Private ruling: GST and Drugs and medical preparations
Date of advice: 6 March 2018
Published: June 2018

Ruling: Q1: Is your supply of a pain relief product a GST-free supply of drugs or medicinal preparations under section 38-50 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. Your supply of a pain relief product is not a GST-free supply. It is subject to GST.

Relevant facts and circumstances: You are registered for GST. You manufacture and sell a pain relief product. You have an arrangement with the Therapeutic Goods Administration (TGA) for product development where as long as you are undertaking to progress the registration process you are able to sell your products at shows and markets. You sell your pain relief product at shows and markets. The ingredients in your products are all TGA compliant products and for the active ingredients you have to provide 75 years of documentary evidence for the efficacy and interactions so as to make sure it will not harm anyone and are not poisons. You have satisfied all criteria required by TGA and are now in line with a professional manufacturer to have your registered batch made at which time you have been advised that you will be granted full registration with the TGA. The pain relief product will not be a drug which is a registered medicine; it will be a listed medicine of a complimentary medicine nature. Your products are sold to individuals for their private use. Your products are not stocked in any retail outlets and as a part of the TGA registration process you are not allowed to advertise or sell online.

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 Section 38-50

Reasons for decision: Summary: It is necessary to determine if your supply of the pain relief product is a taxable supply or a GST-free supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a taxable supply if: ● it makes a supply for consideration ● the supply is in the course or furtherance of an enterprise that it carries on ● the supply is connected with the indirect taxation zone, and ● the entity is 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. Section 38-50 of the GST Act outlines the circumstances in which the supply of a drug or medicinal preparation is GST-free. A supply of a drug or medicinal preparation will be GST-free where it first satisfies the requirements in subsection 38-50(7) of the GST Act, and also satisfies the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4) 38-50(4A), 38-50(5) or 38-50(6) of the GST Act. Subsection 38-50(7) of the GST Act provides that the supply of a drug or medicinal preparation is GST-free if and only if: ● The supply is to an individual for private or domestic use or consumption; and ● The drug or medicinal preparation is for human use or consumption. ● As you are selling the pain relief product to individuals for private or domestic use or consumption and the product is for human use or consumption, the requirements of subsection 38-50(7) of the GST Act are satisfied. As your sale of the pain relief product satisfies subsection 38-50(7) of the GST Act it is necessary to determine whether your supply of the pain relief product satisfies the requirements of at least one of the other subsections in section 38-50 of the GST Act in order to be GST-free. Subsection 38-50(1) of the GST Act provides: (1) A supply of a drug or medicinal preparation is GST-free if the supply is on prescription and: (a) under a State law or a Territory law in the State or Territory in which the supply takes place, supply of the drug or medicinal preparation is restricted, but may be supplied on prescription; or (b) the drug or medicinal preparation is a pharmaceutical benefit (within the meaning of Part VII of the National Health Act 1953 ). Paragraph (a) covers drugs and medicines specified in Schedules 4 and 8 of the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP) that are only available on prescription. Many of these products were formerly labelled 'S4' and 'S8' medications. As at the 1 July 2000 it is compulsory to label these products as 'Prescription Medicine' and 'Controlled Drugs', respectively. Paragraph (b) covers Pharmaceutical Benefits Scheme (PBS) drugs and medicines supplied on prescription as a pharmaceutical benefit within the meaning of Part V11 of the National Health Act 1953 . Based on the information supplied your supply of the pain relief product does not satisfy the requirements of subsection 38-50(1) of the GST Act. Subsection 38-50(2) of the GST Act provides: (2) A supply of a drug or medicinal preparation is GST-free if, under a State law or a Territory law in the State or Territory in which it is supplied, the supply of the drug or medicinal preparation to an individual for private or domestic use or consumption is restricted but may be made by: (a) a medical practitioner, dental practitioner, or pharmacist; or (b) any