Edited version of private advice

Authorisation Number: 1052240854071

Date of advice: 30 April 2024

Ruling

Subject: GST - medical aids and appliances

Question

Is your supply of the products GST-free supplies of medical aids and appliances under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Your supply of the products are not GST-free supplies of medical aids and appliances under subsection 38-45(1) of the GST Act.

This ruling applies for the following period:

The scheme commenced on:

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are supplier of assistive devices for Deaf and Hard of Hearing people in Australia.

You resell the product from an overseas manufacturer.

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 subsection 38-45(1)

Reasons for decision

Detailed reasoning

Under section 9-5 of the GST Act, you make a taxable supply if:

(a) You make a supply for consideration; and

(b) The supply is made in the course or furtherance of an enterprise that you carry on; and

(c) The supply is connected with the indirect tax zone; and

(d) 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.

There are no provisions in the GST Act under which your sale of the products input taxed.

We considered whether your sale of the products may be GST-free under subsection 38-45(1) of the GST Act.

Medical aids and appliances

Division 38 of the GST Act sets out those supplies that are GST-free. Relevantly, subsection 38-45(1) of the GST Act provides that a supply of a medical aid or appliance is GST-free if:

(a) it is covered by Schedule 3 (medical aids and appliances), or specified in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations); 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.

Paragraph 38-45(1)(a) of the GST Act

With regards to the first requirement, Item 14 of Schedule 3 to the GST Act (Item 14) lists 'speech amplification/clarification aids'.

ATO Interpretative Decision ATO ID 2006/1 discusses the issue of Is the entity, a supplier of medical aids and appliances, making a GST-free supply under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a product that is a sound amplifier for people with hearing difficulties?

ATO ID 2006/1 states:

A speech amplification/clarification aid is a device that is designed to make a person's voice or sound appear larger and/or clearer and more intelligible.

From the product information provided and considered, the products are speech amplification aids. The products are covered by Item 14 and therefore paragraph 38-45(1)(a) of the GST Act is satisfied.

Paragraph 38-45(1)(b) of the GST Act

With regards to the second requirement in paragraph 38-45(1)(b), the products are only GST-free if they are:

•         specifically designed for people with an illness or disability and

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

The Commissioner's view on how the key elements under subsection 38-45(1) of the GST Act are interpreted can be found in Goods and Services Tax Determination GSTD 2021/2 Goods and services tax: adjustable beds, pressure mattresses and pressure management overlays (GSTD 2021/2). Although GSTD 2012/2 is made in the context of bedding products for people with disabilities, the principles discussed are equally applicable to any product that would be considered for GST-free treatment under subsection 38-45(1) of the GST Act.

Paragraph 7 of GSTD 2021/2 provides:

Specifically designed

7. The following factors are a non-exhaustive list of matters you should take into account when considering whether a particular product is specifically designed for people with an illness or disability:

•         An objective view of the design features and characteristics of the product indicate whether its essential character is that it is specifically designed for people with an illness or disability.

•         The designer's or manufacturer's intention of how the particular product is to be used. Indicators of the designer's or manufacturer's intention include an objective consideration of how the product is marketed and the type of outlets at which the product can be purchased.

Paragraphs 8 to 10 of GSTD 2021/2 provides:

Not widely used

8. The phrase 'not widely used' is not defined in the GST Act. It therefore takes its ordinary meaning, having regard to the context in which it appears. It is a question of degree whether a product is not widely used by people without an illness or disability. The Commissioner considers that it is reasonable to conclude that the test is not satisfied if the product is widely purchased by or on behalf of people without an illness or disability, without the need to examine how this class of people in fact use the product.

9. In the context of paragraph 38-45(1)(b), the Commissioner considers 'not widely used' to mean not used by many people who do not have an illness or disability.

10. The following factors will be relevant, but are not an exhaustive list, when considering whether a product is widely used by people without an illness or disability:

•         The product is widely sold in retail or other outlets that predominantly sell standard beds (that is, beds that do not have features specifically designed for people with an illness or disability) to the general public.

•         The marketing material for the product emphasises how it enhances the lifestyle of people without an illness or disability.

Paragraph 5.27 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 explains that 'certain aids and appliances designed for people with an illness or disability which are not of a kind ordinarily used in the wider community are GST-free.'

To determine whether the systems meet the requirement of being specifically designed for people with an illness or disability, it is necessary to have regard to the essential character of the thing. This means deciding what the goods essentially are, as distinct from merely identifying one of the characteristics the good might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for.

The products can help engage students, improve attentiveness to the teacher and are of assistance to students with a hearing impairment and may provide assistance for students with ADHD, Auditory Processing Disorder, and Autism. However, we do not consider that the products are specifically designed for people with an illness or disability. Rather the products in their design aim to amplify and clarify sound to generally benefit children in an education environment rather than being specifically designed and manufactured for a person with an illness or disability, for example a hearing impairment. The essential character of the products is sound amplification for use in schools to improve students' ability to hear what the teacher is saying.

From the information provided the products are marketed to schools as an aid for assisting all students to listen and learn more effectively in the classroom environment or remotely. The products are not marketed solely or primarily for children with a hearing impairment, auditory processing disorder, ADHD or Autism but for all children in a learning environment.

For completeness, we will address the issue of not widely used by people without an illness or disability. While the products are sold by specialist retailers and are marketed to schools, the products are widely used in the schools and purchased for the benefit of all students. Therefore, the products are widely purchased by or on behalf of people without an illness or disability.

In summary

As the requirements under paragraph 38-45(1)(b) are not satisfied, the supply of products are not a GST-free medical aid and appliances under subsection 38-45(1) of the GST Act. On the facts provided, the supply of these products will be a taxable supply under section 9-5 of the GST Act and GST will be payable.