Edited version of private advice

Authorisation Number: 1052206936445

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Date of advice: 6 March 2024

Ruling

Subject: GST and the supply of GST-free other health goods

Question 1

Is the supply of a product (Product 1) by you to customers in Australia a GST-free supply of other health goods pursuant to subsection 38-47(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes, the supply of Product 1 is a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act.

Question 2

Is the supply of a product (Product 2) by you to customers in Australia a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act?

Answer 2

No, the supply of Product 2 is not a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act. The supply of Product 2 is a taxable supply that satisfies the requirements of section 9-5 of the GST Act.

Question 3

Is the supply of a product (Product 3) by you to customers in Australia a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act?

Answer 3

No, the supply of Product 3 is not a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act. The supply of Product 3 is a taxable supply that satisfies the requirements of section 9-5 of the GST Act.

Question 4

Is the supply of a product (Product 4) by you to customers in Australia a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act?

Answer 4

No, the supply of Product 4 is not a GST-free supply of other health goods pursuant to subsection 38-47(1) of the GST Act. The supply of Product 4 is a taxable supply that satisfies the requirements of section 9-5 of the GST Act.

Relevant facts and circumstances

You are registered for goods and services tax (GST). You carry on an enterprise that involves operating an online retail outlet supplying products to customers in Australia including the following four products (collectively the Products):

•                     Product 1

•                     Product 2

•                     Product 3

•                     Product 4

The Products are regulated in Australia by the Therapeutic Goods Administration (TGA) requiring entry in the Australian Register of Therapeutic Goods (ARTG). Each of the Products are issued with an ARTG ID with details of the Products entry set out in the public summary of entry on the TGA website https://www.tga.gov.au/resources/artg/ (ARTG Summary).

The Products display their respective AUST L numbers (corresponding to their ARTG ID number) on the labels of their respective bottle or tube and outer packaging indicating that each product is regulated by the TGA as a therapeutic good under the listed medicines framework.

Details in relation to each of the Products is set out in tables in the following appendices which form part of the Scheme:

Appendix A in relation to Product 1

Appendix B in relation to Product 2

Appendix C in relation to Product 3

Appendix Din relation to Product 4

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 38-47

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Taxable supply

Under section 9-5 of the GST Act you make a taxable supply on which GST is payable 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 the indirect tax zone, and

•                     you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Under subsection 48-40(1) of the GST Act the GST Group representative is liable for GST payable on any taxable supplies made by you which is attributable to a tax period during which you were a member of the GST Group.

To the extent a supply of a Product is GST-free it is not a taxable supply.

Other GST-free health goods

Division 38 of the GST Act sets out those health-related supplies that are GST-free. In particular, subsection 38-47(1) of the GST Act relevantly provides that a supply is GST-free if it is a supply of goods of a kind that the Health Minister, by determination in writing, declares to be goods the supply of which is GST-free.

The Minister for Health has made the A New Tax System (Goods and Services Tax) (GST-free Health Goods) Determination 2022 (Determination) which applies from 31 March 2022 and replaces (with no material changes) the former GST-free Supply (Health Goods) Determination 2011 (former Determination).

Section 5 of the Determination (section 5) provides that for the purposes of subsection 38-47(1) of the GST Act, goods of a kind that are:

(a)          specified in an item of the table in Schedule 1, and

(b)          required, or in a class of goods required, to be included in the ARTG under the Therapeutic Goods Act 1989 (TG Act)

are declared to be goods the supply of which is GST-free.

Item 5 in the table to Schedule 1 to the Determination (Item 5) specifies as a health good:

Sunscreen preparations for dermal application that are

(a)          marketed principally for use as sunscreen, and

(b)          have a sun protection factor of 15 or more.

'of a kind'

The phrase 'of a kind' is not defined in the GST Act or the Determination, however it was considered in the GST context in Lansell House.[1] A product will be 'of a kind' if it is of the same nature or character (possessing the same distinguishing qualities) as the class or genus in question.[2]

In this case, the relevant class or genus is sunscreen preparations that:

•                     are for dermal application

•                     have a sun protection factor (SPF) of 15 or more

•                     are required to be included in the ARTG, and

•                     are marketed principally for use as a sunscreen.

It will usually be clear and uncontroversial whether a sunscreen preparation:

•                     is for dermal application - products that are applied to the skin will be for dermal application

•                     has a SPF of 15 or more - the products' SPF rating will be displayed on the product

•                     is required to be included in the ARTG - sunscreens that are required to be included on the ARTG will have their AUST L number listed on the product and packaging.

The only characteristic of the class or genus requiring further analysis is the characteristic that the product is 'marketed principally for use as sunscreen'.

Marketed principally for use as sunscreen

Use as sunscreen

Before consideration of whether a product is marketed principally for use as sunscreen, it is relevant to identify what is 'use as a sunscreen' so that marketing for this use can be distinguished from marketing for other uses.