other person permitted by or under that law to do so. This covers drugs and medicines that can only be supplied by a medical practitioner, dental practitioner or pharmacist. Many of these products were formerly labelled 'S2' and 'S3' medications. As at the 1 July 2000 it is compulsory to label these products as 'Pharmacy Medicine' and 'Pharmacy Only Medicine', respectively. Based on the information supplied your supply of the pain relief product does not satisfy the requirements of subsection 38-50(2) of the GST Act. Subsection 38-50(3) of the GST Act provides: (3) Subsection (2) does not cover the supply of a drug or medicinal preparation of a kind specified in the regulations. To date, no regulations have been released for the purposes of subsection 38-50(3). Subsection 38-50(4) of the GST Act provides: (4) A supply of a drug, medicine or other pharmaceutical item is GST-free if the supply is on prescription and: (a) it is supplied as a pharmaceutical benefit (within the meaning of section 91 of the Veterans' Entitlements Act 1986); and (b) it is supplied under an approved scheme (within the meaning of that section). This covers Repatriation Pharmaceutical Benefits Scheme (RPBS) drugs, medicines and other pharmaceutical items supplied under an approved scheme and on prescription as a pharmaceutical benefit within the meaning of section 91 of the Veterans' Entitlements Act 1986 . Based on the information supplied your supply of the pain relief product does not satisfy the requirements of subsection 38-50(4) of the GST Act. Subsection 38-50(4A) of the GST Act provides (4A) A supply of a drug, medicine or other pharmaceutical item is GST-free if the supply is on prescription and: (a) it is supplied as a pharmaceutical benefit (within the meaning of section 5 of the Military Rehabilitation and Compensation Act 2004 ); and (b) it is supplied in accordance with a determination made under paragraph 286(1) (c) of that Act. For tax periods starting on or after 1 July 2004, drugs, medicines or other pharmaceutical items will be GST-free when supplied on prescription and as a pharmaceutical benefit under the Military Rehabilitation and Compensation Act 2004. Based on the information supplied your supply of the pain relief product does not satisfy the requirements of subsection 38-50(4A) of the GST Act. Subsection 38-50(5) of the GST Act provides: (5) A supply of a drug or medicinal preparation is GST-free if: (a) the drug or medicinal preparation is an analgesic that has a single active ingredient the supply of which as a drug or medicinal preparation would be GST-free under subsection (2) if it were supplied in a larger quantity; and (b) the drug or medicinal preparation is of a kind the supply of which is declared by the Health Minister to be GST-free, by determination in writing. This subsection covers supplies of small packet analgesics containing aspirin or paracetamol and intended to be taken by mouth. Small packet analgesics are packets containing less than 25 tablets. For example, small packets of Panadol and Aspirin even where they are sold in supermarkets or general stores. Based on the information supplied your supply of the pain relief product does not satisfy the requirements of subsection 38-50(5) of the GST Act. Subsection 38-50(6) of the GST Act provides: (6) A supply of a drug or medicinal preparation is GST-free if: (a) the drug or medicinal preparation is the subject of an approval under paragraph 19(1)(a) of the Therapeutic Good Act 1989, and any conditions to which the approval is subject have been complied with; or (b) the drug or medicinal preparation is supplied under an authority under subsection 19(5) of the Act, and the supply is in accordance with any regulations made for the purposes of subsection 19(7) of that Act; or (c) the drug or medicinal preparation is exempted from the operation of Part 3 of that Act under regulation 12A of the Therapeutic Goods Regulations. This subsection applies to supplies of drugs and medicinal preparations which are supplied under the Special Access Scheme (SAS). The SAS allows new drugs and medicinal preparations, which have not yet been approved for supply in Australia, to be supplied to patients who have life-threatening or other serious illnesses. Based on the information supplied your supply of the pain relief product does not satisfy the requirements of subsection 38-50(6) of the GST Act. As your supply of the pain relief product does not meet the requirements contained in at least one of subsections 38-50(1), 38-50(2), 38-50(4) 38-50(4A), 38-50(5) or 38-50(6) of the GST Act it is not a GST-free supply under section 38-50 of the GST Act. Your supply of the pain relief product meets the positive requirements of section 9-5 of the GST Act and is not input taxed or GST-free. Therefore, your supplies of the pain relief product are taxable supplies and subject to GST.