Edited version of private advice

Authorisation Number: 1051956918670

Date of advice: 3 March 2022

Ruling

Subject: GST and drugs and medicinal preparations

Question 1

As from 1 October 2021, are your supplies of the Products to Australian consumers GST-free supplies for the purposes of paragraph 38-50(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of Products by you to Australian consumers will not be GST-free supplies under paragraph 38-50(1)(a) of the GST Act. The supply of the Products are taxable supplies.

Question 2

If the answer to Question 1 is yes, then prior to 1 October 2021 were your supplies of Products to Australian consumers GST-free supplies for the purposes of paragraph 38-50(1)(a) of the GST Act?

Answer

As the answer to Question 1 is no, this question is no longer relevant.

This ruling applies for the following period:

10 July 2018 to 30 June 2025

The scheme commences on:

10 July 2018

Relevant facts and circumstances

You are a company that was incorporated on XX XX XXXX overseas as a company. You have been a overseas tax resident since you were established.

You do not have a physical presence in Australia and are not, for GST purposes, carrying on an enterprise in Australia. You do not have an Australian Business Number, an Australian Company Number or a tax file number.

The Products

The Products consist of the vaping liquids, generally known as "e-liquids" or "vape juice", which contain varying quantities of nicotine as well as other chemicals such as propylene glycol, vegetable glycerin and those added for, or to enhance, flavour.

E-liquid is the fluid that fuels an electronic cigarette and provides the nicotine solution and flavour for the customer. E-liquid also create the vapour that a customer exhales that mimics the effects of smoke from a traditional cigarette.

The E-liquids range in nicotine strength from 0mg/mL to 100mg/ML, per the Therapeutic Goods (Standard for Nicotine Vaping Products) (TGO 110) Order 2021 (TGO 110) came into effect on 1 October 2021. Generally, the other components of e-liquid are designed as either carrying agents for the nicotine or for assisting in the creation of vapour or recreating the effects of traditional cigarettes. For example:

• propylene glycol creates a throat sensation similar to smoking,
• a higher ratio vegetable glycerin gives more vapour; and
• water assists with flavours other than natural nicotine since any additional flavours must be water-soluble and meet food standards in the XXXX Food Standards Code 2002.

The vape devices are often known as e-cigarettes. There are two types of e-cigarettes, both of which need charging:

• discreet pod or pen devices, which are mouth-to-lung devices. Pod devices have a battery and a disposable e-liquid cartridge. Pen devices have a battery, a tank that refills with liquid and a coil that heats the vapour; and
• more complex tank devices, which are direct-to-lung devices.

Your Products essentially fall into three broad categories:

• e-liquids, as a stand-alone product, whether as an initial cartridge or as a replacement pod;
• e-cigarettes, as a stand-alone product; and
• kits, which contain both an e-cigarette and e-liquids.

Your Australian operations

In the context of Australia, your customers have been treated as consumers and not GST-registered businesses. To this end, you have not collected any evidence that its Australian customers are "Australian-based business recipients" and, therefore, you have always made the assumption that your customers are "consumers", as that term is defined in subsection 84-75(2) of the GST Act.

As a result, you have included all sales to Australian customers in its GST turnover. You first breached the registration turnover threshold in November 2019 and registered for Australian GST as a limited registration entity under Division 146 of the GST Act, effective 1 November 2019.

Since November 2019, you have historically remitted 1/11th of the total revenue received for its sales to Australian customers as GST payable. You have no Australian presence and do not carry on an enterprise in Australia, pursuant to section 9-27 of the GST Act.

Changes to Australian regulatory regime affecting nicotine vaping products, effective 1 October 2021

On 1 October 2021, the Delegate of the Secretary of the Therapeutic Goods Administration (TGA) amended the definition of "nicotine" in Schedule 4 to the Standard for the Uniform Scheduling of Drugs and Poisons to capture all nicotine vaping products as prescription only medicines.

From that date, Australian customers are no longer able to legally buy nicotine vaping products from overseas websites without first getting a valid doctor's prescription. The products covered by the changes include:

• nicotine e-cigarettes
• nicotine pods
• liquid nicotine (also known as eJuice, vape juice, eLiquid).

The products not covered by the changes include:

• nicotine replacement therapies, such as sprays, patches, lozenges, chews and gums
• vaping products that do not contain nicotine.

The TGA website states as follows:

Nicotine Vaping Products access

On 21 December 2020, the Therapeutic Goods Administration (TGA) announced a decision that, from 1 October 2021, consumers need a valid prescription to import nicotine vaping products, such as nicotine e-cigarettes, nicotine pods and liquid nicotine. This means that when a consumer purchases these products online from an overseas supplier, they legally require a prescription from an Australian doctor.

There has been a significant increase in the use of nicotine e-cigarettes and other nicotine vaping products by young people in Australia and in many other countries. There is evidence that nicotine vaping products act as a 'gateway' to smoking in youth and exposure to nicotine in adolescents may have long-term consequences for brain development.

This decision balances the need to prevent adolescents and young adults from taking-up nicotine vaping products while allowing current smokers to access these products for smoking cessation with appropriate medical advice.

What happened to the law regulating imports of nicotine vaping products on 1 October 2021?

On 1 October 2021, the entry for nicotine in Schedule 4 to the Poisons Standard was amended so that it now captures all nicotine vaping products as prescription only medicines.

