GST issues registers

Pharmaceutical health forum

Issue 1. Section 38-45 Medical aids and appliances

Non-interpretative - straight application of the law.

Explanation

Section 38-45 provides that where the elements of that section are satisfied, a medical aid or appliance listed in Schedule 3 or specified in the regulations is GST-free.

The elements of subsection 38-45(1) require that the medical aid or appliance be:

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covered by Schedule 3 or a subsequent regulation, and

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specifically designed for people with an illness or disability, and

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not widely used by people without an illness or disability.

Once an item meets all of the above elements then its supply will be GST-free all the way down the supply chain and not only when supplied to a person who has an illness or disability. One exception to this applies and that is when the supplier and the recipient agree to treat the supply as if it were taxable pursuant to subsection 38-45(3).

Further, subsection 38-45(2) provides that a spare part that is specifically designed as a spare part for a GST-free medical aid or appliance will be GST-free.

The following questions explore what is within the concept of 'medical aid and appliance' for the purposes of section 38-45. None of the questions and answers should be read in isolation but rather as part of the whole of the information contained in this document.

(a) added, (u) updated, (w) withdrawn

1.a. What descriptions of goods has the ATO determined for the medical aids and appliances listed in the third column of Schedule 3 of the GST Act?

Non-interpretative - straight application of the law.

Certain items in the third column of Schedule 3 of the GST Act have been addressed in ATO Interpretative Decisions (ATO IDs). The ATO IDs are on the ATO Legal database and can be found be searching for '38-45'.

Supplies of these goods will be GST-free where all the requirements of subsection 38-45(1) are satisfied.

1.b. What goods have been added by regulation for the purposes of subsection 38-45(1)?

Non-interpretative - straight application of the law.

Section 38-45.01 of the GST regulations has been made which specifies the following medical aids and appliances for the purposes of subsection 38-45(1), in addition to those covered in Schedule 3 of the GST Act.

1.c. What factors should be taken into account in determining whether a medical aid or appliance is specifically designed for people with an illness or disability?

1.d. What factors should be taken into account in determining whether a medical aid or appliance is widely used by people without an illness or disability?

1.e. Subsection 38-45(1) provides that for a medical aid and appliance listed in Schedule 3 to be GST-free, it must be specifically designed for and not widely used by people without an illness or disability. Are aged persons included in 'people with an illness or disability' for the purposes of section 38-45?

Non-interpretative - straight application of the law.

It is considered that medical aids or appliances listed in Schedule 3 which are capable of being used by aged persons, satisfy the requirements that the medical aid or appliance be 'specifically designed for people with an illness or disability and not widely used by people without an illness or disability'.

For example, 'medical alert devices' are included at item 33 of Schedule 3. Medical alert devices are devices which have been designed for the purpose of alerting medical/caring personnel or an ambulance service that a person is in need of emergency medical assistance.

It is considered that medical alert devices which may be acquired by aged persons for use in the event that an illness or disability befell them, will satisfy the requirements set out in subsection 38-45(1) and be GST-free.

1.f. Are supplies of medical aids and appliances only GST-free when supplied to the person with an illness or disability?

Non-interpretative - straight application of the law.

Medical aids and appliances which satisfy all of the elements of section 38-45 are GST-free at all stages of the supply chain. There is no subjective purpose test to be applied.

1.g. What is a spare part for the purposes of subsection 38-45(2)? Are supplies of spare parts for GST-free medical aids and appliances only GST-free when supplied to the person with an illness or disability?

1.h. Are leads and attachments supplied with an item covered by Schedule 3 (such as electrodes supplied with a Transcutaneous Electrical Nerve Stimulator (TENS) machine) GST-free?

Non-interpretative - straight application of the law.

It is considered that the initial supply of electrodes for a TENS machine, form an integral part of the supply of the TENS machine, and are GST-free.

Supplies of replacement electrodes for a TENS machine are considered to be spare parts for a TENS machine which will be GST-free under subsection 38-45(2), provided that the electrodes are specifically designed as spare parts for a GST-free TENS machine.

1.i. Is the hire of goods GST-free where those same goods would be GST-free under section 38-45 if purchased?

Non-interpretative - straight application of the law.

Subsection 38-45(1) states that the supply is GST-free. The section does not require that the medical aid or appliance be purchased to be GST-free. Where the purchase of a medical aid or appliance is GST-free, it is accepted that the hire of the same medical aid or appliance will also be GST-free.

1.j. Where a person hires or purchases goods through a hospital which are not listed in Schedule 3 or specified in the regulations, will the goods be GST-free?

