Edited version of private advice

Authorisation Number: 1052335714342

Date of advice: 26 November 2024

Ruling

Subject: GST-free supply

Question 1

Are you making a GST-free supply, under section 38-7 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act), when you supply surgery for the treatment of a disease, when a Medicare benefit is payable?

Answer

Yes. You are making a GST-free supply, under section 38-7 of the GST Act, when you supply surgery for the treatment of a disease, when a Medicare benefit is payable.

Question 2

Are you making a GST-free supply under section 38-7 of the GST Act, when you supply surgery for the treatment of a disease where no Medicare benefit is payable?

Answer

No. You are not making a GST-free supply, under section 38-7 of the GST Act, when you supply surgery for the treatment of the disease where no Medicare benefit is payable.

Question 3

Are you making a GST-free supply, under section 38-7 of the GST Act, when you supply surgery for treatment of the disease where no Medicare benefit is payable and the surgery is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of the patient's psychiatric condition?

Answer

Yes, you are making a GST-free supply, under section 38-7 of the GST Act, when you supply surgery for the treatment of a disease where no Medicare benefit is payable and the surgery is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of the patient's psychiatric condition.

This ruling applies for the following period:

XX November 2024 to XX November 2028

Relevant facts and circumstances

You are registered for GST.

You operate a health clinic that offers medical services to people with health issues. These services include surgery.

You conduct a full clinical consultation, and this is done by an Australian Health Practitioner Regulation Agency (AHPRA) registered doctor before every procedure and all post operative consultations are done by AHPRA registered nurses. Only patients that are deemed suitable are then booked in for a procedure. These consultations are integral to the treatment process, and you ensure that these consultations address the patient's psychological needs as well as their physical treatment.

The surgery is performed fully by AHPRA registered medical practitioners and nurses. While the surgical procedure enhances physical appearance, its primary purpose is to address the significant mental health challenges stemming from the emotional and psychological toll of the effected area. The portion of the patient's body which has been affected due to the disease causes visible changes to a patient's body which can be easily observed by others. For many patients, the stigma associated with changes due to the disease can lead to a decline in their psychological wellbeing. Your focus is on alleviating this distress, helping patients regain their confidence and improve their overall mental health.

The disease is included in the International Classification of Diseases classification codes under the ICD-10 classification by the World Health Organization and affects both males and females.

The symptoms of a person with the disease can have differing effects as each person's sensitivity to the disease differs due to a number of factors.

The disease is managed with prescription medication approved by the Therapeutic Goods Administration in Australia and with surgery.

You do not perform surgery on persons under 18 years of age.

The surgery to treat the disease is payable under a Medicare benefit where classes of people suffer from a version of this disease that is excluded from claiming this Medicare benefit.

You provide surgery to women and men. In some cases, you provide surgery to a person who has been referred by a psychologist or psychiatrist.

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 subsection 38-7 (2)

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

Reasons for decision

All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise noted.

Medical service

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

Section 195-1 of the GST Act defines a 'medical service' to mean:

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

(b) 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 definition of a 'medical service' has two limbs. Any service that falls within either the first or second limb of the definition is GST-free.

First limb

A service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973, is GST-free under the first limb of the definition.

Second limb

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

The first element is that the service must be supplied by or on behalf of a medical practitioner or an approved pathology practitioner as defined.

The second element is that the service supplied must be generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

Medical services that are not GST-free

Under subsection 38-7(2) of the GST Act, a supply of a medical service is not GST-free under subsection 38-7(1) of the GST Act if:

(a) it is a supply of a *professional service rendered in prescribed circumstances within the meaning of regulation 14 of the Health Insurance Regulations made under the Health Insurance Act 1973 (other than the prescribed circumstances set out in regulations 14(2)(ea), (f) and (g); or

(b) it is rendered for cosmetic reasons and is not a *professional service for which Medicare benefit is payable under Part II of the Health Insurance Act 1973.