This means that it is now illegal for consumers to import nicotine vaping products from overseas websites without a valid prescription from an Australian doctor. Consumers continue to require a valid doctor's prescription to purchase nicotine vaping products from Australian pharmacies.

It was, and remains, illegal for other Australian retailers (such as tobacconists, 'vape' shops or convenience stores) to sell nicotine vaping products to consumers, even if the consumer has a valid doctor's prescription.

There are currently no TGA approved nicotine vaping products in the Australian Register of Therapeutic Goods (ARTG). Medicines not included in the ARTG are known as 'unapproved' medicines. There are established pathways for consumers to legally access unapproved nicotine vaping products, with a valid prescription, but these medicines have not been assessed by the TGA for safety, quality and efficacy.

Nicotine vaping products require a prescription

From 1 October 2021, consumers require a prescription for all purchases of nicotine vaping products, such as nicotine e-cigarettes, nicotine pods and liquid nicotine. This includes purchases from Australian pharmacies and from overseas. It remains illegal for other Australian retailers, such as tobacconists, 'vape' shops and convenience stores, to sell you nicotine vaping products, even if you have a prescription.

What will my doctor need to do?

There are currently no approved nicotine vaping products on the Australian Register of Therapeutic Goods (ARTG). This means your doctor will either need to:

•         apply to the TGA for access to the unapproved product before they give you a prescription. We have a developed a simple application form for doctors to streamline this process, or

•         provide you with a script for a 3 month (or less) supply of nicotine vaping products if you intend to use the Personal Importation Scheme to buy the products from an overseas website.

As a first step, a customer must book an appointment with a doctor to discuss options for the cessation of smoking. If the doctor believes that nicotine vaping products will be beneficial, the doctor may provide the customer with a script for a three-month (or less) supply of nicotine vaping products to buy the products. There will be two main ways to obtain nicotine vaping products if a doctor gives a customer a prescription:

• filling the prescription at a pharmacy, whether a physical pharmacy or an Australian online pharmacy; or
• importing from overseas websites using the "Personal Importation Scheme".

Under the Personal Importation Scheme, a consumer can legally import up to a three month supply of most therapeutic goods for personal use. This private ruling request is concerned with the supply of the Products made to Australian Consumers under the Personal Importation Scheme.

Apart from pharmacies dispensing nicotine vaping to patients with a prescription, it is illegal for any other Australian retailers, including vape stores, to sell nicotine vaping products (this was the case prior to 1 October 2021). Vape stores are only entitled to sell e-cigarette devices, flavours and non-nicotine vaping products.

Australian Border Force is entitled to stop an import at the Australian border if it suspects that a consignment is unlawful and does not have a valid prescription attached to the import. Therefore, you have made it mandatory for all Australian customers to provide a copy of the customer's prescription and for a digital copy of that prescription to be enclosed with the other shipping documents, should Australian Border Force request a copy.

You confirm your supplies of Products to Australian consumers are "offshore supplies of low value goods" and, therefore, connected with Australia as:

• per subsection 84-79(1), the Products are covered by subsection 84-79(3) as low value goods;
• per subsection 84-77(1), the supply of the Products involves the goods being brought to Australia and you facilitating the delivery of the Products into Australia; and
• per subsection 84-75(2), your customers are "consumers".

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 38-50(1)(a)

Reasons for decision

Subsection 7-1(1) of the GST Act provides GST is payable on taxable supplies and taxable importations.

Section 9-5 of the GST Act provides that you have made a taxable supply where the supply is made for consideration, the supply is made in the course of furtherance of an enterprise you carry on, the supply is connected with Australia, the supplier is registered or required to be registered and the supply is not GST-free or input taxed.

Based on the facts, your supply of the Products meet the positive limbs of section 9-5 of the GST Act.

There are no provisions in the GST Act that will make the supply of the Products input taxed. It therefore remains to be determined if supplies of the Products are GST-free under paragraph 38-50(1)(a) of the GST Act.

Subsection 38-50(1) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free if the supply is on prescription and:

(a)  under a State law or a Territory law in the State or Territory in which the supply takes place, supply of the drug or medicinal preparation is restricted, but may be supplied on prescription, or

(b)  the drug or medicinal preparation is a pharmaceutical benefit (within the meaning of Part VII of the National Health Act 1953).

Further, Subsection 38-50(7) provides that a drug or medicinal preparation is GST-free if and only if:

• it is for human use or consumption; and
• the supply is to an individual for private or domestic use or consumption.

For paragraph 38-50(1)(a) to apply to your supply of nicotine vaping products, your supply needs to be restricted by a State law or a Territory law "in the State or Territory in which the supply takes place". Reference to State or Territory is to an Australian State or Territory.

However, in your case, your supply is an offshore supply made overseas as that is where you are located, You have no presence in Australia and you are not the entity that imports the drug into Australia. That is your supply of the Products will not meet the requirement in paragraph 38-50(1)(a) of the GST Act as your supply takes place overseas and not in a State or Territory of Australia

For completeness, the prescription requirement under subsection 38-50(1) of the GST Act is a legal requirement about who can dispense medication and the legal record keeping/dispensing requirements that exist under the State/Territory law.

Where the supply takes place in a State or Territory, the legislative requirements of the State or Territory that are required to be met by the supplier go beyond merely sighting of the prescription.

Therefore, your supply of the Products will not meet the requirements of paragraph 38-50(1)(a) of the GST Act and will be taxable supplies.