Edited version of private advice

Authorisation Number: 1051628050592

Date of advice: 22 January 2020

Ruling

Subject: GST and fees remitted to other health service providers

Question 1

Is the supply by you of facilities to a contractor under an agreement (Agreement) a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply by you of facilities to a contractor under the Agreement is a taxable supply under section 9-5 of the GST Act on which GST is payable.

Question 2

Are the client fees invoiced and collected by you, on behalf of the contractor operating from your facility under an agreement, subject to GST when you remit the fees (net of the facilities fee) to the contractor?

Answer

No, the fees (net of the facilities fee) remitted by you to the contractor operating form your facilities under an agreement is not subject to GST because there is no acquisition or corresponding supply associated with the remission of those fees (net of the facilities fee) to the contractor.

Relevant facts and circumstances

You operate a health facility (practice) at the business premises. You are registered for goods and services tax (GST).

You have entered into agreements with contractors. You have provided a pro forma agreement (Agreement) that records the arrangement between the parties.

Under the terms of the Agreement you have agreed to provide the facilities listed in the Agreement to the contractor for the purposes of providing services. Service is defined to mean the services provided by the contractor at the business place.

In consideration of the provision of the facilities the contractor is to pay you the facility fee. You issue a tax invoice to the contractor in relation to the supply of the facilities where the facility fee includes a component of GST. The facilities fee is calculated as a percentage of the professional fees collected by you on behalf of the contractor.

The facilities supplied by you listed in the Agreement include offices, photocopying, faxing, all equipment to conduct a business, reception staff, fee collecting and billing, client file records and maintenance.

The Agreement defines the relationship between you and the contractor as one of principal and independent contractor and that the contractor is solely responsible for controlling the manner in which the contactor provides the services.

All fees generated by the contractor are to be collected by you. The fees collected on behalf of the contractor are deposited into an account operated by you.

You report the total amount of professional fees collected on behalf of the contractor to the contractor. The facilities fee is calculated (plus GST) and a tax invoice is generated by you for this amount and provided to the contractor. The net amount of fees collected (less the facilities fee) is banked directly into the contractor's nominated account.

Each of the contractors is registered for GST.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 38-10(1)

Reasons for decision

Detailed reasoning

Creditable acquisition

You make a creditable acquisition under section 11-5 of the GST Act if:

• you acquire anything solely or partly for a creditable purpose
• the supply of the thing to you is a taxable supply
• you provide or are liable to provide consideration for the supply
• you are registered or required to be registered for GST.

On the facts provided you are registered for GST. You invoice and collect fees from clients on behalf of the contractor pursuant to the Agreement. You remit those fees (net of the facilities fees) to the contractor in the course of an enterprise you carry on. The issue that arises is whether the fee (net of the facilities fee) collected by you and remitted to the contractor is consideration for a supply by the contractor to you and if so whether that supply was a taxable supply or a GST-free supply.

Supply is important in relation to a creditable acquisition because if a supply is not made you cannot acquire anything for a creditable purpose. Making an acquisition of something is the first element to be considered in determining whether you make a creditable acquisition under section 11-5 of the GST Act. The meaning of 'acquisition' in section 11-10 of the GST Act is the corollary of the meaning of supply in section 9-10 of the GST Act.

The second requirement of a creditable acquisition is that the supply of the thing to you is a taxable supply.

Taxable supply

Section 9-5 of the GST Act provides that you make a taxable supply under section 9-5 of the GST Act if:

• you make a supply for consideration
• the supply is made in the course or furtherance of an enterprise you carry on
• the supply is connected with the indirect tax zone and
• you are registered or required to be registered for GST.

However the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Subdivision 38B of the GST Act relevantly provides that certain 'health' supplies are GST-free supplies.

Other health services

Under subsection 38-10(1) of the GST Act a supply is GST-free if:

• it is a service of a kind specified in the table in subsection 38-10(1) of the GST Act or of a kind specified in the regulations
• the supplier is a recognised professional in relation to the supply of the services of that kind, and
• 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.

With regards to the first requirement of subsection 38-10(1) of the GST Act the health services in question are of a kind specified in the table to subsection 38-10(1) of the GST Act.

