Edited version of private advice

Authorisation Number: 1051777978194

Date of advice: 9 November 2020

Ruling

Subject: GST and chronic disease management programs

Question

Is the supply of chronic disease management program (CDMP) services by Entity A to specified individuals, GST-free supplies of health services under section 38-10 of the GST Act to the extent that that services are of a kind specified in the table in section 38-10 of the GST Act?

Answer

Yes.

Question

If the services are GST-free under section 38-10 per Question 1 above, are the services supplied by Entity A to Entity B also GST-free under section 38-60 of the GST Act?

Answer

Yes.

Question

Is Entity A entitled to apportion the Fees it receives for its supply of the Services based on the proportion of services supplied by exercise physiologists, which are to be treated as taxable, and those services supplied in accordance with Question 1, which are eligible to be treated as GST-free?

Answer

Yes. Entity A is entitled to apportion the Fees it receives for its supply of the Services to the extent that its underlying supply of services to Entity B are taxable exercise physiology services.

This ruling applies for the following period

25 May 2019 to 24 May 2023.

The scheme commences on:

25 May 2019.

Relevant facts and circumstances

Entity B is registered for Goods and Services Tax (GST).

Entity A is registered for GST.

Entity A is a member of the Entity C's GST group, of which Entity C is the representative member.

Entity C is registered for GST.

Entity A and Entity B have entered into an Agreement under which Entity A is to provide the Services. Details of the relevant clauses in the Agreement were provided.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 19999-5

A New Tax System (Goods and Services Tax) Act 199938-10

A New Tax System (Goods and Services Tax) Act 199938-15

A New Tax System (Goods and Services Tax) Act 199938-60

A New Tax System (Goods and Services Tax) Act 1999195-1

Reasons for decision

Subdivision 38-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements for a supply of 'health' to be GST-free.

The definition of a medical service in section 195-1 of the GST Act includes a service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973.

Where no Medicare benefit is payable, the health service must be considered under one of the other provisions in Subdivision 38-B of the GST Act.

In your circumstances no Medicare benefit is payable for the provision of the CDMP.

Therefore, what remains to be determined is whether the services are GST-free pursuant to section 38-10 of the GST Act.

Section 38-10 of the GST Act states that:

(1)  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 regulations; and

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.

Terms with an asterisk are defined under section 195-1 of the GST Act.

The items in the table referred to in paragraph (a) of subsection 38-10(1) of the GST Act (the table) are:

In order to determine if the CDMP services are GST-free under subsection 38-10(1), it must be considered if these services fall within the meaning of the various phrases in the three paragraphs. These are:

(a) It is a service of a kind specified in the table in this subsection, or of a kind specified in the regulations;

The Agreement states that the Services are to be performed by allied health services. The relevant allied health service providers are RNs, physiotherapists, exercise physiologists, dietitians, occupational therapists and social workers.

Nursing, Physiotherapy, Dietary, Occupational Therapy and Social Work are listed in the table. As such, to the extent the Services of this type are provided we consider that the Services satisfy the requirement that the services be of a kind specified in the table (notably items 10, 7, 11, 17 and 21).

Exercise physiology is not a service which is listed in the table in subsection 38-10(1). Therefore, supplies of exercise physiology services are not GST-free under section 38-10(1).

Note, however, where a recognised professional in one of the listed health services provides exercise physiology services as a component of their service which is generally accepted in that health profession as being necessary for the appropriate treatment of the recipient, the supply of exercise physiology services is GST-free as part of the supply of the GST-free listed health service (for example, a recognised professional physiotherapist may provide exercise physiology services as part of their supply of GST-free physiotherapy services).

(b) The supplier is a * recognised professional in relation to the supply of services of that kind;

The term 'recognised professional', which is referred to in paragraph 38-10(1)(b) of the GST Act, is defined under section 195-1 of the GST Act as:

A person is a recognised professional, in relation to the supply of a service of a kind specified in the table in subsection 38-10(1), 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; or

c)    in the case of services covered by item 3 in the table - the service is supplied by an accredited service provider within the meaning of section 4 of the Hearing Services Administration Act 1997.

The ATO has published an extract for issue 2.a.11 from the Health Industry Partnership Issues Register on this point including the following comment:

The requirement under section 38-10(1)(b) that the supplier of 'other health services' be a *recognised professional, is given meaning by the context in which it appears. It is considered that in this context, it is taken to be a requirement that the person who actually performs the 'other health service' must herself or himself, be a *recognised professional in relation to supplying services of that kind. Due to their very nature, a practice company or partnership can not itself perform the services it may supply through others, such as *recognised professionals.

The Australian Health Practitioner Regulation Agency (AHPRA) works with the National Health Practitioner Boards for various health service areas including Physiotherapy, Occupational Therapy and Nursing to implement the National Registration and Accreditation Scheme. In practice, this means that physiotherapists, occupational therapists and nurses who are registered with AHPRA will satisfy the recognised professional requirement in their particular health profession.

