Private ruling: GST and supply of medical aids and appliances
Date of advice: 28 September 2017
Published: February 2018

Ruling: Q1: Is the supply of the Medical Pump GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: The supply of the Medical Pump package is a mixed supply. The supply of the Medical Pump and the various Medical Pump components (tubing, cable, Medical cover and Medical strap) is GST-free supply under subsection 38-45(1) of the GST Act). However, the supply of the carrying bag is a taxable supply.

Relevant facts and circumstances: You are registered for GST. You are an importer and distributor of the Medical Pump. The Medical Pump is a personal medical device which can be programmed to deliver medication via a cannula subcutaneously. The pump is initially set up by the health care professional (HCP). The HCP prescribes the treatment (medication, duration, administration route), provides the infusion rates, changes infusion rates if needed, teaches the patient how to use the pump and advises on how to deal with issues (if they were to arise) when on treatment. The Medical Pump is designed specifically for people with an illness or disability and should not be used by people without an illness or disability and/or under medical supervision. You provided a link to the brochure of the Medical Pump which includes information about its application and specifications. The package for the Medical Pump contains the Medical Pump; tubing, cable, Medical cover, Medical strap and a carrying bag. The carrying bag is used to store and carry the Medical pump when patients are mobile. The carry bag makes it easier for patients to carry the Medical Pump. Some patients may need to carry the pump with them when they are mobile for example when walking, moving around the house, travelling etc. The carrying bag is specifically designed for the Medical pump. The carrying bag is sold as part of the package and not sold separately. It has a value of approximately $X. The proposed sale price of the Medical Pump including the carrying bag and extra Medical guard is $XX including GST plus shipping and handling costs.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-45(1). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-45(1)(a). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 38-45(1)(b). | A New Tax System (Goods and Services Tax) Regulations 1999 Schedule 3 table item 13.

