illness or disability

As paragraph 38-45(1)(b) of the GST Act is not satisfied, it is not necessary to consider whether the products are widely used by people without an illness or disability. However, for completeness, we provide the following comments.

As per issue 1d of the ATO’s Pharmaceutical Health Forum Issues Register available on ato.gov.au, in determining whether a medical aid or appliance is used by people without an illness or disability reference should be made to how the wider community uses the 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.

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.

This is a question of fact and needs to be determined by reference to how a product is used. It is stated in the marketing material on various Australian based web pages that the products are not as popular in Australia due to cultural reasons. Therefore, the current majority of the sales in Australia may be to people with an illness or disability. As you explained in your submission, the products you sell here are not necessarily the same as sold in other countries. We acknowledge that various forms of your products are used in other countries. Despite this, the common purpose is to help the wider community. Your website also advertises the general purpose is to assist all users.

Your sales may represent a higher proportion to disabled/ill population but it is considered that this is due to present cultural reasons limiting their popularity within Australia and not due to the product being an item that is primarily used by people that have an illness or disability. To restrict the application of ‘widely used’ to only consider how these products (that are sold globally) are being currently used in Australia, would give an incorrect result. Reference to how the product is used in all markets that it is sold is appropriate and provides a true reflection of how the product is used.

Consequently, your products are ‘widely used’ by people without an illness or disability.