Edited version of private advice

Authorisation Number: 1052318079948

Date of advice: 7 November 2024

Ruling

Subject: GST - supply of product

Question 1

Is your supply of the Product a GST-free under subsection 38-45(1) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer 1

No, your supply of the Product is not GST-free under subsection 38-45(1) of the GST Act because it is not specifically designed for people with an illness or disability and is widely used by people without an illness or disability.

Question 2

Is your supply of the Product Accessory GST-free under subsection 38-45(2) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer 2

No, your supply of the Product Accessory is not GST-free under subsection 38-45(1) of the GST Act because it is not specifically designed for a medical aid and accessory that is GST-free under subsection 38-45(1) of the GST Act and it is a generic component that is not a 'spare part' for the purposes of subsection 38-45(2) of the GST Act.

This ruling applies for the following period:

DD MMM 20YY to DD MMM 20YY

Relevant facts and circumstances

You are registered for GST.

You sell a range of Product and Product Accessory online.

You imported the Product and Product Accessory from an overseas manufacturer.

The Product is designed to deliver a substance.

The Product is marketed and for recreational and lifestyle use. The Product has also been marketed for use with substance.

Although the Product is marketed and branded differently, the device has the same function, dimensions and characteristics.

The Product Accessory is not required to use or operate the Product. The Product Accessory may be used with other Products produced by the manufacturer.

Relevant legislative provisions

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

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

A New Tax System (Goods and Service Tax) Act 1999 subdivision 38-B

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

A New Tax System (Goods and Service Tax) Act 1999 schedule 3

Reasons for decision

Question 1

Is your supply of the Product a GST-free supply of a Product and Product Accessory under subsection 38-45(1) of the GST Act?

Detailed reasoning

You are liable to pay GST on any taxable supply you make.[1] Section 9-5 of the GST Act provides that you make a taxable supply if:

(a) you make the 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.

You are registered for GST. You sell the Product for consideration as part of the enterprise you are carrying on. The sales are made in Australia. Therefore, the requirements under section 9-5 of the GST Act and your supply of the Product is taxable.

There are no provisions in the GST Act that would make your supply of the Product input taxed.

Therefore, we must consider whether your supply is GST-free under Division 38 of the GST Act. If you do not satisfy one of the provisions under that Division of the GST Act, you will be required report and pay GST on your supply of the Product.

GST-free supplies

Subdivision 38-B of the GST Act sets out the supply of health services and medical goods that are GST-free. 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 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.

For your supply of the Product to be GST-free under subsection 38-45(1) of the GST Act, it must be:

•                     listed in the table in Schedule 3 to the GST Act (Schedule 3) or in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations)

•                     specifically designed for people with an illness or disability and

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

However, before considering whether these requirements are satisfied, we must determine whether the differently marketed and branded Product are the same device or 'thing' for the purposes of subsection 38-45(1) of the GST Act.

Are the differently marketed and branded Product accessories the same 'thing'?

Whether the 'thing supplied' for the purposes of paragraph 38-45(1)(b) of the GST Act is the same or different from another item will depend on the facts and circumstances in each case.

While not definitive, we take an objective view of the physical functions, characteristics and attributes of the devices to determine if they share or have identical physical functions, characteristics and attributes, irrespective of their labelling, description or marketing.

Despite having different branding and marketing materials, we consider that the Product are the same 'thing'.

Both devices are intended to deliver a substance. The Product have the same appearance, dimensions, specifications and basic functionality. Any differences between the devices relate to how they are marketed and branded.

Therefore, we consider that the Product are the same 'thing' for the purposes of paragraph 38-45(1)(b) of the GST Act. Accordingly, the Product must be taken together in determining whether the 'specifically designed' and 'not widely used' tests under paragraph 38-45(1)(b) of the GST Act are satisfied.

Specifically designed for and not used by people without, an illness or disability

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.[2]

'Specifically designed' test

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:[5]

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.

The essential character of the Product is to deliver a substance. The Product is marketed for general and recreational use, as well as incidental medical use.

Therefore, the Product has no particular design focus or special design feature for people with an illness or disability. The Product is sold via outlets that generally sell and market non-medical devices and accessories for general and recreational use.

Accordingly, the item does not meet the 'specifically designed for' test under paragraph 38-45(1)(b) of the GST Act.

'Not widely used' test

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:[6]

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.

As discussed above, the marketing material for the Product emphasises the recreational and lifestyle use of the product. The Product sold via outlets that sell and market non-medical devices and accessories for general and recreational use. Notwithstanding the fact that the Product is marketed and branded as a device to be used for medicinal purposes, taken as whole, the device is marketed and retailed for use by people without an illness or disability.

Accordingly, the item does not meet the 'not widely used' test under paragraph 38-45(1)(b) of the GST Act.

Conclusion

The Product is not specifically designed for people with an illness or disability is widely used by people without an illness or disability. Therefore, your supply of the Product is taxable under section 9-5 of the GST Act. You are liable to pay and report GST on your supply of the Product.

Question 2

Is your supply of the Product Accessory a GST-free supply of a spare part under subsection 38-45(2) of the GST Act?