Reasons for decision: Summary: The supply of the Medical Pump package is a mixed supply. The supply of the Medical Pump and the various Medical Pump components (tubing, cable, Medical cover and Medical strap) is GST-free supply under subsection 38-45(1) of the GST Act). However, the supply of the carrying bag is a taxable supply. | Detailed Reasoning - Detailed reasoning: Under subsection 38-45(1) of the GST Act, the supply of certain medical aids and appliances is GST-free where the medical aid or appliance: ● is covered by Schedule 3 to the GST Act, or specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) (paragraph 38-45(1)(a) of the GST Act ● is specifically designed for people with an illness or disability and is not widely used by people without an illness or disability (paragraph 38-45(1)(b) of the GST Act). | Detailed Reasoning - Medical Pump: An ambulatory Medical pump is not specifically listed in Schedule 3 to the GST Act or specified in the GST Regulations. However, item 13 in the table in Schedule 3 to the GST Regulations (item 13) lists ‘infusion pumps’ under the category ‘infusion systems for the delivery of a measured dose of a medication’: The phrase 'infusion pumps' is not defined in the GST Act or GST Regulations. Generally, where a phrase is not defined in the relevant Act or regulations, it is usually interpreted in accordance with its ordinary meaning, unless it has a special or technical meaning. Where a phrase has a special or technical meaning, it is necessary to determine its meaning by reference to the industry to which that phrase relates (Herbert Adams Ltd v. Federal Commissioner of Taxation (1932) 47 CLR 222; (1932) 2 ATD 31). In accordance with ATO Interpretative Decision ATO ID 2004/630, an infusion pump is a pump that is used in association with an infusion set to deliver a measured dose of medication. The Medical Pump is a personal medical device and works by a programmed piston pushing on a Medical containing medication to deliver medication via a cannula subcutaneously. The Medical Pump is an infusion pump that is covered by item 13. Hence, the requirement of paragraph 38-45(1)(a) of the GST Act is satisfied. The GST Pharmaceutical Health Forum – issues register provides guidance when interpreting paragraph 38-45(1)(b) of the GST Act. Issue 1.c provides that in determining whether a medical aid and appliance is specifically designed for people with an illness or disability reference should be made to the designer's/manufacturer's intention of how the good is to be used and it's features. Additionally, Issue 1.d of the GST Pharmaceutical Health Forum – issues register provides that in determining whether a medical aid and appliance is used by people without an illness or disability reference should be made to how the wider community uses these goods. That is, the common purpose for which the goods are purchased. The Medical Pump is specifically designed for people with an illness or disability and is not widely used by people without an illness or disability. Hence, the requirements of paragraph 38-45(1)(b) of the GST Act are satisfied. Therefore, as all of the requirements of subsection 38-45(1) of the GST Act are satisfied, the supply of the Medical Pump is GST-free. | Detailed Reasoning - Other contents of the Medical Pump package: The package for the Medical Pump contains the Medical Pump, tubing, cable, Medical cover, Medical strap and a carrying bag. Where an accessory is listed in Schedule 3 to the GST Act or in Schedule 3 to the GST Regulations, the supply of the accessory will be GST-free provided it is specifically designed for people with an illness or disability and not widely used by people without an illness or disability. In this case, there are no items listed in Schedule 3 to the GST Act or in Schedule 3 to the GST Regulations that would capture the tubing, cable, Medical cover, Medical strap and carrying bag. However, an item that is GST-free under subsection 38-45(1) of the GST Act can sometimes be accompanied by accessories that are not listed in Schedule 3 to the GST Act or in Schedule 3 to the GST Regulations. Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) provides guidance on the characteristics of supplies that contain taxable and non-taxable parts (mixed supplies) and the characteristics of supplies that appear to have more than one part but are essentially supplies of one thing (composite supplies). Paragraphs 16 and 17 of GSTR 2001/8 state: 16. A mixed supply is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised … 17. If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then the supply is composite. You treat a composite supply as a supply of a single thing… The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a common-sense approach. Having regard to all of the relevant circumstances, indicators that a part may be integral, ancillary or incidental to a supply include: ● it represents a marginal proportion of the total value of the package compared to the dominant part, ● it is necessary or contributes to the supply as a whole but cannot be identified as the dominant part of the supply, ● it contributes to the proper performance of the contract to supply the dominant part, and ● a supplier would reasonably conclude that it does not constitute for customers an aim in itself but is a means of better enjoying the dominant thing supplied. As a means of minimising compliance costs, part of a supply may be treated as being integral, ancillary or incidental to the other part if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of: ● $3.00 or ● 20% of the consideration of the total supply. This approach may be adopted to treat a supply as a composite supply (that is, either wholly GST-free or taxable), although it might otherwise be considered as a mixed supply. However, if the consideration for a part exceeds the lesser of $3.00 or 20% of the consideration for the total supply, it does not necessarily mean that the part is not integral, ancillary or incidental. | Detailed Reasoning - Various Medical Pump components: The tubing and cable are subordinate parts that are attached and used in conjunction with the Medical Pump. The Medical cover and Medical strap are used to hold and protect the Medical for a safe and accurate infusion. These components form an integral part of the Medical Pump and are necessary for its functioning. We consider that these components are integral, ancillary or incidental to the Medical Pump. Therefore, as the supply of the Medical Pump is GST-free under subsection 38-45(1) of the GST Act, the supply of these components is also GST-free. | Detailed Reasoning - The carrying bag: The GST treatment of the carrying bag when supplied with the Medical Pump depends on whether the supply is considered a mixed supply or a composite supply. The carrying bag is provided free of charge as part of the package for the supply of the Medical Pump. The carrying bag’s value is $X, which is not insignificant compared to the value of the package of $XX. The carrying bag has its own function separate to the function of the Medical Pump. Its purpose is to store and carry the Medical Pump. The Medical Pump will function even without the carrying bag. However, the carrying bag makes it easier for patients to carry the Medical Pump. We do not consider the supply of carrying bag to be integral, ancillary or incidental to the supply of the Medical Pump. We consider that the supply of the Medical Pump together with carrying bag is a mixed supply that has separately identifiable and distinct parts. The supply of the carrying bag is a taxable supply if the requirements of section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with the indirect tax zone; and (d) you are *registered, or *required to be registered for GST. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (* denotes a term defined in section 195-1 of the GST Act.) The supply of the carrying bag is for consideration, the supply is made in the course or furtherance of your enterprise, the sale is connected with the indirect tax zone and you are registered for GST. As such, the requirements in paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act are satisfied. The supply of the carrying bag is not GST-free under section 38-45 of the GST Act or under any other provision of the GST Act or of another Act. Furthermore, the supply of carrying bag is not input taxed. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the carrying bag is a taxable supply. | Detailed Reasoning - Apportionment: GST is payable on the mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for the mixed supply between the taxable part (supply of the carrying bag) and non-taxable part (supply of the Medical Pump, the tubing, cable, Medical cover and Medical strap) to find the consideration for the taxable part. Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) provides guidance on how to apportion the consideration between the taxable and non-taxable parts of a mixed supply. Paragraph 29 of GSTR 2001/8 provides that to calculate the value of the taxable part of a supply, you identify the parts of the supply and apportion the consideration to each part of the supply on a reasonable basis. The GST liability on each taxable part is equivalent to 1/11 of its consideration. The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.