Edited version of private advice

Authorisation number: 1052258756095

Date of advice: 10 September 2024

Ruling

Subject: GST - supply of medical aids and appliances

Question

Is the sale of the following products GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

•                     dressings impregnated with hydro gel

•                     sachets of hydro gel

•                     a burn gel tube

•                     a burn spray, and

•                     a burn kit.

Answer

The sale of the dressings are GST-free.

The sale of the following products are taxable:

•                     sachets of hydro gel

•                     burn gel tube, and

•                     burn spray.

The sale of the kit is a mixed supply

Relevant facts and circumstances

You are registered for GST.

You supply dressings impregnated with hydro gel, sachets of hydro gel, a burn spray, a burn gel in tube and a burn kit.

The dressings can be used as first response for all burns. They come in different sizes, with each size intended to be used in particular parts of the body.

The hydro gel in sachet is for minor and small spot burns, scalds and sunburns. The sachet contains a small of amount of hydro gel.

The burn gel is used for mild burns and sunburns. The packaging of the product contains a warning that it is only used for minor burns.

The burn spray is used for minor burns, scalds and sunburn. The contains an antiseptic and anti-inflammatory ingredient.

The burn kit contains a dressing, sachets and a bandage. The sachets are for small spot burns. The dressing is for larger burns. The bandage is for holding the dressing in place.

You do not have agreements with your customers not to treat the supply of the products as GST-free.

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 9-40

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

A New Tax System (Goods and Services Tax) Regulations 2019 section 38-45.01

Reasons for decision

GST is payable on a taxable supply.[1] Under section 9-5 of the GST Act, a supply is a taxable supply if:

•                     the supply is made for consideration

•                     the supply is made in the course or furtherance of an enterprise carried on by the supplier

•                     the supply is connected with Australia, and

•                     the supplier is registered, or required to be registered for GST.

The sale of your products will be taxable unless they are GST-free or input taxed. We must consider whether each of the products is GST-free.

GST-free

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

A supply is GST-free if:

(a)           it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations[2]; 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.

For a supply of a medical aid or appliance to be GST-free, all the above requirements must be satisfied.

Covered by an item in Schedule 3 or the GST Regulations

The table under subsection 38-45.01(1) of the GST Regulations lists medical aids and appliances that will be covered by paragraph 38-45(1)(a) of the GST Act.

Hydro gel is specified under paragraph (c) of item 1 in the table in subsection 38-45.01(1) of the GST Regulations.

Each of the products contain hydrogel, which is impregnated into the dressings, contained in sachets and tubes, or delivered as a spray.

As such, the products satisfy paragraph 38-45(1)(a) of the GST Act. It must then be determined if the products are specifically designed for people with an illness or disability and is not widely used by people without an illness or disability.

Specifically designed for people with an illness or disability

The terms 'illness' and 'disability' are not defined in the GST Act. However, for the purpose of paragraph 38-45(1)(b) of the GST Act, we interpret an illness or disability as a personal health condition above the level of minor or trivial involving either:

•                     the impairment of some bodily function or structure, or

•                     an activity limitation resulting from an impairment involving difficulty executing everyday activities.

Personal conditions involving either of the above may result from an illness, injury or some other cause, and those conditions may be temporary, permanent, chronic or intermittent in nature.

Examples of impairment include impairment of sight, speech, hearing, limb, mental faculties, mood or emotion, or bodily organs. Examples of activity limitation include activity limitations regarding self-care, mobility, communication, cognitive or emotional tasks, health care, reading or writing tasks, transport, household chores, property maintenance, meal preparation, or attendance at work. These examples are not exhaustive.

In determining whether a product is specifically designed for people with an illness or disability and not widely used by people without an illness or disability requires the consideration of the product itself, its design objectives, and both its intended and actual usage.

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 applicable to other products that may be considered for GST-free treatment under subsection 38-45(1) of the GST Act.

Whether an item is 'specifically designed' for people with 'illness or disability' is determined by application of the essential character test - that is, by objectively considering the design features and characteristics of the product.[3] In the context of section 38-45 of the GST Act, '... the task ... is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have'.[4] The intended use of the product is to be determined by objective consideration of all the evidence, including how it is marketed and by reference to the type of outlets through which the product is sold.

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.

Whether an item is 'not widely used' by people without an illness or disability is a question of degree and judgment. 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.

Hydro gel dressing

This product, which comes in different sizes, is essentially a dressing impregnated with gel for application to burns of various types up to a significant size. Both dimensions of the dressing and the use of the gel are indicative of an aid or appliance that is for conditions beyond the level of minor or trivial although there may be incidental use for minor or trivial conditions.

We accept that this product satisfies the requirement in paragraph 38-45(1)(b) of the GST Act. Therefore, the sale of this product is GST-free.

