Edited version of private advice

Authorisation Number: 1052154583225

Date of advice: 10 August 2023

Ruling

Subject: GST - membership

Question

Is your supply of memberships GST-free under subsection 9-30(1) and subsection 38-45(1) of the A New Tax System 1999 (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, in part. Your supply of the membership is a mixed supply. You will need to apportion the consideration from the sale of the membership between:

•                     the taxable part - the services provided under the membership, and

•                     the GST-free part - the right to receive a complimentary replacement device provided under the membership.

This ruling applies for the following periods:

Year ended 30 June 2024

Year ended 30 June 2025

Year ended 30 June 2026

Year ended 30 June 2027

The scheme commences on:

10 August 2023

Relevant facts and circumstances

You are registered for Goods and services tax and carry on a medical technology development enterprise.

You have developed and manufactured a medical device.

The medical device is primarily designed and used to monitor heartbeat or cardiac rhythm, diagnose life abnormality in the heart's rhythm (or heartbeat pattern) of patients in emergency situations.

You are the designer and manufacturer of the medical device and you have specifically designed the medical device with the intention that it is to be used for people with an illness or disability.

The common purpose for which the medical device is purchased by the wider community is for the treatment of sudden cardiac arrests and is not widely used by people without an illness or disability.

The medical devices are only available for purchase on your ecommerce platform, through resellers (who have previously sold and/or are currently selling these devices), and through referrers (that is business to business transactions, organisations offering first aid training courses, etc).

The medical device is designed for one-time use only and must be replaced upon either:

•                     use in the event of a cardiac arrest; or

•                     the end of its shelf-life.

The membership

In accordance with the general terms and conditions of sale, the membership includes the following terms and conditions:

•                     The membership can only be purchased with a medical device either as a monthly membership fee or a single upfront 2-year payment.

•                     On each membership expiry date, unless terminated, the membership automatically renews for a further period.

•                     The membership entitles the member to the following benefits:

-                    priority replacement of the medical device under certain conditions.

-                    access to education and learning communications/information on a regular basis.

-                    access to a cellular connected monitoring service.

-                    priority support and data access service.

-                    assistance with connecting Members who are responders and/or survivors under certain conditions.

-                    access to exclusive membership offers.

-                    sneak peek benefits.

-                    easy recycling for the old device.

Whilst the membership is an optional product, the terms and conditions state that the membership must be purchased at the same time as and together with a medical device. That is, the membership cannot be purchased in isolation without also purchasing a medical device.

In this regard, the medical devices may be purchased as standalone product, without a membership purchase. However, as the medical device is limited to one time use only, or otherwise must be replaced upon expiry of its shelf life, in the absence of a membership it is expected that upon occurrence of either of those events the standalone medical device would need to be re-purchased by the customer.

Pricing model and apportioning price to the Membership benefits.

The recommended retail price (RRP) of the standalone medical device is AUD $X (excluding GST).

The membership can be purchased with the medical device for an additional:

•                     monthly subscription of AUD $Y per month including GST, or

•                     a single 2 yearly upfront payment of AUD $Z.

The membership automatically renews unless cancelled upon request by the customer.

Relevant legislative provisions

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

A New Tax System 1999 (Goods and Services Tax) Act 1999 section 9-30

A New Tax System 1999 (Goods and Services Tax) Act 1999 section 9-40

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

Reasons for decision

Section 9-40 of the GST Act provides that you must pay the GST on any taxable supply that you make.

Under section 9-5 of the GST Act you make a taxable supply if you make a supply for consideration, the supply is made in the course or furtherance of an enterprise that you carry on, the supply is connected with Australian and you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free (or input taxed).

In determining whether a supply is GST-free, subsection 9-30(1) of the GST Act states:

(1) A supply is GST-free if:

(a)          it is input taxed under Division 38 or under a provision of another Act; or

(b)          it is a supply of a right to receive a supply that would be GST-free under paragraph (a).

Subsection 38-45(1) of the GST Act states:

(1) A supply is GST-free if:

(a)          it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations1; and

(b)          the thing supplied is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability.

The supply of the medical device is GST-free under section 38-45(1) on the basis that it is covered by Item 1 of Schedule 3 (medical aids and appliances) of the GST Act and it is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability.

A fully paid up membership entitles its members to a complimentary replacement medical device in the event that either the existing medical device is used or it reaches the end of its shelf life. That is, by purchasing the membership, the member receives a right to a complimentary replacement medical device sometime in the future.

