Private ruling: Goods and services tax (GST) and medical aids and appliances
Date of advice: 21 August 2015
Published: August 2015

Ruling: Q1: Is GST payable on your sale of shoes you market as orthotic shoes? | A1: Yes. | Q2: Is GST payable on your sale of insoles that you market as orthotic insoles? | A2: No.

Relevant facts and circumstances: You are registered for GST. You sell two categories of speciality moulded orthopaedic footwear belonging to the sub-class known as foot orthoses ('orthotic footwear'), namely: a. Orthotic shoes that incorporate orthotic devices as an integral (built-in) part of their geometry, design, specifications & construction. b. Orthotic insoles which are devices that are inserted by patients into their existing laced-up or enclosed footwear. You market these products as orthotic footwear under the brand name (brand name). The products are pre-fabricated. Both categories of your foot orthoses utilise the same bracing & re-alignment technologies. Your foot orthoses work by re-aligning, changing/altering the position & motion of the foot & ankle to compensate for foot/ankle weakness, to support or correct deformities of the arches, and to prevent any further foot damage or deformity. Both categories of your foot orthoses are designed specifically for people with a disability of their feet, in particular an injury/disability of primarily the lateral longitudinal arch of their feet and, secondarily, a disability/injury of either the medial longitudinal or transverse arches of their feet. You provided the Australian Taxation Office with a photo that shows a patient's hyperpronated foot suitable for treatment with your foot orthoses. Your foot orthoses are not widely used by people without a disability of the foot.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 38-45 Question 1 | Summary | Your sales of shoes that you market as orthotic shoes are not GST-free supplies of surgical boots or orthotic devices for feet. | Detailed reasoning | GST is payable on taxable supplies. | In accordance with section 9-5 of the GST Act, a supplier makes a taxable supply if: (a) the supplier makes the supply for consideration | (b) the supply is made in the course or furtherance of an enterprise that the supplier carries on | (c) the supply is connected with the indirect tax zone (Australia), and | (d) the supplier is registered or required to be registered for GST. | However, a supply is not taxable to the extent that it is GST-free or input taxed. | Your sales of the shoes in question meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because: • you supply the shoes for consideration | • you supply the shoes in the course or furtherance of the enterprise that you carry on | • these supplies are connected with Australia, and | • you are registered for GST. | There are no provisions of the GST Act under which your sales of the shoes are input taxed. Therefore, what remains to be determined is whether your sales of the shoes are GST-free. | Medical aids and appliances | Subsection 38-45(1) of the GST Act states: | A supply is GST-free if: | (a) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and | (b) the thing supplied is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability. | Item 41 'surgical shoes, boots, braces and irons' | Item 41 in the table in Schedule 3 to the GST Act (item 41) lists 'surgical shoes, boots, braces and irons'. ATO Interpretative Decision ATO ID 2002/80 states: | 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. | Your shoes are specially constructed and designed to support or correct deformed feet. However, as they are not custom made, they are not surgical shoes Therefore, they are not covered by item 41. | Item 42 'orthotics' | Item 42 in the table in Schedule 3 to the GST Act (item 42) lists 'orthotics'. | The item 42 term 'orthotics' is not defined in the GST Act. The Macquarie Dictionary (sixth edition) defines "orthotic" as the adjectival form of the word orthosis. Orthotics is also defined as the "the study of the application of orthoses". | An orthosis is 'a device which is applied to the body to change or alter the position or motion, or prevent movement'. | It is considered that the inclusion of the word "orthotics" rather than "orthoses" creates ambiguity and therefore allows reference to the category heading in column 2 of the table in Schedule 3 to the GST Act under which the item appears. The category heading under which item 42 "orthotics" appears is "footwear for people with disabilities". If this heading is considered, then this serves to confirm the meaning of the term as being "devices which are designed to be used or applied as an orthosis for the foot." In accordance with ATO Interpretative Decision ATO ID 2005/90, shoes could be orthotics but only in very limited situations. The common meaning of the term 'orthotics', in relation to feet, is that it applies to devices which are inserts for shoes and not to shoes themselves. For shoes to be orthotics, they would have be custom made and incorporate an orthotic device as an integral part of the shoe. Such shoes would generally only be made for a person with a deformity. Therefore, shoes which are classed as orthotics would generally also be classed as surgical shoes. | Your shoes are applied to the feet to change or alter the position or motion or prevent movement. However, as they are not custom made, they are not covered by item 42. | Your shoes are not covered by any item in Schedule 3 to the GST Act or Schedule 3 to the GST Regulations. Therefore, the requirement of paragraph 38-45(1)(a) of the GST Act is not met. | Your shoes are specifically designed for people with an illness or disability and would not be widely used by people without an illness or disability. Therefore, the requirements of paragraph 38-45(1)(b) of the GST Act are met. | As your shoes do not meet all the requirements of section 38-45 of the GST Act, your sales of the shoes are not GST-free under that provision. Your sales of the shoes are not GST-free under any other provision of the GST Act. | Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on these sales. Question 2 | Summary | Your sales of insoles that you market as orthotic insoles are GST-free supplies of orthotic devices for feet. | Detailed reasoning | Your sales of the insoles meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act and they are not input taxed. Therefore, what remains to be determined is whether they are GST-free. | The common meaning of the term 'orthotics', in relation to feet, is that it applies to devices which are inserts for shoes and not to shoes themselves. | Your insoles are inserts for shoes. Additionally, the insoles are applied to the feet to change or alter their position or motion or prevent movement. Hence, your insoles are orthotic devices of the type covered by item 42. Therefore, the requirement of paragraph 38-45(1)(a) of the GST Act is met. | Your insoles are specifically designed for people with an illness or disability and would not be widely used by people without an illness or disability. Therefore, the requirements of paragraph 38-45(1)(b) of the GST Act are met. | As your insoles meet the requirements of section 38-45 of the GST Act, your sales of the insoles are GST-free. Therefore, GST is not payable on your sales of the insoles in question.