ATO ID 2004/51: GST and laser vision correction surgery
Date of decision: 17 April 2003
Business line: Indirect Tax

Issue
Is the entity, an ophthalmic surgeon, making a GST-free supply under subsection 38-7(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it makes a supply of laser vision correction surgery to a patient?

Decision
Yes, the entity is making a GST-free supply under subsection 38-7(1) of the GST Act when it makes a supply of laser vision correction surgery to a patient.

Facts
The entity is an ophthalmic surgeon. The entity carried out laser vision correction surgery on a patient. The surgery corrects the vision of the patient by using an excimer laser to modify the surface of the cornea. A medicare benefit is not payable for the laser vision correction surgery. An ophthalmic surgeon satisfies the definition of a medical practitioner in section 195-1 of the GST Act. The patient individually engages and pays the entity to supply the laser vision correction surgery.

Reasons for decision
Summary: Under subsection 38-7(1) of the GST Act, a supply of a 'medical service' is GST-free. Section 195-1 of the GST Act defines a 'medical service' to mean: There is no medicare benefit payable for the laser vision correction surgery. As such, the procedure does not fall within the first limb of the definition of medical service in section 195-1 of the GST Act. Where surgery is carried out by an ophthalmic surgeon, laser vision correction surgery is considered to be 'appropriate treatment' to correct vision impairment in a patient. Also, as the patient individually engages and pays the entity to supply the laser vision correction surgery, the patient is the recipient of the supply. Therefore, laser vision correction surgery is a 'medical service' under the second limb of section 195-1 of the GST Act. However, 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: Laser vision correction surgery is not one of the services excluded under regulation 14 of the Health Insurance Regulations and therefore, the first element under subsection 38-7(2) of the GST Act does not apply. The second element of subsection 38-7(2) of the GST Act provides that a medical service is not GST-free if it is rendered for cosmetic reasons and no medicare benefit is payable for that service. There is no medicare benefit payable for the laser eye surgery. Therefore, if the service is performed for cosmetic reasons, it is not GST-free. The term 'cosmetic reasons' is not defined in the GST Act. The Macquarie Dictionary 1997 defines 'cosmetic' as: serving to beautify: imparting or improving beauty, especially of the complexion, designs to effect a superficial alteration while keeping the basis unchanged. 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. 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. The entity carries out laser vision correction surgery on a patient to correct the vision of the patient and the entity uses an excimer laser to modify the surface of the cornea. Laser surgery performed to correct a patient's vision, changes the function, but not the appearance of the eye. The laser vision correction surgery will improve the patient's vision. Therefore, the medical service is performed for medical reasons, not for cosmetic reasons and the second element in subsection 38-7(2) of the GST Act also does not apply. As neither of the elements in subsection 38-7(2) of the GST Act applies, the entity's supply of laser vision correction surgery is not excluded from being GST-free. Therefore, the entity is making a GST-free supply under subsection 38-7(1) of the GST Act when it makes a supply of laser vision correction surgery to a patient.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 subsection 38-7(1) subsection 38-7(2) section 195-1
Other references: Health Industry Partnership - Issues Register The Macquarie Dictionary, 1997, 3rd edition, The Macquarie Library Pty Ltd, New South Wales
Subject references: Goods & services tax GST free GST health Section 38-7 - medical services