1.k. Are there items of suppositories which: (i) will not qualify for GST-free (supply chain) status under Schedule 3; but (ii) will qualify for GST-free (non supply chain) status under any of subsections 38-50(1), (2), (4),(4A) or (5)?

Non-interpretative - straight application of the law.

'Enemas, suppositories and applicators' are included at item 25 of Schedule 3. It is considered that only suppositories used for the relief of constipation come within this item.

In deciding on this interpretation, it was determined that there is some ambiguity created by the context within which the word 'suppositories' appears in Schedule 3. Section 182-15 provides that because interpretation of the word 'suppositories' in the context of its surrounding words is ambiguous, reference should be made to the heading in the second column in Schedule 3. In this case, the heading is 'Continence'. Accordingly, it was concluded that 'suppositories' as it appears in Schedule 3 is limited to those which are intended to relieve constipation.

Accordingly, suppositories used for the relief of constipation will be GST-free at all points in the supply chain pursuant to subsection 38-45(1). Suppositories used for a purpose other than the relief of constipation will not be GST-free at all points in the supply chain but may be GST-free where supplied to an individual for private or domestic use or consumption under section 38-50. (Refer to the explanatory section at the commencement of issue 3 which discusses the elements of section 38-50).

Suppositories used for a purpose other than for relief of constipation and which do not meet the requirements so that they are GST-free under section 38-50, will not be GST-free.

1.l. Is each supplier in the supply chain responsible for determining the GST treatment of a supply or does that responsibility rest with say the manufacturer?

Non-interpretative - straight application of the law.

For GST purposes, the responsibility to remit GST rests with the supplier. Consequently, it is not the manufacturer who decides the GST-status of the product at all points in the supply chain. Rather, each supplier in the chain must determine what the GST status of a particular product is.

By way of example, where a manufacturer supplies products to a wholesaler, the manufacturer must determine the GST status of the products being supplied to the wholesaler. Whilst the GST status of the supply from the manufacturer to the wholesaler is an indication of the GST status of the product, the wholesaler should make an independent appraisal of the GST status of the product before supplying it on to a retailer.

1.m. What meaning does the category heading in the second column in Schedule 3 of the GST Act have?

Non-interpretative - straight application of the law.

Section 182-15 of the GST Act states that the second column of the table in Schedule 3 of the GST Act is not operative. In interpreting an item in the table this column may only be considered for a purpose for which an explanatory section may be considered under subsection 182-10(2).

That is, the category heading in the second column of Schedule 3 may only be considered in interpreting an operative provision:

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in determining the purpose or object underlying the provision, or

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to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision, or

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in determining the provision's meaning if the provision is ambiguous or obscure, or

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in determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in this Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable.

For example, for the purposes of item 37 of the table in Schedule 3, it is considered that the meaning of the term 'needles and syringes' is sufficiently clear such that it is not necessary to consider the category heading in column two, 'Diabetes'. That is, the interpretation of the term 'needles and syringes' is not restricted by the 'Diabetes' category heading. Therefore, it is not only needles and syringes for use by diabetics which fall within item 37. However, it is considered that the individual items 'needles' and 'syringes' must be interpreted by reference to the fact that they are listed together. On this basis, it is considered that a needle that is not designed for use with a syringe, or a syringe that is not designed for use with a needle, will not be covered by item 37 in Schedule 3. Thus, an item such as a needle for inserting sutures is not covered by Schedule 3.

1.n. Are walking sticks GST-free?

Non-interpretative - straight application of the law.

A medical aid or appliance is GST-free where it is:

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covered by Schedule 3 or subsequent regulation, and

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specifically designed for people with an illness or disability, and

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not widely used by people without an illness or disability.

Once an item meets all of the above elements then its supply will be GST-free all the way down the supply chain and not only when supplied to a person who has an illness or disability.

Item 97 of Schedule 3 refers to 'walking sticks - specialised'. The word 'specialised' was used to exclude non-functional and purely ornamental walking sticks and to only include those walking sticks that were intended for use by ill or disabled people. This reflects the inherent nature of the items included in Schedule 3.

Accordingly, walking sticks are GST-free when they:

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aren't non-functional and purely ornamental walking sticks

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are handheld devices, the principal function of which is to assist a person to walk by taking some of the weight of that person when that person is unable to walk unaided

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have been specifically designed for people with an illness or disability and are not widely used by people without an illness or disability.

This interpretation of item 97 was made on 24 May 2001 and replaces all alternative interpretations made prior to this date.

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