Edited version of private advice

Authorisation Number: 1051770010015

Date of advice: 18 December 2020

Ruling

Subject: Goods and services tax and various products

Question

Is your supply of various products for people with disabilities GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Your supply of the majority of products for people with disabilities is GST-free under subsection 38-45(1) of GST Act except for your supply of two products which is a mixed supply.

Relevant facts and circumstances

You are registered for GST.

Your main business activity is the manufacture of products.

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 9-80

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(1)

Reasons for decision

All legislative references in this ruling are to the GST Act unless otherwise stated.

Medical aid or appliance

Subsection 38-45(1) provides that a supply of a medical aid or appliance is GST-free if it:

•   is covered by Schedule 3, or specified in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations)

•   is specifically designed for people with an illness or disability, and

•   is not widely used by people without an illness or disability.

A medical aid or appliance that is GST-free under subsection 38-45(1) is GST-free all along the supply chain and not only when it is supplied to a person with an illness or disability.

Items 111 to 122 in the table in Schedule 3 list medical aids and appliances relating to products for people with disabilities.

Mixed and composite supplies

Section 9-5 describes when an entity makes a taxable supply. It provides that a supply is not a taxable supply to the extent that it is GST-free. Section 9-80 provides that where a supply (the actual supply) is partly a taxable supply and partly a supply that is GST-free or input taxed the value of the part of the actual supply that is a taxable supply is the proportion of the value of the actual supply that the taxable supply represents.

Paragraphs 10 and 12 in Goods and Services Tax Ruling GSTR 2001/8 - Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts provides that it may be necessary to characterise what is supplied to determine whether it wholly or partly meets the requirements of a taxable supply under section 9-5 or GST-free under the relevant provisions.

Consequently, where you make a supply that is a combination of separately identifiable taxable and GST-free parts (we refer to this as a mixed supply), you need to identify the taxable part of the supply. Then you can apportion the consideration for the supply and work out the GST payable on the taxable part of the supply.

Paragraphs 19B to 21 of GSTR 2001/8 further provides that having regard to the essential character and with regard to the statutory provision in issue, you can determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and GST-free, or whether it is a composite supply because one part of the supply should be regarded as being a dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part, we take the view that you adopt a common sense approach.

Application to your case

All of your products are specifically designed and manufactured for use by people with a disability and are not widely used by people without an illness or disability.

Therefore, all of your supply of products is GST-free under subsection 38-45(1) except for your supply of two products which is a mixed supply.

Paragraph 52 of GSTR 2001/8 provides that it is the Commissioner's view that a supply has separately identifiable parts where the parts require individual recognition and retention as separate parts, due to their relative significance in the supply. This view applies where the supply is comprised of a mix of separate things, such as various combinations of goods and services.

In this case, we consider that the two products have a separately identifiable part that requires individual recognition due to their relative significance. As part of the products are specifically designed for people with a disability and is not widely used by people without a disability, the supply of that part is GST-free under subsection 38-45(1). There are no items in Schedule 3 that include the second part of your products and additionally it is not specifically designed for people with a disability, therefore the supply of this second part of your products is taxable because it does not satisfy the requirements of subsection 38-45(1). Therefore, you will need to apportion the consideration you receive when you supply the two products.

Paragraph 92 of GSTR 2001/8 provides that you may use any reasonable method to apportion consideration to the separately identifiable taxable part of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances and be undertaken as a matter of practical common sense.

Paragraph 95 of GSTR 2001/8 also provides that you need to keep records that explains all the transactions and other acts you engage in that are relevant to the supplies you make including supplies that are GST-free.