ATO ID 2004/804: GST and spare part for a vital signs monitor
Date of decision: 22 September 2002
Business line: Indirect Tax

Issue
Is the entity, a supplier of medical aids and appliances, making a GST-free supply under subsection 38-45(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a spare part for a vital signs monitor?

Decision
No, the entity is not making a GST-free supply under subsection 38-45(2) of the GST Act when it supplies a spare part for a vital signs monitor. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a supplier of medical aids and appliances. The entity supplies a spare part for a vital signs monitor. The primary function of the vital signs monitor is to monitor the blood pressure and the pulse rate of a patient. The vital signs monitor has an alarm that sounds if the patient's statistics are outside of the acceptable parameters. The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: Subsection 38-45(2) of the GST Act provides that a supply of a spare part is a GST-free supply if the spare part is: The entity supplies a spare part for a vital signs monitor. Therefore, it is necessary to determine whether the vital signs monitor is GST-free under subsection 38-45(1) of the GST Act. Subsection 38-45(1) of the GST Act provides that the supply of a medical aid and appliance is GST-free where the medical aid or appliance: Vital signs monitors are not specifically listed in Schedule 3 or the GST Regulations. However, an item that may be of relevance is '"medical alert" devices' which are shown at item 33 in the table in Schedule 3 (Item 33). The term '"medical alert" devices' is not defined in the GST Act. For the purposes of item 33, a '"medical alert" device' is interpreted to mean a device which is designed for the purpose of alerting medical or caring personnel, or an ambulance service, that a person is in need of emergency medical assistance or that the person has a medical condition that may require specific treatment. In a Sales Tax context, in determining how goods might be covered by one or other of the items in the various Schedules, the tribunals and courts have often looked to the 'essential character' or 'objective characterisation' of goods. Essential character tests have been established by the Courts in cases such as Thomson Australia Holdings Pty Ltd v. Federal Commissioner of Taxation (1988) 20 FCR 85; 88 ATC 4916; (1988) 19 ATR 1896 and FC of T v. Rotary Offset Press Pty Ltd 71 ATC 4170; (1971) 2 ATR 411. Davies J. said in Thomson Australia Holdings: the task of the court is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part. Also, in Rotary Offset Press Pty Ltd 71 ATC 4170 at 4175; (1971) 2 ATR 411 at 417, Gibbs J commented: The question whether a periodical is "advertising matter" seems to me to depend on whether the periodical, viewed objectively and without regard to the actual intentions of those publishing it, answers that description. Similarly for GST, to determine whether a thing is covered by an item in Schedule 3 or the GST Regulations, it is considered necessary to have regard to the essential character of the thing. This means deciding what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for. The primary purpose of a medical alert device is to alert. The primary function of the vital signs monitor is to monitor the pulse rate and blood pressure of individual patients. The alarm in the vital signs monitor is not a medical alert device in itself. It is merely a function within the vital signs monitor. Therefore, the vital signs monitor is not a "medical alert" device and is not covered by Item 33. As the vital signs monitor is not covered by Schedule 3 or the GST Regulations, it is not GST-free under subsection 38-45(1) of the GST Act. Accordingly, the supply of the spare part for the vital signs monitor is not GST-free under subsection 38-45(2) of the GST Act. The entity is registered for GST and the supply satisfies the positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under any other provision of 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 supplies a spare part for a vital signs monitor.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 subsection 38-45(1) subsection 38-45(2) Division 40 Schedule 3 Schedule 3 table item 33
Case references: Thomson Australia Holdings Pty Ltd v. Federal Commissioner of Taxation (1988) 20 FCR 85 88 ATC 4916 (1988) 19 ATR 1896
Related ATO interpretative decisions: ATO ID 2004/805
Other references: Stedman's Medical Dictionary (2000), 27th edition, Lippincott Williams & Williams, Baltimore
Subject references: Goods and services tax GST free GST health Section 38-45 - medical aids & appliances GST supplies & acquisitions Taxable supply