Recognised professional

With regards to the second requirement the Commissioner explains in the publication entitled GST and Health QC 16263 that a recognised health professional is a person who is registered, permitted or approved under state or territory law to provide the listed health service. If there is no relevant state or territory law, a recognised professional; is a member of a professional association that;

• relates to the listed health service
• has the same registration requirement nationally. In the publication GST and Health the Commissioner gives guidance of what is a

In item 2.a.11 of the Health Industry Partnership Issues Register the Commissioner expresses the view that it is the person who actually performs the 'other health service' that must herself or himself be a recognised professional in relation to supplying services of that kind. This means that the focus is on the professional status of the health provider performing the health service and it is that person performing the health service which is required to be a recognised professional in relation to the supply the health service.

Recipient of the supply

For the purposes of section 11-5 and the third requirement of subsection 38-10(1) of the GST Act it is necessary to identify the recipient of the supply of health services.

Determining the recipient of the supply in a tripartite arrangement is discussed in Goods and Services Tax Ruling: supplies (GSTR 2006/9). As with two party transactions, the GST consequences of tripartite arrangements turn on identifying:

• one or more supplies
• consideration (a payment, act or forbearance)

• a nexus between the supply and the consideration, and
• to whom the supply is made.

Paragraph 155 of GSTR 2006/9 explains that under the GST health provisions in subdivision 38-B of the GST Act, subject to certain exceptions, 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. Where this requirement is imposed, a GST-free supply of a health service cannot be made to a business entity or a non-profit body.

Paragraph 156A of GSTR 2006/9 further explains that under certain multi-party arrangements, an entity may make a GST-free supply of goods or services to an individual which results in the supplier making a further supply to a third party. The supply made to the third party will not be GST-free under provisions within subdivision 38-B of the GST Act that require the individual receiving the relevant goods or services to be the recipient of the supply.

The GST implications involving arrangements between clinics and health practitioners are considered in the publication entitled GST and Health QC 16263 available from the ATO website at https://www.ato.gov.au/Business/GST/In-detail/Your-industry/GST-and-health/?anchor=Otherhealthservices1#Otherhealthservices1 (the Publication)

The Publication explains that there will be different GST outcomes depending on who is contracting with whom to supply what. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply what to who (paragraph 119 of GSTR 2006/9).

The Publication refers to two arrangements. The first involves the health clinic contracting the health provider to provide services to the health clinic's patients. In those circumstances

• the supply by the health provider to the clinic will not usually be GST-free (except in specific situations)
• the supply of the health provider's services by the clinic to the patient will be GST-free if the requirements of other health services are satisfied.

The second arrangement involves the health provider contracting with the clinic for the clinic to provide rooms and administration services to the health provider. In those circumstances

• the supply of the rooms and administration services by the clinic to the health provider are not GST-free
• the supply by the health provider to the patient will be GST-free if the requirements of another health service are satisfied.

What supplies are made and to whom is determined by ascertaining the true character of the transaction and is dependent on the facts of each particular case.

Question 1 Facility fee

In the present case you have entered into the Agreement with the contractor to supply it with facilities which include amongst other things, offices and administration services which involve collecting and billing patients on behalf of the contractor. Under the Agreement you charge the contractor a facility fee for the supply of the facilities described in the Agreement. The part of the fee you collect on behalf of the contractor that you retain has the relevant nexus with the supply of the facilities to constitute consideration for that supply. On that basis all the requirements of a taxable supply under section 9-5 of the GST Act are satisfied in relation to your supply of the facilities to the contractor and as such GST is payable by you on that supply.

Question 2 Fee collected on behalf of the contractor and remitted to them

The Agreement indicates that the intention of the parties is that you bill and then collect the fees generated by the contractor on their behalf and that you remit the professional fees generated by the contractor to them (net of the facilities fee). The Agreement indicates that the contractor wishes to operate a practice of providing services from your facility. Services are defined in the Agreement as other health services provided by the contractor to a client.

Having had regards to the terms of the Agreement and the facts in respect of the arrangement as a whole, the fee (net of the facilities fee) remitted by you to the contractor does not have the relevant nexus to a supply made by the contractor to you to constitute consideration for a supply acquired by you. On that basis the fee (net of the facility fee) remitted/paid by you to the contractor is not consideration for a taxable supply acquired by you and as such there is no creditable acquisition by you under section 11-5 of the GST Act.

Please note that the contractor needs to account for all the professional fees collected on their behalf by you and not just the balance of the fees remitted/paid to them.

GST-free supply of chiropractic services

On the facts provided, the contractor is making the supply of the health services to the client and that supply is GST-free under subsection 38-10(1) of the GST Act where the requirements set out above are satisfied by the contractor. Where you are merely billing and collecting the professional fees on behalf of the contractor as their agent they will need to advise you whether their supplies to clients are GST-free.