Edited version of private advice

Authorisation Number: 1051810446677

Date of advice: 26 February 2021

Ruling

Subject: GST and advanced wound care products

Question 1

Is the supply of product A GST-free under subsection 38-45(1) of the GST Act?

Answer

Yes, the supply of product A is GST-free.

Question 2

Is the supply of product B GST-free under subsection 38-45(1) of the GST Act?

Answer

No, the supply of product B is not GST-free.

Question 3

Is the supply of product C GST-free under subsection 38-45(1) of the GST Act?

Answer

No, the supply of product C is not GST-free.

Question 4

Is the supply of product D GST-free under subsection 38-45(1) of the GST Act?

Answer

No, the supply of product D is not GST-free.

Relevant facts and circumstances

The entity is registered for goods and services tax and supplies various specified wound care products.

Information for each product was provided including their ingredients and a copy of the packaging for each product. All four products contain hydrocolloid and polyurethane film.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Regulations 2019 Subsection 38.45.01(1)

A New Tax System (Goods and Services Tax) Regulations 2019 Subsection 38.45.01(2)

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 182-10(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 182-15

Reasons for decision

Under subsection 38-45(1) of the GST Act, the supply of certain medical aids and appliances is GST-free where the medical aid or appliance:

(a)  is covered by Schedule 3 to the GST Act (Schedule 3), or specified in the regulations,

(b)  is specifically designed for people with an illness or disability, and

(c)   is not widely used by people without an illness or disability.

Section 38-45.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) has been made for the purposes of paragraph 38-45(1)(a) of the GST Act.

Item 1 in the table in subsection 38-45.01(1) of the GST Regulations specifies the following five items:

(a)  alginate; and

(b)  hydro colloids; and

(c)   hydro gel; and

(d)  polyurethane film; and

(e)  polyurethane foam.

These terms are not defined in the GST Act or the GST Regulations.

Generally, where a word or phrase is not defined, it is usually interpreted in accordance with its ordinary meaning unless it has a special or technical meaning. Where a word or phrase has a special or technical meaning, it is necessary to determine the meaning by reference to the industry to which that word or phrase relates.

The Macquarie Dictionary online[1] defines alginate, hydrocolloid and polyurethane as follows:

•         alginate

noun a gelatinous substance, the sodium salt of alginic acid, extracted from various kelps, used in the manufacture of ice cream, in sizing cloth, in dyes, plastics, and explosives, and for various other industrial purposes.

•         hydrocolloid

noun any substance that will form a gel with the addition of water.

•         polyurethane

noun a class of synthetic materials made from a polymer of urethane; used in foam form as lightweight insulation and packing, but also produced as fibres, coatings, and in a flexible form for diaphragms and seals.

The term hydrogel is defined in multiple dictionaries as:

noun a gel whose liquid constituent is water.[2]

The ordinary meanings of these terms are very broad. Item 1 in the table in subsection 38-45.01(1) of the GST Regulations lists these items under the category heading of 'Advanced wound care' in column two. However, section 182-15 of the GST Act provides that the second column of Schedule 3, or, in the case of section 38-45.01 of the GST Regulations, the second column of the table in subsection 38-45.01(1),[3] is not operative and can only be considered in interpreting an item in the table for a purpose for which an explanatory section may be considered under subsection 182-10(2) of the GST Act.

Subsection 182-10(2) states that an explanatory section may only be considered:

(a)  In determining the purpose or object underlying the provision; or

(b)  To confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision; or

(c)   In determining the provision's meaning if the provision is ambiguous or obscure; or

(d)  In determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

Since the ordinary meanings of the items listed in the item 1 in the table in subsection 38-45.01(1) are so broad, the category heading in of 'Advanced wound care' in column two, whilst not operative, does assist in interpretation of the items listed. We consider that 'Advanced would care' refers to wound care that is beyond the average[4]. The wound care is advanced in its design, and beyond the average, where the product has properties to actively assist wound management and healing. Therefore, not every item that contains alginate, hydro colloids, hydro gel, polyurethane film and polyurethane foam will be covered by the items listed. For alginate, hydro colloids, hydro gel, polyurethane film and polyurethane foam products to be covered by items 1(a) to (e) in the table in subsection 38-45.01(1) in the GST Regulations the product must be a product that is for the care of wounds and that is advanced in its design.