Detailed reasoning

Subsection 38-45(2) of the GST Act states:

(2)

A supply is GST-free if the thing supplied is supplied as a spare part for, and is specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection (1).

Goods and Services Tax Industry Issues Pharmaceutical Health Forum Spare parts for medical aids and appliances (Pharmaceutical Health Forum Issue 1.G) explains the Commissioner's view on what a 'spare part' is for the purposes of subsection is 38-45(2) of the GST Act:[7]

1. A spare part is a part which has been specifically designed to replace a faulty, worn, or broken part of a medical aid or appliance.

2. Spare parts which are specifically designed as spare parts for a GST-free medical aid or appliance, are GST-free at all points in the supply chain. That is, it is not necessary to determine to whom or for what the part is being supplied. Provided the part has been specifically designed to replace a faulty, worn, or broken part of a GST-free medical aid or appliance, the supply of that part will be GST-free under subsection 38-45(2) at all stages of the supply chain.

3. For example, rubber stoppers are generic devices designed for various uses, such as stoppers for the bottom of a steel chair. Therefore as rubber stoppers are not specifically designed for use as a spare part for walking sticks, they are not GST-free as a spare part for a medical aid or appliance.

ATO Interpretative Decision ATO ID 2001/216 Goods and Services Tax GST and spare parts for medical aids and appliances (ATO ID 2001/216) considers the application of subsection 38-45(2) of the GST Act where the part is a generic component designed for various uses. The Commissioner's view is that you cannot make a GST-free supply under subsection 38-45(2) of the GST Act when you supply a part for a GST-free Product Accessory, where that part is a generic component designed for various uses. Specifically, ATO ID 2001/216 states:

However, as the spare part is a generic component that can be used as a spare part for many appliances, it is considered that it is not specifically designed as a spare part for the GST-free medical aid in question. Therefore, as the supply does not meet the second requirement in subsection 38-45(2) of the GST Act, the entity is not making a GST-free supply of a spare part.

Accordingly, for your supply of the Product Accessory to be GST-free under subsection 38-45(2) of the GST Act it must be:

•                     specially designed as a spare part for a medical aid and appliance that is GST-free under subsection 38-45(1) of the GST Act; and

•                     supplied as a spare part which has been specifically designed to replace a faulty, worn, or broken part of a Product for a Product Accessory and appliance that is GST-free under subsection 38-45(1) of the GST Act.

As per the reasons under Question 1 above, the Product Accessory is not a GST-free supply of a medical aid and appliance under subsection 38-45(1) of the GST Act as it is not specifically designed for people with an illness or disability and is widely used by people without an illness or disability.

Therefore, the supply of the Product Accessory cannot be GST-free under subsection 38-45(2) of the GST Act because it is not a part for a medical aid and appliance that is GST-free under subsection 38-45(1) of the GST Act. Your supply of the Product Accessory is taxable, and you are liable to pay and report GST on these supplies.

However, for completeness, we have considered whether the Product Accessory is a 'spare part' for the purposes of subsection 38-45(2) of the GST Act.

A spare part

As discussed above, the Commissioner's view is that a 'spare part' must be specifically designed to replace a faulty, worn, or broken part of a medical aid or appliance. The 'spare part' may also enhance or improve the faulty, worn or broken part.[8]

The Product Accessory is an optional accessory which can be pre-filled with substance. The device can be used without the Product Accessory. The Product Accessory is also designed to be compatible with all of the manufacturer's devices.

Although the Product Accessory can be used with the Product, we do not consider the Product Accessory is a spare part as it is not specifically designed to replace a faulty, worn, or broken part of the Product. Relevantly, the Product can be operated without using or requiring the Product Accessory. We consider that the Product Accessory is a generic component that can be used as an optional accessory for a range of the manufacturer's devices.

Notwithstanding the fact that the Product Accessory cannot be GST-free under subsection 38-45(2) of the GST Act because the Product is not GST-free medical aid and appliance, we also consider that Product Accessory is not specifically designed as a 'spare part'. Rather, the Product Accessory is a generic part that can be used for several of the manufacturer's devices.

Therefore, the Product Accessory is not GST-free under subsection 38-45(2) of the GST Act and is taxable. You are liable to pay and report GST on your supply of the Product Accessory.

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

[2] See also Goods and Services Tax Industry Issues Pharmaceutical Health Forum Medical aid or appliance specifically designed for people with an illness or disability and Goods and Services Tax Industry Issues Pharmaceutical Health Forum Medical aid or appliance widely used by people without an illness or disability.

[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] See also Goods and Services Tax Industry Issues Pharmaceutical Health Forum Medical aid or appliance specifically designed for people with an illness or disability.

[6] See also Goods and Services Tax Industry Issues Pharmaceutical Health Forum Medical aid or appliance widely used by people without an illness or disability.

[7] See also paragraph 11 of GSTD 2021/2 which also provides that 'a spare part is a part which has been specifically designed to replace a faulty, worn or broken part of a medical aid or appliance'.

[8] See paragraph 11 of GSTD 2021/2.