Edited version of private advice

Authorisation Number: 1052323146858

Date of advice: 1 November 2024

Ruling

Subject: GST and medical services

Question 1(a)

Will the supply by Entity A to Entity B of specified services, pursuant to an agreement, be GST-free under subsection 38-7(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where a Medicare benefit is payable to the patient?

Answer

No. The supply by Entity A to Entity B, pursuant to an agreement, will not be GST-free under subsection 38-7(1) of the GST Act where a Medicare benefit is payable to the patient.

Question 1(b)

Will the supply made by Entity A to Entity B, pursuant to an agreement, be GST-free under subsection 38-7(1) of the GST Act when no Medicare benefit is payable to the patient because the payment is made by a third party payer?

Answer

No. The supply made by Entity A to an Entity B, pursuant to an agreement, will not be GST-free under subsection 38-7(1) of the GST Act when no Medicare benefit is payable to the patient because the payment is made by a third party payer.

This ruling applies for the following period:

Four years from date of issue of private ruling

Relevant facts and circumstances

Entity A is registered for goods and services tax(GST).

Entity A intends to enter into agreements with other entities relating to the provision of specified services to patients.

Entity A provided a copy of a draft Agreement between Entity A and Entity B.

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 38-7(1)

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

Reasons for decision

Question 1(a)

Will the supply by Entity A to Entity B pursuant to the draft Agreement, be GST-free under subsection 38-7(1) of the GST Act where a Medicare benefit is payable to the patient?

Summary

No. The supply by Entity A to Entity B pursuant to the draft Agreement is made between business entities and, therefore, the supply of Entity A's services do not fall within the definition of a medical service. Consequently, the supply will not be GST-free under subsection 38-7(1) of the GST Act.

Detailed reasoning

Under subsection 38-7(1) of the GST Act, the supply of a medical service is GST-free.

A medical service is defined in section 195-1 of the GST Act to mean:

•         a service for which Medicare benefit is payable under Part II of the Health Insurance Act 1973; or

•         any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

Based on the information provided, including the terms of the draft Agreement, Entity A is supplying the specified services to Entity B.

The services Entity A is supplying to Entity B are made between business entities and therefore, the supply of Entity B's services will not fall within the definition of a medical service that will be GST-free under subsection 38-7(1) of the GST Act. This is so even if a Medicare benefit is payable for the supply from Entity B to the patient.

Entity A contends that the arrangement is consistent with the Grandma's flowers scenario set out in paragraph 118 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). In Grandma's flowers, A enters into a contract with B for B to provide goods to C. A is an individual, B is a florist, the goods are flowers, and C is A's grandmother:

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Paragraphs 120 to 122 of GSTR 2006/9 then explain the contractual relationship in the Grandma's flowers scenario:

120. In Grandma's flowers there is no contractual relationship between A and C. Also, there is no contractual relationship between B and C. B simply provides flowers to C on A's behalf.

121. If you take a contractual approach in analysing the arrangement in Grandma's flowers, then the only contractual relationship is between A and B. Under this contract B makes a supply of flowers to A and consideration is paid by A to B. That supply is provided by B to C:

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We do not agree with this analysis. Under the terms of the draft Agreement, Entity B is contracting with Entity A for Entity A to supply Entity B with the specified services to enable Entity B to supply services to Entity B's own patients. This is not consistent with a Grandma's flowers scenario.

Different outcomes can arise depending on the particular contractual arrangements (i.e. who is contracting who). In other scenarios, medical practices engage the medical practitioners to supply medical services to the medical practices' patients. This is explained in the ATO web guidance 'Recipient of the supply' (QC16263) under the heading 'Arrangements between clinics and health practitioners'.

Paragraph 155 of GSTR 2006/9 states that under the GST health provisions in Subdivision 38-B of the GST Act, generally the supply is only GST-free where an individual receiving that service or specific health treatment is the recipient of that supply. There are some limited exceptions to this such as section 38-45 of the GST Act, under which supplies of GST-free medical aids and appliances are GST-free at all points in the supply chain. However, section 38-7 of the GST Act is not one of the exceptions specified in GSTR 2006/9. This outcome results from the specific wording in some health provisions, whilst in other provisions it is due to the nature of the services themselves.

With respect to the payment of Medicare benefits, these belong to patients who can then assign them to medical practitioners. When Medicare pays a medical practitioner/medical practice a Medicare benefit, the payment is made on behalf of the patient, for the service supplied to the patient. They are not paid for services supplied from one business entity to another.

As such, Entity A's supply of the specified services to Entity B will not be GST-free under subsection 38-7(1) of the GST Act.

Question 1(b)

Will the supply made by Entity A to Entity B, pursuant to the draft Agreement, be GST-free under subsection 38-7(1) of the GST Act when no Medicare benefit is payable to the patient because the payment is made by a third party?

Summary

No. The supply made by Entity A to Entity B pursuant to the draft Agreement will not be GST-free under subsection 38-7(1) of the GST Act when no Medicare benefit is payable to the patient because the payment is made by a third party.

Detailed reasoning

Since no Medicare benefit is payable in this scenario, the answer to this question turns on whether the second limb of the definition of medical service in section 195-1 of the GST Act is satisfied in relation to the services supplied by Entity A to Entity B. The second limb of the definition provides that a medical service is:

• any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

The second limb of the definition of medical service contains a number of elements. All of these elements must be satisfied before a service is a medical service or part of a medical service under the second limb.

One of the elements is that the service must be 'for the appropriate treatment of the recipient of the supply'.

Section 195-1 defines 'recipient' in relation to a supply to mean the entity to which the supply was made. 'Appropriate treatment' does not include supplies made to business entities since they do not encompass the concept of treatment.

Paragraph 155 of GSTR 2006/9 confirms that under the GST health provisions in Subdivision 38-B of the GST Act, the supply is only GST-free where an individual receiving that service or specific health treatment is the recipient of that supply, subject to certain exceptions. Subsection 38-7(1) of the GST Act is not one of those exceptions. This means that a GST-free supply of a medical service cannot be made to a business entity.

Under the draft Agreement, the nature of the supply by Entity A to Entity B is not 'appropriate treatment of the recipient of the supply' because the recipient of the supply is Entity B. The supply from Entity A to Entity B does not satisfy the second limb of the definition of a 'medical service' and, therefore, will not be GST-free under subsection 38-7(1) of the GST Act.