ATO ID 2001/508: GST and supply of hip prostheses to a hospital
Date of decision: 31 August 2001
Business line: Indirect Tax

Issue
Is the entity, a supplier of health goods, making a GST-free supply under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a hip prosthesis to a hospital?

Decision
No, the entity is not making a GST-free supply under subsection 38-45(1) of the GST Act when it supplies a hip prosthesis to a hospital. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a supplier of health goods. The entity sells a hip prosthesis to a hospital. A hip prosthesis is an artificial hip that is surgically implanted by a medical practitioner. The entity is registered for goods and services tax (GST). The supply satisfies the other positive elements of section 9-5 of the GST Act.

Reasons for decision
Summary: Under subsection 38-45(1) of the GST Act, the supply of a medical aid or appliance is GST-free where the medical aid or appliance: The only listed item of relevance to this case is item 83 in the table in Schedule 3 (Item 83) which lists 'artificial limbs and associated supplements and aids'. The phrase 'artificial limbs and associated supplements and aids' is not defined in the GST Act. Generally, where a word or phrase is not defined, it is usually interpreted in accordance with its ordinary meaning unless it has a special or technical meaning. Where a word or phrase has a special or technical meaning, it is necessary to determine the meaning by reference to the industry to which that word or phrase relates ( Herbert Adams Pty Ltd v FCT (1932) 47 CLR 222). After consultation with the Health Industry, it is considered that an artificial limb includes an artificial arm or leg but excludes surgically implanted prostheses (for example, artificial hips and knees). Therefore, the hip prosthesis is not covered by Item 83. As there are no other items in Schedule 3 which cover the supply of the hip prosthesis, it is not GST-free under subsection 38-45(1) of the GST Act. The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a hip prosthesis to a hospital.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 subsection 38-7(3) subsection 38-45(1) Division 40 Schedule 3 Schedule 3 table item 83
Case references: Herbert Adams Pty Ltd v FCT (1932) 47 CLR 222
Other references: Pharmaceutical Product Classification Issues Log
Subject references: Goods and services tax GST free GST health Section 38-45 - medial aids & appliances GST supplies and acquisitions Taxable supply