The membership also entitles its members to receive services such as education and learning communications, monitoring service, priority replacement service, priority support and data access service, assistance with connecting members who are responders and survivors, free shipping and handling, exclusive member offers, sneak peek benefits and easy recycling of used medical devices or unused medical devices that are past their shelf life.

The characterisation of memberships is discussed in paragraphs 101 to 107 of Goods and Services Tax Ruling GSTR 2003/8 Goods and services tax: supply of rights for use outside Australia - subsection 38-190, item 4, paragraph (a) and subsection 38-190(2) (GSTR 2003/8). Relevantly paragraphs 101, 102 and 105 state:

Membership subscriptions

101. Supplies of membership subscriptions can be difficult to characterise as there may be elements of services, rights or goods provided by the supplier. The principles outlined in GSTR 2001/8 are relevant in analysing a supply to determine whether it comprises separately identifiable parts that should be treated as supplies in their own right.

102. In characterising supplies of membership subscriptions it is necessary to determine what in substance and reality is supplied in return for the subscription payment. The characterisation of the supply does not depend on what an individual member subjectively paid the subscription for.

105. There may be situations where the supply for consideration in respect of membership subscriptions is the supply of a right, or a combination of a supply of a right and a supply of services that are to be treated as separately identifiable parts of the supply. It will be a case of weighing up what is supplied in each case to determine the supply for which the subscription amount is consideration.

The membership can be characterised as comprising two separate identifiable parts being:

1.            the right to receive a complimentary replacement medical device sometime in the future, and

2.            services in relation to an existing medical device.

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 describes the characteristics of supplies that have more than one part and are either mixed or composite supplies. GSTR 2001/8 states as follows:

Mixed supply

16. A mixed supply is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. Paragraphs 45 to 54 explain what are separately identifiable parts.

Composite supply

17. If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then the supply is composite. You treat a composite supply as a supply of a single thing. Paragraphs 55 to 63 explain what are integral, ancillary or incidental parts.

18. A composite supply is either taxable or non-taxable. It may also be a part of a larger mixed supply.

Differentiating between mixed and composite supplies

43. A mixed supply contains separately identifiable parts where one or more of the parts is taxable and one or more of the parts is non-taxable. None of these parts is integral, ancillary or incidental in relation to the whole supply. On the other hand, a composite supply is a supply of one dominant part that has other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply.

44. In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental parts.

45. In many circumstances, it will be a matter of fact and degree whether the parts of a supply are separately identifiable, and retain their own identity....

52. ... 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, including the provision of advice.

Integral, ancillary or incidental parts

55. Some supplies include parts that do not need to be separately recognised for GST purposes. We refer to these parts of a supply as being integral, ancillary or incidental. In a composite supply, the dominant part of the supply has subordinate parts that complement the dominant part. If such a supply is analysed in a commonsense way, it can be seen that the supply is essentially the provision of one thing. It need not be broken down, unbundled or dissected any further. For this reason, a composite supply may appear, at first, to have more than one part, but is treated as if it is the supply of one thing.

59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, indicators that a part may be integral, ancillary or incidental include where:

•         you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

•         it represents a marginal proportion of the total value of the package compared to the dominant part; or

•         it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

•         it contributes to the proper performance of the contract to supply the dominant part.

That is, we consider that a part of a supply will be integral, ancillary or incidental where it is insignificant in value or function, or merely contributes to or complements the use or enjoyment of the dominant part of the supply. It is a question of fact and degree whether a supply is mixed or composite.

Although the membership can only be purchased when purchasing a medical device, the membership and the medical device are two separate and distinct supplies as opposed to one supply with separate identifiable parts. The medical device is a single supply that is supplied for $X and is GST-free for reasons as discussed above.

The membership is supplied for either a monthly payment of $Y (including GST) or a single 2 yearly upfront payment of $Z (including GST). It is a single supply that is a combination of two separately identifiable parts comprising of a right to receive a complimentary replacement medical device in the future and services for an existing medical device.

Subsection 9-30(1) of the GST Act provides that a supply is GST-free if it is a supply of a right to receive a supply that would be GST-free under Division 38. As the medical device is GST-free under section 38-45(1), the right to receive a complimentary replacement medical device in the future will therefore be GST-free under subsection 9-30(1) of the GST Act.

The supply of services provided under the membership is not a composite supply as it is not integral, ancillary or incidental to the right to receive a complimentary replacement medical device in the future. These services will meet the requirements of section 9-5 of the GST Act and will be taxable supplies.

The membership is therefore a mixed supply and the revenue you receive from your supply of the membership will be GST-free to the extent it relates to the right to receive a complimentary replacement medical device in the future and taxable to the extent it relates to the services provided to the members under the membership.