Sunscreen is not defined in the GST Act or in the Determination. The Macquarie Dictionary[3] defines 'sunscreen' as 'a lotion or cream which, when applied to the skin, protects it against damage from the rays of the sun'. The Australian Radiation Protection and Nuclear Safety Agency (ARPANSA)[4] states sunscreen is used to protect the skin from the harmful effects of the sun. Overexposure to ultraviolet radiation (UVR) causes eye damage, sunburn, tanning and other skin damage that can ultimately result in skin cancer.[5] It is also recognised that one of the effects of sun damage to the skin is that the skin can prematurely age.[6]

For a sunscreen to protect the skin, ARPANSA[7] and the Cancer Council of Australia[8] recommend that sunscreen is:

• used as part of your morning routine on days when UVR is forecast to reach 3 or above
• to be carefully applied and reapplied
• applied 20 minutes before you go outside and again every two hours
• applied generously - the average adult needs 35ml for one full body application, which is the equivalent of more than half a teaspoon to each arm and the face, and just over one teaspoon to each leg, the front of the body and the back
• reapplied after swimming, sweating or towel drying
• used within its use-by-date and stored below 30°C, and
• used in conjunction with other defences against UVR - when the UV Index is 3 or above, people should also wear protective clothing, hat and sunglasses and seeking shade when possible.

The TGA regulations[9] allow sunscreens to make the following claims on the use of sunscreen to prevent ageing and other damage to the skin:

• Can aid in the prevention of premature skin ageing (allowed for therapeutic sunscreens with SPF 4+).
• Can aid in the prevention of solar keratosis, sun spots and may reduce the risk of some skin cancers and may assist in preventing some skin cancers (therapeutic sunscreens with SPF 30+).

Marketing

Marketing is the total process whereby goods are put onto the market or the action or business of promoting and selling products, including market research and advertising.[10] In assessing how a product is marketed it requires an examination of the content of the advertising and other marketing carried out either by the entity making the supply or by competitors (including the manufacturers) in the market.[11]

Relevant marketing factors include:

• the name of the goods
• the price of the goods
• the labelling on any containers for the goods
• literature or instructions packed with the goods
• how the goods are packaged
• how the goods are promoted or advertised, and
• how the goods are distributed.

No one factor is definitive in its own right but together they are useful in forming an overall impression of the principal marketed use of a product. However, some factors may carry more weight than others. Labelling (including the name), packaging and advertising (including website information) will normally be more significant to forming an overall impression as to product's marketed use than its distribution. We consider, the specific legislative test may also influence the weight to be given to different marketing factors.

Principally

Principally means 'mainly, chiefly, predominantly or preponderantly'.[12] The word 'principally' adds a criterion that the relevant class or genus of products must be principally marketed for use as sunscreen.

Under the TGA regulations[13], there are certain labelling and advertising requirements and standards for products containing sunscreen. Due to the need to meet the sunscreen labelling and advertising requirements and standards, sunscreen products that have met the other characteristics of the relevant class or genus (that is, dermal application, SPF of at least 15 and on the ARTG) will have references in their marketing to their sunscreen function.

However, it will be insufficient that a product has some marketing for use as a sunscreen. To be included in the relevant class or genus so that the supply is GST-free, the product must be 'marketed principally for use as a sunscreen'.

A product will be marketed principally for use as a sunscreen where that use is the main, chief or predominant marketed use. It must be the most important or the most significant of all the ways in which the product is marketed.

A product that is marketed principally for use as a sunscreen will (through its name, price, labelling, literature, instructions, packaging and advertising) have the main, chief and predominant use of the product as a protector from the damaging rays of the sun.

As the test for sunscreen preparations is 'marketed principally for use as sunscreen', the question to be determined about the marketing is what does the marketing present the use of the product as being.

Other marketed features and uses

A product may have no other features or uses included in the marketing material. In these circumstances the product will be principally marketed for use as sunscreen, and where the other conditions of the Act and the Determination are met, the supply will be GST-free.

However, there are many products that in addition to their sunscreen representation, make other non-sunscreen representations. For example, products can include representations such as:

• being moisturising, hydrating or conditioning to the skin
• providing anti-ageing benefits
• the feel of the product, including non-greasy, lightweight or dry finish, the appearance on the skin such as mattifying
• tints or pigments with varying degrees of coverage (for example medium or full coverage)

Where other representation of functions or benefits are included in the product's marketing, the overall marketing will need to be considered to determine if sunscreen is the principally marketed use.

Representations that a product has particular features such as being a moisturiser or tint usually amount to representation of additional uses rather than merely improvements to use as sunscreen. However, where such representations are not prominent and occur specifically in addressing barriers to the use of the product as sunscreen then it is possible they may only amount to being a complementary feature.

Determining whether these characteristics or features are marketed as a separate use of the product or complimentary to use as a sunscreen requires an objective assessment of the marketing of the product.

Where the overall impression of a products marketing is that:

• the main/chief marketed use is something other than sunscreen,
• the sunscreen use and the other use/s are evenly marketed, or
• no clear conclusion of sunscreen as the main/chief marketed use can be reached,

the product will not be one that is marketed principally for use as sunscreen and will not be GST-free.

