ATO ID 2001/661: GST and goods supplied during an herbal medicine service
Date of decision: 6 September 2001
Business line: Indirect Tax

Issue
Is the entity, a qualified herbalist, making a GST-free supply under subsection 38-10(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a herbal mixture to a patient during a GST-free herbal medicine service, where the mixture is for use after the consultation?

Decision
No, the entity is not making a GST-free supply under subsection 38-10(4) of the GST Act when it supplies a herbal mixture to a patient during a GST-free herbal medicine service, where the mixture is for use after the consultation. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a qualified herbalist. The entity supplies a herbal medicine service to a patient. This service is GST-free under subsection 38-10(1) of the GST Act. During this service, the entity supplies a herbal mixture to the patient. This herbal mixture is customised for the exclusive treatment of the particular patient's illness or disability and is to be used by the patient after the consultation. The entity is registered for goods and services tax (GST) and the supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: Subsection 38-10(4) of the GST Act provides that the supply of goods is GST-free if: Item 8 in the table in subsection 38-10(1) of the GST Act lists 'Herbal medicine (including traditional Chinese herbal medicine)'. The entity is supplying a GST-free herbal medicine service to the patient. Therefore, it is necessary to determine whether the supply of the goods is 'in the course of supplying' the GST-free herbal medicine service. It is considered that the phrase 'in the course of supplying' in the context of subsection 38-10(4) requires that the goods must be supplied at the same point in time as the GST-free health service and must have been either: The entity supplies the herbal mixture to the patient during the consultation and therefore the mixture is supplied at the same point in time as the GST-free herbal service. Additionally, the herbal mixture is customised for the exclusive treatment of the illness or disability of the entity's patient who is the recipient of the GST-free herbal service. Therefore, the first requirement in subsection 38-10(4) of the GST Act is met. The second requirement of subsection 38-10(4) of the GST Act is that the goods must be supplied and used or consumed at the premises where the service is supplied. The entity supplies the herbal mixture during the consultation and it is therefore supplied at the premises where the service is supplied. However, the herbal mixture is to be used by the patient after the consultation. Therefore, the herbal mixture is not used or consumed at the premises where the service is supplied and the second requirement of subsection 38-10(4) of the GST Act is not met. Consequently, the supply is not GST-free under subsection 38-10(4) 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 not GST-free under Division 38 of the GST Act or 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 herbal mixture to a patient during a GST-free health service, where the mixture is to be used after the consultation.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 subsection 38-10(1) subsection 38-10(1) table item 8 subsection 38-10(1) table item 9 subsection 38-10(4) Division 40
Other references: Health Issues Register - Issue 2.b, 2.c
Subject references: Goods & services tax GST-free GST health Section 38-10 - other health services