In determining if a product is one of the items listed in Schedule 3 or the regulations, it is necessary to consider the essential character of the product.[5] The essential character of the product is determined by looking at what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part.

Products that have the essential character of advanced wound care consisting of alginate, hydro colloids, hydro gel, polyurethane film or polyurethane foam, will be products covered by the GST Regulations and therefore paragraph 38-45(1)(a) of the GST Act.

The information supplied for each of your products shows that the essential character of these products is that they are wound care products which include features which are advanced in their design. Accordingly, these products are considered to fall within item 1 in the table in subsection 38-45.01(1) of the GST Regulations. Therefore, paragraph 38-45(1)(a) of the GST Act is satisfied.

For the supply of the products to be GST-free under section 38-45 of the GST Act, the products must also meet the requirements of paragraph 38-45(1)(b) of the GST Act. That is, they must also be:

•         specifically designed for people with an illness or disability; and

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

The requirements of subsection 38-45(1) requires that we examine the specific product being supplied and not a class of products. Therefore, in considering the requirements in paragraph 38-45(1)(b), it is the specific product being supplied that must be specifically designed for a person with an illness or disability and not widely used by a people without an illness or disability.

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.[6] It is how it is designed that is the test.

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. The GST treatment is not 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.[7]

Product A

Product A information shows that they are designed as a treatment for a condition caused by a particular illness, containing hydrocolloid to heal fast, creating an optimal healing environment.

Additionally, it is unlikely that someone without the particular illness would use a product that was specifically for the treatment of the condition.

For these reasons, we consider that product A meets the requirements in paragraph 38-45(1)(b) of the GST Act.

Products B, C and D

The product information for products B, C and D provide insight into how the designer/manufacturer intended the products to be used and their features.

Having regard to how the designer/manufacture intended the products to be used, we consider that these products are not specifically designed for people with an illness or disability.

It has been contented that as a wound is in the category heading in column two of item 1 in the table in subsection 38-45.01(1), it must be that a wound is an illness or disability. However, we do not agree that the category heading in column two in the table in subsection 38-45.01(1) of the GST Regulations, or column two in Schedule 3 to the GST Act, influences whether something is an illness or disability. While a category heading can aid in interpretation, the heading aids the interpretation of the meaning of the items listed. We do not agree that it would extend to aiding in interpreting the words in a separate paragraph in the legislation. The two paragraphs in subsection 38-45(1) set two distinct tests an item must meet for its supply to be GST-free. The separate test in paragraph 38-45(1)(b) sets an additional statutory test separate to an item's inclusion in a list such that it is clear that not all items that are listed in the table in subsection 38-45.01(1) of the GST Regulations, or column two in Schedule 3 to the GST Act, will be GST-free.

Conclusion

The supply of product A meets all the requirements of subsection 38-45(1) of the GST Act.Therefore, the supply of product A is GST-free.

The supply of products B, C and Ddo not satisfy the requirements in paragraph 38-45(1)(b) of the GST Act.Therefore, the supply of products B, C and Dare not GST-free.

[1] Macmillan Publishers Australia 2020

[2] See for example www.dictionary.com and www.collinsdictionary.com accessed in February 2021.

[3] See subsection 38-45.01(2) of the GST Regulations

[4] Advanced is defined in the Macquarie Dictionary online to mean 'far on in progress; beyond the average'

[5] See Snugfit Australia Pty Ltd v FC of T 2013 ATC 10-339

[6] See Issue 1.c. of the GST Pharmaceutical Health Forum - issues register at www.ato.gov.au

[7] See Issue 1.d. of the GST Pharmaceutical Health Forum - issues register at www.ato.gov.au