ATO ID 2002/80: GST and the importation of footwear designed to be fitted with an orthotic
Date of decision: 7 September 2001
Business line: Indirect Tax

Issue
Is the entity, an importer of medical aids and appliances, making a non-taxable importation under paragraph 13-10(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it makes an importation of footwear that is designed to be fitted with an orthotic?

Decision
No, the entity is not making a non-taxable importation under paragraph 13-10(b) of the GST Act when it makes an importation of footwear that is designed to be fitted with an orthotic. The entity is making a taxable importation under section 13-5 of the GST Act.

Facts
The entity is an importer of medical aids and appliances. The entity imports footwear that is specifically designed to be fitted with an orthotic. The footwear is not complete at the time of importation. The orthotic is a structural part of the shoe and is required before the shoe is complete. The entity sells the footwear to podiatrists who fit the orthotic before selling the completed footwear to their patients. The entity is registered for goods and services tax (GST). The footwear has been entered for home consumption within the meaning of the Customs Act 1901. The importation is not a non-taxable importation under Part 3-2 of the GST Act.

Reasons for decision
Summary: Section 13-5 of the GST Act provides that the importation of goods into Australia is subject to GST if they are entered for home consumption within the meaning of the Customs Act 1901. However, an importation is not subject to GST if it is a non-taxable importation. Under paragraph 13-10(b) of the GST Act, an importation is a non-taxable importation if the thing imported would have been GST-free or input taxed if it had been supplied within Australia. Therefore, it needs to be determined whether the footwear would have been GST-free or input taxed, if the imported footwear had been a supply made within Australia. Of relevance in this instance is subsection 38-45(1) of the GST Act which provides that a supply of a medical aid or appliance is GST-free where the medical aid or appliance: The items which are of relevance to this case are item 41 and item 42 in the table in Schedule 3. Item 41 in the table in Schedule 3 (Item 41) lists 'surgical shoes, boots, braces and irons'. The terms 'surgical shoes, boots, braces and irons' are not defined in the GST Act. Therefore the terms will be given their ordinary meaning. The Macquarie Dictionary (1997) defines surgical as 'relating to or involving surgery' and surgical boot as 'a specially constructed boot or shoe designed to support or correct a deformed foot'. Accordingly, it is considered that surgical shoes or boots are limited to those specially constructed shoes or boots designed to support or correct a deformed foot and those shoes and boots designed to be worn to support and protect a foot as a result of surgery. It would also be expected that the surgical shoes or boots would be a complete item that is custom made for a specific individual. In this case, the entity imports footwear that is neither complete at the time of importation nor specially constructed for a specific individual. The footwear is not complete until it has been fitted with an orthotic which is a structural part of the shoe. As such, the footwear is not a surgical shoe or boot for the purposes of Item 41. Item 42 in the table in Schedule 3 (Item 42) lists 'orthotics'. The word orthotics is not defined in the GST Act and is therefore given its ordinary meaning. The Macquarie Dictionary (1997) defines 'orthotic' as the adjectival form of the word orthosis. Orthosis is defined as 'a device applied to the body to modify position or motion, as a supporting collar, plaster cast, etc'. The category heading 'footwear for people with disabilities' provides guidance as to the meaning of 'orthotics' for the purposes of Schedule 3. Although the category heading is not an operative part of Schedule 3 (section 182-15 of the GST Act and Note 2 in Schedule 3), it does confirm, in accordance with paragraph 182-10(2)(b) of the GST Act, that orthotics, covered by Item 42, are devices that are designed to be used or applied as an orthosis for the foot to change or alter position or motion or prevent movement. Shoes could be orthotics in very limited situations, however, the common meaning of the term 'orthotics' is that it applies to devices which are inserts for shoes, and not to shoes themselves. For shoes to be orthotics, they would have to be custom made and incorporate an orthotic device as part of the shoe. Such shoes would generally only be made for a person with some form of deformity. Therefore shoes which can be classed as 'orthotics' would generally also be classed as 'surgical shoes'. In this case, the footwear imported by the entity does not contain an orthotic device at the time of importation. The footwear is sold to a podiatrist who fits an orthotic to the footwear depending on the particular needs of each individual. As the entity is not importing an orthotic, the footwear would not be covered by Item 42. Therefore, as the footwear is not covered by either Item 41 or Item 42 the supply would not be GST-free under subsection 38-45(1) of the GST Act if it had been a supply made within Australia. The importation of the footwear by the entity meets the positive limbs of section 13-5 of the GST Act. Furthermore, the importation is neither a non-taxable importation under Part 3-2 of the GST Act nor would it have been GST-free under Division 38 of the GST Act or input taxed under Division 40 of the GST Act had the importation been a supply. As such, the supply is not a non-taxable importation under paragraph 13-10(b) of the GST Act. The entity is making a taxable importation under section 13-5 of the GST Act when it makes an importation of footwear that is designed to take an orthotic.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 13-5 paragraph 13-10(b) Division 38 subsection 38-45(1) Division 40 Part 3-2 section 182-15 paragraph 182-10(2)(b) Schedule 3 table item 41 Schedule 3 table item 42 Schedule 3 Note 2
Other references: The Macquarie Dictionary 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales
Subject references: Goods & services tax GST free GST health Section 38-45 - medical aids & appliances Imports Non taxable importations Taxable importations