Surgery where Medicare benefit is payable

You supply surgery to patients who receive a Medicare benefit. Therefore, your supply to patients in this circumstance satisfies the first limb of the definition of a medical service. As such, the supply of surgery where a Medicare benefit is payable is a GST-free supply of a medical service under subsection 38-7(1) of the GST Act.

Surgery to treat a disease where no Medicare benefit is payable

As a Medicare benefit is not payable for the surgery in certain circumstances, we need to examine whether the surgery is GST-free under the second limb subsection 38-7(1) of the GST Act and if it is excluded by subsection 38-7(2) of the GST Act.

The second limb of subsection 38-7(1) of the GST Act provides a number of elements all the elements must be satisfied before a service is a GST-free medical service under this limb.

The first element is that the service must be supplied by or on behalf of a medical practitioner or an approved pathology practitioner as defined.

The second element is that the service supplied must be generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

You conduct a full clinical consultation of the patient, and this is done by an Australian AHPRA registered doctor before every procedure and all post op consultations are done by AHPRA registered nurses. Only patients that are deemed suitable are then booked in for a procedure. These consultations are integral to the treatment process, and you ensure that these consultations address the patient's psychological needs as well as their physical treatment. Given this, we consider that the second limb of subsection 38-7(1) of the GST Act is satisfied.

Exclusions to a supply being a GST-free medical service

One of the elements in paragraph 38-7(2) of the GST Act that excludes a medical service from being GST-free is a medical service rendered for cosmetic reasons.

The public ruling Goods and Services Tax Industry Issues Health Industry PartnershipMedical services rendered for cosmetic reasons in paragraphs 6, 7, 8 and 9 states:

6. The term 'cosmetic reasons' is not defined in the GST Act. It is considered the term will take on its ordinary meaning. The Macquarie Concise Dictionary defines 'cosmetic' as:

a. 'serving to beautify: imparting or improving beauty, especially of the complexion:

b. designs to effect a superficial alteration while keeping the basis unchanged'.

7. A '*medical service' will be 'rendered for cosmetic reasons' if it is predominantly performed for, or is rendered for the purpose of permitting, the improvement of the personal appearance of a patient, such as a face-lift. Whether a service is for cosmetic reasons must be evaluated on a case by case basis. Procedures that alter or enhance a patient's appearance but have no medical or reconstructive purpose are considered to be cosmetic and are taxable.

8. However, a procedure that is performed for medical or reconstructive reasons is not cosmetic and is GST-free. An example of this is skin grafting performed on a burn victim. A procedure will be for medical reasons if it is predominantly performed for, or is rendered for the purpose of permitting, the alteration of a significant defect in appearance caused by disease, trauma or congenital deformity and:

a. it is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of a psychiatric condition, of that patient, or

b. the patient is less than 18 years of age and a defect is in an area of the body, which normally and usually would not be clothed.

9. Section 38-7(2)(b) also refers to the Medicare benefit as being 'payable'. It is considered that the term 'payable' as it appears in the section is satisfied if the service is one that could be submitted to Medicare as payable.

We consider that your supply of surgery in treatment of the disease is performed for cosmetic reasons as it is predominantly performed for, or is rendered for the purpose of permitting, the improvement of the personal appearance of a patient. Whilst it is a procedure that is rendered for the purpose of permitting the alteration of a significant defect in appearance caused by disease, it has not been recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of a psychiatric condition, of that patient. As such, subsection 38-7(2) of the GST Act excludes the medical service from being GST-free under subsection 38-7(1) of the GST Act, due to it being rendered for cosmetic reasons. Your supply of surgery for treating the disease is a taxable supply.

Surgery in treatment of the disease where the procedure is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing of the patient

As stated above the supply of a procedure that is performed for medical or reconstructive reasons is not cosmetic and is GST-free. A procedure will be for medical reasons if it is predominantly performed for, or is rendered for the purposes of permitting the alteration of a significant defect in appearance caused by disease, trauma or congenital deformity andit is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing or for the appropriate treatment of a psychiatric condition, of that patient. Surgery for treatment of the disease where the surgery is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of the patient's psychiatric condition, is GST-free.