Application of indicators to each of the products

The Products in question each possess the following distinguishing qualities in common with the class or genus of 'sunscreen preparations':

• is for dermal application being presented as a lotion or cream to be applied topically to the skin
• has a sun protection factor (SPF) of 50+ which is more than SPF 15 (Item 5(b) satisfied)
• displays an AUST L number (ARTG number) identifying it as a therapeutic good regulated by the TGA requiring entry into the ARTG (section 5(b) satisfied).

Factors in determining whether each of the Products are marketed principally for use as sunscreen are considered in relation to each product below.

Marketed principally for use as a sunscreen

Question 1 product 1

Having had regard to the total marketing process and those individual factors in that process whereby Product 1 is put on the market for sale the overall impression is that Product 1 is marketed principally for use as sunscreen.

As Product 1 meets the requirements of a sunscreen preparation for dermal application that is marketed principally for use as sunscreen (Item 5(a)) with an SPF of more than 15 (Item 5(b)) Product 1 is specified in Item 5.

Conclusion

As Product 1 satisfies the requirements under section 5 of being a good of a kind that is

• specified in an item (Item 5) of the table in Schedule 1 and
• required, or in a class of goods required to be included in the ARTG under the TG Act

Product 1 is the supply of a GST-free other health good of a kind determined for the purposes of subsection 38-47(1) of the GST Act.

Question 2 product 2

Whilst there is marketing of Product 2 as sunscreen, having regard to the total marketing process and those individual factors in that process whereby Product 2 is put on the market for sale, the overall impression is that Product 2 is not marketed principally for use as sunscreen and does not satisfy the requirement of Item 5(a) of Schedule 1 to the Determination.

Conclusion

As Product 2 does not satisfy the requirements under section 5 of the Determination of a good of a kind that is specified in an item (Item 5) of the table in Schedule 1 to the Determination, Product 2 is not a GST-free other health good for the purposes of subsection 38-47(1) of the GST Act.

Question 3 product 3

Having had regard to the total marketing process and those individual factors in that process whereby Product 3 is put on the market for sale, the overall impression is that Product 3 is not marketed principally for use as a sunscreen and as such does not satisfy the requirement of Item 5(a) of Schedule 1 to the Determination.

Conclusion

As Product 3 does not satisfy the requirements under section 5 of the Determination of a good of a kind that is specified in an item (Item 5) of the table in Schedule 1 to the Determination, Product 3 is not a GST-free other health good for the purposes of subsection 38-47(1) of the GST Act.

Question 4 Product 4

Having regard to the total marketing process and those individual factors in that process whereby Product 4 is put on the market for sale, the overall impression is that Product 4 is not marketed principally for use as sunscreen and as such does not satisfy the requirement of Item 5(a) of Schedule 1 to the Determination.

Conclusion

As Product 4 does not satisfy the requirement under section 5 of the Determination of goods of a kind that is specified in an item (Item 5) of the table in Schedule 1 to the Determination, Product 4 is not a GST-free other health good for the purposes of subsection 38-47(1) of the GST Act.

This ruling is only applicable to the products as described in the scheme outlined in the facts and associated appendices.

[1] Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329; Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6.

[2] Lansell House Pty Ltd v Commissioner of Taxation [2010] FCA 329 at [19]; Lansell House Pty Ltd v Commissioner of Taxation [2011] FCAFC 6 at [30].

[3] Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 9 June 2023.

[4] ARPANSA is the Australia Government's primary authority on radiation protection and nuclear safety. https://www.arpansa.gov.au/ Webpage viewed 9 June 2023. The ARPANSA web site contains Advice on reducing health effects associated with ultraviolet radiation exposure from the sun. Sun protection | ARPANSA https://www.arpansa.gov.au/understanding-radiation/radiation-sources/sun-radiation Webpage viewed 9 June 2023.

[5] Sun protection using sunscreens | ARPANSA Webpage viewed 9 June 2023 https://www.arpansa.gov.au/understanding-radiation/radiation-sources/more-radiation-sources/sun-protection-sunscreen.

[6] https://www.arpansa.gov.au/understanding-radiation/radiation-sources/sun-radiation.

[7] Sun protection using sunscreens | ARPANSA Webpage viewed 9 June 2023 https://www.arpansa.gov.au/understanding-radiation/radiation-sources/more-radiation-sources/sun-protection-sunscreen.

[8] About sunscreen | Cancer Council viewed 9 June 2023 https://www.cancer.org.au/cancer-information/causes-and-prevention/sun-safety/about-sunscreen.

[9] TGA Australian Regulatory Guidelines for Sunscreens (V2 July 2021) at page 12.

[10] Cascade Brewery Company Pty Limited v Commissioner of Taxation [2006] FCA 821 at [24].

[11] Cascade Brewery Company Pty Limited v Commissioner of Taxation [2006] FCA 821 at [11].

[12] Cascade Brewery Company Pty Limited v Commissioner of Taxation [2006] FCA 821 at [61].

[13] TGA Australian Regulatory Guidelines for Sunscreens (V2 July 2021) at page 10.