Dieticians must be accredited with the Dietitians Association of Australia to satisfy the recognised professional requirement for 'Dietary'.

Social workers who are accredited with the Australian Association of Social Workers will satisfy the recognised professional requirement for 'Social Work'.

You advised that the RNs, physiotherapists, dieticians, occupational therapists and social workers meet these requirements. We therefore consider that these practitioners are 'recognised professionals' for the purposes of paragraph 38-10(1)(b).

(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

'Appropriate treatment' and 'generally accepted'

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

Based on the description of the CDMP services and the definition of a CDMP in Rule 12(1) of the Private Health Insurance (Health Insurance Business) Rules 2018, it is generally accepted due to the nature of the illness that such a program is necessary to treat individual members in order to reduce complications or prevent the onset of potentially fatal illness.

Therefore, provided the particular treatment service being provided by the relevant recognised professional would be generally accepted in that particular profession as being necessary for the appropriate treatment of the individual member, this paragraph 38-10(1)(c) requirement will be satisfied.

Recipient of the supply

A supply of a health service is generally GST-free when supplied to the individual requiring that treatment or specific health services. Therefore, it is necessary to determine who the recipient of the supply is for the services made by the health practitioner.

Section 195-1 of the GST Act defines recipient to mean the entity to which the supply was made.

For GST purposes, the identity of the recipient of a supply does not generally determine the GST treatment of the underlying supply. However, where the underlying supply is a health service, such as other health services under section 38-10 of the GST Act, the identity of the recipient is relevant for determining the GST status of the supply.

The Commissioners view on the meaning of 'supply' in the GST Act is provided in paragraph 155 of GSTR 2006/9. This paragraph states:

Under the GST health provisions in Subdivision 38-B, subject to certain exceptions^51A, 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.

Where there are only two parties to a supply of health services (the health practitioner and the patient), the patient is generally the recipient of the supply. However, when there are more than two parties involved in an arrangement (referred to as multi-party arrangements), determining the recipient of the supply is less straightforward.

In relation to multi-party arrangements involving health supplies, paragraph 156A of GSTR 2006/9 states:

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.^51BThe supply made to the third party will not be GST-free under provisions within Subdivision 38-B that require the individual receiving the relevant goods or services to be the recipient of the supply. However, in some cases the supply will be GST-free under section 38-60.

Where the multi-party arrangement involves the supply of health services to an insured individual paragraph 156C of GSTR 2006/9 is relevant and states:

Where an entity makes a supply to an insured person and that supply is either wholly or partly GST-free under Subdivision 38-B (the underlying supply), a supply of the service of making the underlying supply by the entity to an insurer, in the course of settling insurance claims under an insurance policy (including private health insurance policies and taxable insurance policies) of which the insurer is an insurer, is GST-free under subsection 38-60(1) to the extent that the underlying supply is GST-free. For the purposes of subsection 38-60(1), an operator of a statutory compensation scheme is treated as an insurer and a claim for compensation under the statutory compensation scheme is treated as a claim under an insurance policy.^51C

Section 38-60 provides that where a supply of a health service made to an individual is a GST-free supply of health service, that supply will also be GST-free where the recipient of the supply is either:

•         an insurer settling a claim under an insurance policy;

•         an operator of a statutory compensation scheme;

•         an operator of a compulsory third-party scheme; or

•         an Australian government agency.

As your supply of the CDMP is made to arelevant section 38-60 enitty, in this case Entity B, your supply in this instance is GST-free under section 38-60 of the GST Act to the extent that the underlying supply of the CDMP to the patient is GST-free under subsection 38-10(1) of the GST Act.

The supply of exercise physiology services is not GST-free under subsection 38-10(1). Therefore, where Entity A supplies exercise physiology services to individuals, the supply of the service between Entity A and Entity B will not be GST-free under section 38-60 to this extent and an apportionment will be necessary.

GSTR 2001/8: Apportioning the consideration for a supply that includes taxable and non-taxable partsstates at paragraph 26 that:

Apportionment must be undertaken as a matter of practical commonsense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances.

Conclusion

The supply by Entity A of the CDMP services by recognised professional nurses, physiotherapists, occupational therapists, dieticians and social workers satisfy the conditions of subsection 38-10(1) of the GST Act and are GST-free where the supply would be generally accepted within the relevant profession as being necessary for the appropriate treatment of the individual.

The supply of the service from Entity A to Entity B of making the supply of CDMP services to individuals is also GST-free pursuant to section 38-60 of the GST Act to the extent that the underlying supply of health services from CDMP to the individual members is GST-free under subsection 38-10(1).

Lastly, Entity A will be entitled to apportion the fees it receives between the taxable portion of CDMP services supplied by health practitioners not covered by the table in paragraph 38-10(1)(a) of the GST Act and those CDMP services which do meet the requirements of subsection 38-10(1) to be GST-free.