Edited version of private advice

Authorisation Number: 1051539400755

Date of advice: 30 October 2019

Ruling

Subject: Additional services provided in a residential care setting

Question

Is the supply of the additional services a supply which is ancillary, incidental or integral to a supply of residential care services which is GST-free under subsection 38-25(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of the additional services is not a supply which is ancillary, incidental or integral to a supply of residential care services which is GST-free under subsection 38-25(1) of the GST Act. You are making a separate supply of additional services which is a taxable supply.

This ruling applies from 25 October 2019

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are an approved provider of aged care within the meaning of the Aged Care Act 1997 (Aged Care Act). You provide GST-free aged care services under subsection 38-25(1) of the GST Act. These services are covered by Schedule 1 to the Quality of Care Principles and are provided to residents who are assessed as requiring them.

You also provide additional services to residents for a set fee on an optional basis. The additional services are not covered by Schedule 1 to the Quality of Care Principles.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) subsection 38-25(1)

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

Reasons for decision

You make a GST-free supply of residential care services under subsection 38-25(1) of the GST Act. You also make a supply of additional services to your residents that are not covered by Schedule 1 to the Quality of Care Principles.

You contend that the supply of the additional services is ancillary, incidental or integral to the supply of the GST-free residential care services and is therefore part of a composite supply.

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on apportioning the consideration for a supply that includes taxable and non-taxable parts.

Mixed supply is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. Composite supply is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing.

Paragraphs 19, 19A and 19B of GSTR 2001/8 states:

19. Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.

19A. An identification of the essential character of what is supplied may inform whether (and to which extend) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

Under the Aged Care Act, as an approved provider of residential care services, you are required to provide the services covered by Schedule 1 to the Quality of Care Principles to all residents who require them based on their assessed needs. That is, these services are the basic services you are required to provide to residents under the Aged Care Act. The maximum amount you are able to charge for these basic services is outlined in the Quality of Care Principles 2014.

Since you are an approved provider, the services are covered by Schedule 1 to the Quality of Care Principles and are provided in a residential care setting, the supply to residents of these basic services are GST-free because of subsection 38-25(1) of the GST Act. The supply of services that are not covered by Schedule 1 to the Quality of Care Principles are not GST-free under subsection 38-25(1) of the GST Act.

You also supply to residents the option to purchase a package of additional services. You only supply these additional services to residents who are already receiving basic residential care services.

Paragraph 21 and 22 of GSTR 2001/8 states:

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were a separately identifiable part of a mixed supply) does not exceed the lessor of:

·        $3.00; or

·        20% of the consideration for the total supply.

22. If you choose not to apply this approach, then you need to make an objective assessment about whether the thing is integral, ancillary or incidental.

In considering the essential character of the supply you need to consider all the circumstances of the transaction. You are supplying basic residential care services which are GST-free as result of a provision of the GST Act. You are also supplying packages of additional care services which are not GST-free because the supply of these services does not satisfy the provisions of the GST Act, as section 38-25 only includes certain basic care services. The consideration for the additional services is considerable and is more than 20% of the supply of the GST-free care services and the additional services. The additional services are marketed separately.

You contend that the supply of the additional services is like an upgrade similar to that of upgrading from economy to business within the same flight or upgrades in a hotel. However, in this case you are receiving basic residential care services that are GST-free. In addition to this you are able to purchase the package of additional services. The additional services are supplied separately and the residents are charged separately. The residents are not merely receiving upgraded GST-free care services, proven by the fact that these additional services are not covered by Schedule 1 to the Quality of Care Principles. Using the example of the upgrade from economy to business, you are still only receiving one supply of the business class flight. You are not receiving an economy flight and a business class flight that are charged for separately.

Paragraph 45C to 49 of GSTR 2001/8 states:

45C. In the United Kingdom case of Sea Containers Ltd v. Customs and Excise Commissioners (Sea Containers), day train excursions were provided together with elaborate 'fine wining and dining'. Advertising for excursions placed significant emphasis on the food, wine and attentive service provided.

46. The question in Sea Containers was whether the supply was of transport or of transport and catering. It was decided that the proper approach was to see whether the catering element was significant in its own right or whether it was merely ancillary to the provision of transport. Keene J said:

'The evidence shows that it [the catering] constituted a very important element in its own right in what was being provided by the appellant. Its significance in these transactions went well beyond the point where it could be seen merely as a way of better enjoying the transport element. ...it constituted for customers an aim in itself. Not, of course, the sole aim but, given its prominence in the marketing literature, clearly a separate aim from the travel element. The emphasis upon this aspect of the facilities provided is very striking. The fine meals and wine were a vital part of what the customer was paying for, whether by way of a separate or an all-inclusive price.

47. Sea Containers can be contrasted with British Airways plc v. Customs and Excise Commissioners (British Airways), another United Kingdom case. In this case, the question was whether British Airways was to be taken as making supplies of air transport and of catering services, or a single supply of air transport with the catering services being merely integral or ancillary (a composite supply).

48. In British Airways, the Court of Appeal found that the provision of in-flight catering was, in substance and reality, an integral part of the supply of air transportation. Stuart-Smith LJ said:

'While something that is necessary for the supply will almost certainly be an integral part of it, the converse does not follow...Catering facilities are part of and integral to the transportation in that degree of comfort which British Airways have decided is commercially appropriate and indeed necessary to attract passengers.

49. The Court was also influenced by the fact that no separate charge was made for the in-flight catering, and the price of the air ticket did not vary, regardless of the type of meal provided or whether or not meals were provided. It was not part of the contractual obligation of the airline to supply meals, even if meals were expected to be part of the service. Customers could not obtain a refund if a meal was not serviced on their flight.

The supply of the package of additional services is not similar to the British Airways case in that there is a separate charge for the additional services packages. Whilst you could argue that the supply of the additional services packages enhances a resident's enjoyment of care services, they are a separate supply in themselves. The basic residential care services that are GST-free are separate from the supply of the package of additional services and the cost to the resident for the additional services increases significantly. The supply of the additional services is part of a separate contractual obligation.

Additionally the additional services are separately marketed. The additional services constitute a very important aim in itself in that the residents when entering into one of these packages receive not just enhancements but additional services. It is more than just a way of merely better enjoying the basic care services that are legally required to be provided.

As such, we consider that you are making two separate and distinct supplies that are separately itemised on the one invoice. You are making a supply of GST-free basic residential care services that are covered by Schedule 1 to the Quality of Care Principles and you are making a taxable supply of a package of additional services that is not covered by Schedule 1 to the Quality of Care Principles.