Hydro gel sachets

This product is gel for the treatment of burns and is supplied in sachets containing a small amount of hydro gel. The essential character of this product is that it is for conditions or impairments that would be minor or trivial. As such, the product is not specifically designed for people with an illness or disability and is widely used by people without an illness or disability.

As such, the requirement in paragraph 38-45(1)(b) of the GST Act is not satisfied. Therefore, the sale of this product is not GST-free. The sale of the product will be a taxable supply under section 9-5 of the GST Act.

Burn gel tube

The essential character of the product is that it is for the treatment of mild burns and sunburns. The product is not specifically designed for people with an illness or disability, that is, for a burn that is more than minor or trivial. Because of the use for which the product is designed, it would be widely used for people without an illness or disability.

The requirement in paragraph 38-45(1)(b) of the GST Act is not satisfied. Therefore, the supply of the burn gel tube is not GST-free under subsection 38-45(1) of the GST Act. The sale of the burn gel tube will be a taxable supply under section 9-5 of the GST Act.

Burn gel spray

The burn gel spray is used for minor burns, scalds and sunburn and delivered from a small bottle. The essential character of the product is that it is for burns that are minor or trivial; thus, the product is not specifically designed for people with an illness or disability. Because the product is not specifically designed for people with an illness or disability, it is more likely to be used widely by people without an illness or disability.

As such the requirement in paragraph 38-45(1)(b) of the GST Act is not satisfied. Therefore, the supply of the burn gel spray is not GST-free under subsection 38-45(1) of the GST Act. The sale of the burn gel spray will be a taxable supply under section 9-5 of the GST Act.

Burn kit

This product consists of three items namely the hydro gel dressing, burn gel in sachets and a bandage. Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. If a provision specifically requires different treatment of the components of the transaction, this will mean that the components must be separately recognised. In the case of the burn kit, we must determine whether the supply includes a taxable and non-taxable part.

Goods and Services Tax Ruling 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) provides guidance on how we identify whether a supply includes a taxable and non-taxable part under the GST Act.

As such, it is necessary to determine whether the supply of the product is a mixed supply or a composite supply.[5]

Paragraph 16 of GSTR 2001/8 explains that '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'. GST is only payable on the taxable part of a mixed supply.

Whereas paragraph 17 of GSTR 2001/8 explains that 'a composite supply is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part'. It is treated as a supply of a single thing. Where the dominant part of a composite supply is taxable, the whole supply is taxable.

Paragraph 59 of GSTR 2001/8 lists some indicators to determine whether a part of a supply may be integral, ancillary or incidental to the dominant part of the supply, which 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.

These factors are not exhaustive and must be applied by having regard to all the circumstances and by taking a common sense and practical approach.

By having regard to the essential character or features of the transaction, it can be ascertained whether a supply is a mixed supply or a composite supply.

In relation to the burn kit, the essential character of the transaction is the supply of burns dressing with enhancements. The bandage is used to hold the dressing if necessary. The bandage contributes to the supply of the dressing; as such, it is integral, ancillary or incidental to the supply of the dressing. Together, the supply of the dressing and the bandage is a composite supply with the dominant part being the supply of the dressing. As discussed above, the supply of the dressing is GST-free; therefore, the supply of the bandage is also GST-free.

As regards the hydro gel sachets, their intended use is for small spot burns. The instructions included in the packaging do not indicate that the sachets are to be used together with the dressing; rather, they are used for small spot burns, serving their own independent purpose and use. Therefore, we do not consider the supply of the hydro gel sachets are integral, ancillary or incidental to the supply of the dressing. The supply of the sachets is an identifiable taxable part of the supply of the burn kit.

Accordingly, the sale of the burn kit is a mixed supply consisting of:

•                     composite supply of the dressing and bandage which is GST-free, and

•                     supply of the hydro gel sachets which is taxable.

As the sale of the burn kit is a mixed supply, you must apportion the consideration for the supply to calculate the GST payable on the taxable part of the supply. GSTR 2001/8 gives guidance on apportionment methods you can use.

[1] Section 9-40 of the GST Act.

[2] 'Schedule 3' refers to Schedule 3 to the GST Act and 'regulations' refers to the GST Regulations.

[3] As considered in the sales tax case of Commissioner of Taxation of the Commonwealth of Australia v Thomson Australian Holdings Pty Ltd [1989] FCA 382 at [4].

[4] Snugfit Australia Pty Ltd and Commissioner of Taxation [2013] AATA 802 at [10].

[5] The terms 'mixed supply' and 'composite supply' are not found in the GST Act. However, these terms are used to identify whether a supply has taxable and non-taxable components which, in turn, informs the extent to which a supply may be a taxable supply.