Snugfit Australia Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (AAT 2013/0711)
Judgment date: 13 November 2013
Date published: 31 July 2014

Summary of decision:
Outlines the ATO's response to this case, which concerns whether the applicant's product, the "SnoreBeGone" sleep positioning system is GST-free under subsection 38-45(1) of the A New System (Goods and Services Tax) Act 1999 (GST Act).

Overview of facts:
The Commissioner made a private binding ruling that the supply of the applicant's product, the "SnoreBeGone" Sleep Positioning System ("SnoreBeGone") is subject to GST. | The Commissioner disallowed the applicant's objection to the private ruling and the applicant applied to the AAT to review the decision. | As described as part of the scheme in the private ruling, "SnoreBeGone" is designed to position the body to reduce the incidence of snoring. "SnoreBeGone" is designed for people with sleep deprivation and snoring, which in turn helps to control sleep apnoea. | The product is made of foam with a fabric cover and comprises a number of components including: • Detachable and ajdustable headrest; • Shoulder and arm recess channel; • Incline and weight support; • Extension cushion (slide minimiser) • Arm support extensions. | • Detachable and ajdustable headrest; • Shoulder and arm recess channel; • Incline and weight support; • Extension cushion (slide minimiser) • Arm support extensions. | The marketing material for the "SnoreBeGone" provides that it is designed to be placed on and used in conjunction with a mattress. | Issues decided by the court | The Administrative Appeals Tribunal (Tribunal) found that the supply of the applicant's product is a GST-free supply of a medical aid or appliance under subsection 38-45(1) of the GST Act. | There was no dispute between the parties that the product is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability; thus satisfying the requirements specified in paragraph 38-45(1)(b) of the GST Act. Therefore, the sole issue remaining for determination by the Tribunal was whether the supply of "SnoreBeGone" is covered by any of the following items listed in Schedule 3 to the GST Act: • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. | • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. | The Tribunal decided that the product was covered by Item 82 in the table in Schedule 3 to the GST Act, 'night-time positioning equipment modifications' (at [14]). | In reaching the conclusion that "SnoreBeGone" is covered by Item 82 of Schedule 3 to the GST Act, the Tribunal referred to the Federal Court's decision about the classification of goods under sales tax legislation in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85. The Tribunal considered that the principle set out in that case is equally applicable in the context of section 38-45 of the GST Act and thus 'the task is to determine the essential character of the goods, what essentially the goods are, not some characteristic the goods might have' (at [10]). | Contrary to the Commissioner's submission, the Tribunal considered that "SnoreBeGone" modifies night-time positioning equipment. | Having regard to the ordinary meaning of the words 'night time positioning' equipment, the Tribunal concluded that a mattress is 'night time positioning equipment' as it provides a surface which holds a person in a horizontal position for the purpose of sleeping at night. Having reached this conclusion, the Tribunal determined that the 'essential purpose of the "SnoreBeGone" product is to modify that horizontal surface by changing its shape so that the person's torso is held in an inclined position and the head is elevated from the mattress' (at[15]), and that 'the product is designed to be used in conjunction with a mattress and thereby to modify it' (at [16]). | Although not necessary to do so, the Tribunal also determined that the product is not covered by the other Items in Schedule 3 to the GST Act - Item 64: bed restraints, Item 67: backrests, leg rests and footboards for bed use, and Item 87: cushions specifically designed for people with disabilities (at [20] to [28]).

Issues decided:
The Administrative Appeals Tribunal (Tribunal) found that the supply of the applicant's product is a GST-free supply of a medical aid or appliance under subsection 38-45(1) of the GST Act. There was no dispute between the parties that the product is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability; thus satisfying the requirements specified in paragraph 38-45(1)(b) of the GST Act. Therefore, the sole issue remaining for determination by the Tribunal was whether the supply of "SnoreBeGone" is covered by any of the following items listed in Schedule 3 to the GST Act: • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. • Item 64: bed restraints; • Item 67: backrests, leg rests and footboards for bed use; • Item 82: night-time positioning equipment modifications; or • Item 87: cushions specifically designed for people with disabilities. The Tribunal decided that the product was covered by Item 82 in the table in Schedule 3 to the GST Act, 'night-time positioning equipment modifications' (at [14]). In reaching the conclusion that "SnoreBeGone" is covered by Item 82 of Schedule 3 to the GST Act, the Tribunal referred to the Federal Court's decision about the classification of goods under sales tax legislation in Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85. The Tribunal considered that the principle set out in that case is equally applicable in the context of section 38-45 of the GST Act and thus 'the task is to determine the essential character of the goods, what essentially the goods are, not some characteristic the goods might have' (at [10]). Contrary to the Commissioner's submission, the Tribunal considered that "SnoreBeGone" modifies night-time positioning equipment. Having regard to the ordinary meaning of the words 'night time positioning' equipment, the Tribunal concluded that a mattress is 'night time positioning equipment' as it provides a surface which holds a person in a horizontal position for the purpose of sleeping at night. Having reached this conclusion, the Tribunal determined that the 'essential purpose of the "SnoreBeGone" product is to modify that horizontal surface by changing its shape so that the person's torso is held in an inclined position and the head is elevated from the mattress' (at[15]), and that 'the product is designed to be used in conjunction with a mattress and thereby to modify it' (at [16]). Although not necessary to do so, the Tribunal also determined that the product is not covered by the other Items in Schedule 3 to the GST Act - Item 64: bed restraints, Item 67: backrests, leg rests and footboards for bed use, and Item 87: cushions specifically designed for people with disabilities (at [20] to [28]).

ATO view of decision:
Item 82 of Schedule 3 of the GST Act | The ATO accepts that, having regard to the ordinary meaning of the words 'night time positioning equipment', it was open to the Tribunal in considering the application of Item 82 to the applicant's product, to conclude that 'night-time positioning equipment' includes a mattress, and that, having regard to the essential character of the product, "SnoreBeGone" modifies 'night time positioning equipment', i.e. a mattress. | The ATO considers that the issue of whether a product is covered by Item 82 because it modifies a mattress or similar sleeping surface is a question of fact that is to be determined by considering the essential character and features of the specific product in question. We note that, in order to be GST-free under section 38-45 of the GST Act, the relevant product must also be specifically designed for people with an illness or disability, and not widely used by people without an illness or disability. [1] | Meaning of modifications | The Tribunal did not make any broader observations regarding the meaning of the term 'modification' and the ATO considers that the Tribunal's decision that "SnoreBeGone" modifies a mattress turned solely upon the facts of the case and the description of the product forming part of the scheme set out in the private binding ruling made by the Commissioner. The ATO considers that the decision does not have any broader impact on the meaning of the term 'modification' in other contexts. | Application of decision to other products | Taxpayers who may be uncertain about the GST treatment of their particular product in light of the Tribunal's decision can apply for a private ruling. An application for a private ruling can be sent to: Australian Taxation Office PO Box 3524 ALBURY NSW 2640 | or faxed to 1300 139 031

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | Following the decision of the Administrative Appeals Tribunal, the ATO has withdrawn ATO Interpretative Decision 2002/525.The ATO's current position on the GST treatment of contoured pillows is now contained in ATO ID 2014/21.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 s 38-45 s 182-10(2) s 182-15 Schedule 3
Case references: Heinrich and Commissioner of Taxation [2011] AATA 16 2011 ATC 10-169 81 ATR 903 Thomson Australian Holdings Pty Ltd v Commissioner of Taxation (1988) 20 FCR 85 19 ATR 1896 88 ATC 4916
Subject references: Goods and services tax GST free GST health Section 38-45 - medical aids & appliances