Edited version of private advice

Authorisation Number: 1052377239875

Date of advice: 30 April 2025

Ruling

Subject: GST and compression garments

Question 1

Is your supply of XXXX garments (type 1) GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of XXXX garments (type 1) is GST-free under subsection 38-45(1) of the GST Act.

Question 2

Is your supply of XXXX garments (type 2) GST-free under subsection 38-45(1) of the GST Act?

Answer

No, your supply of XXXX garments (type 2) is not GST-free under subsection 38-45(1) of the GST Act they are a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

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

You sell on-line a selection of XXXX, and XXXX recovery garments.

Type 1 garments

The garments are marketed and sold as a therapeutic aid for XXXX recovery.

The type 1 garments are designed with medical-grade compression panels to provide support and relief for specific XXXX conditions.

Type 2 garments

The type 2 garments have a compression design to support the XXXX and back throughout XXXX.

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 38-45

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

Reasons for decision

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.

For your supply of the garments to be a taxable supply, all the requirements listed in section 9-5 of the GST Act must be satisfied.

In this case, you supply the garments for consideration, the supply is made in the course of your enterprise, the supply is made in Australia, and you are registered for GST. Therefore, your supply of the garments meets the requirements listed in paragraphs 9-5(a) to 9-5(d) of the GST Act.

There are no provisions in the GST Act that will make your supply input taxed. As such, we must consider whether your supply of the garments are GST-free under Division 38 of the GST Act.

Question 1

Is your supply of XXXX garments (type 1) GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Detailed reasoning

Section 38-45 of the GST Act outlines the circumstances in which the supply of certain medical aids and appliances will be GST-free.

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.

All the above requirements must be satisfied for the supply of a medical aid or appliance to be GST-free. A medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act will be GST-free all the way down the supply chain and not only when supplied to a person with an illness or disability.

However, pursuant to subsection 38-45(3) of the GST Act, a supplier and purchaser can agree to treat the supply as if it were a taxable supply.

Medical aid covered by the GST Regulations

For the purposes of paragraph 38-45(1)(a) of the GST Act, item 7 of the table in subsection 38-45.01(1) of the GST Regulations specifies a 'compression garment.'

We consider 'compression garment' to mean a covering designed to be worn or applied to a particular part of the body which exerts sufficient pressure on the wearer to be of therapeutic benefit. We accept that the type 1 garments falls within this meaning of compression garment. Therefore, paragraph 38-45(1)(a) of the GST Act is satisfied.

Medical aid specifically designed for, and not used by people without, an illness or disability

To satisfy paragraph 38-45(1)(b) of the GST Act, a compression garment must be both:

•                     specifically designed for people with an illness or disability; and

•                     not widely 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 consideration of the product itself, its design objectives, and both its intended and actual usage.

The Commissioner's view on subsection 38-45(1) of the GST Act 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 2021/2 is made in the context of bedding products for people with disabilities, the principles discussed are applicable to other products that may be considered under subsection 38-45(1) of the GST Act.[1]

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.[2]

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'.[3] 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.

The question here is, is there a design focus on people with an illness or disability and some special design feature for people with an illness or disability?

Paragraph 7 of GSTD 2021/2 provides:[4]

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. 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.

We consider that XXXX itself is not an illness or disability for the purposes of section 38-45 of the GST Act. However, XXXX and XXXX can lead to a number of health conditions that could be considered an illness or disability for the purposes of section 38-45 of the GST Act.

For the XXXX garments (type 1) to satisfy paragraph 38-45(1)(b) of the GST Act, they must be both specifically designed for people with an illness or disability; and not widely used by people without an illness or disability.

The type 1 garments are intended to provide continuous support, graduated compression and relief of pain associated with XXXX and post-operative wounds.

We consider given their essential character the type 1 garments are specifically designed for people with an illness or disability resulting from XXXX. Given the design, intended use and marketing we do not consider that the type 1 garments are widely used by people without an illness or disability. Therefore, the requirements of paragraph 38-45(1)(b) of the GST Act are satisfied.

Conclusion

The supply of the type 1 garments is GST-free under subsection 38-45(1) of the GST Act.

Question 2

Is your supply of Type 2 garmentsGST-free under subsection 38-45(1) of the GST Act?

The first issue to consider is whether the garments meet the definition of a 'compression garment' as listed at item 7 of the table in subsection 38-45.01(1) of the GST Regulations.

We consider that the type 2 garments do satisfy the requirements of a 'compression garment.' Therefore, paragraph 38-45(1)(a) of the GST Act is satisfied.

To satisfy paragraph 38-45(1)(b) of the GST Act, a compression garment must be both:

•                     specifically designed for people with an illness or disability; and

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

In determining whether the type 2 garments are designed for people with an illness or disability it is necessary to examine the design features and characteristics of the product which indicate whether its essential character is that of being specifically designed for people with an illness or disability.

As discussed above we do not consider that XXXX itself to be an illness or disability for the purposes of section 38-45 of the GST Act.

The type 2 garments are designed with a level of compression that is of therapeutic benefit to XXXX women.

The design features of the type 2 garments are support of the XXXX and back support. This support allows XXXX women to exercise and feel more comfortable during XXXX. Whilst these compression garments can be beneficial for XXXX women they are not designed for people with an illness or disability.

Conclusion

Compression garments that are not specifically designed for people with an illness or disability do not satisfy subsection 38-45(1) of the GST Act.

Therefore, the supply of these garments is not GST-free. The sale of the type 2 garments will be a taxable supply under section 9-5 of the GST Act.

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

[2] 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].

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

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