Private ruling: GST and supplies of addiction treatment packages
Date of advice: 31 July 2018
Published: October 2018

Ruling: Q1: Is a supply of a drug addiction treatment package, designed and delivered by your social worker, a composite GST-free supply under subsection 38-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, a supply of the drug addiction treatment package is not a composite supply. It is also not a composite supply of social work or any other health service that is GST-free under subsection 38-10(1) of the GST Act. Further, there is no provision in subsection 38-10(1) of the GST Act that specifically makes a supply of a ‘drug addiction treatment package’ GST-free. The supply of the drug addiction treatment package is a mixed supply that consists of a bundle of separate and distinct services, the GST treatment of which must be considered individually.

Relevant facts and circumstances: You are registered for GST. You provide drug addiction treatment packages at your rural treatment facility. For the purposes of this private ruling, recipients of your treatment packages are referred to as ‘clients’ and your supplies referred to as a ‘treatment package’. You are not a charity or hospital. Clients with drug addiction problems are referred to you by their General Practitioner (GP) for treatment. You employ a full-time social worker who is fully accredited and is a member of the Australian Association of Social Workers (AASW). The social worker works during business hours and completes an initial assessment of the client, in consultation with the GP and psychologist. The social worker devises an Individual Treatment Program (ITP) for the client, in collaboration with treatment facility’s co-ordinator. The social worker also identifies, arranges, oversees and reviews the results of each ITP. You offer three residential treatment packages to your clients. All of the treatment packages include accommodation, food and use of amenities, as well as a range of tailored treatment services provided whilst at your treatment facility, as part of each client’s ITP. There is no option for a client to receive the treatment package from you, without staying at your treatment facility. Your approach to drug addiction treatment is modelled on, and consistent with, the principles espoused by a United States federal government research agency called the National Institute on Drug Abuse (NIDA), whose mission is to ‘advance science on the causes and consequences of drug use and addiction and to apply that knowledge to improve individual and public health’. In its DrugFacts July 2016 publication entitled ‘Treatment approaches for drug addiction' NIDA explains that to treat drug addiction ’…most patients need long-term or repeated care to stop using completely and recover their lives’. NIDA considers that the following key principles should form the basis of any effective treatment package: ● effective treatment addresses all of the patient’s needs, not just his or her drug use ● staying in treatment long enough is critical ● treatment plans must be reviewed often and modified to fit the patient’s changing needs ● people need to have quick access to treatment ● drug use during treatment must be monitored continuously, and ● counselling and other behavioural therapies are the most commonly used forms of treatment. The treatment packages designed for clients consist of various services. All services are designed to treat the client’s addiction-related issues whilst they are under the 24 hour supervision and care of trained personnel. Consistent with the NIDA principles, this approach is regarded as likely to be more effective than other forms of treatment. This is supported by a GP who has worked closely with you and has provided a professional opinion that such co-ordinated treatment offers the patient the best possibility of a successful outcome. The ITP is reviewed and actioned by the client’s social worker and clinical counsellor. Daily meetings or handovers are held between support workers, clinic managers, social workers and psychologists. Support workers and clinic managers hold a Certificate IV in Alcohol and Other Drugs and are rostered and/or on call 24/7. Support workers sleep overnight at your treatment facility to support and supervise clients. At the daily meetings, clients’ needs are reviewed and any medical and/or psychological treatment is organised. Medical personnel are available locally. During their stay at the treatment facility, various personnel provide services to the client as part of their ITP. Those services include: ● counselling ● naturopathy ● acupuncture ● social work ● herbal medicine ● dietary ● physical training, and ● peer support. Costs of the treatment packages You charge a single fee for each treatment package (inclusive of services, accommodation, food and amenities provided). You provide some optional extra services for an additional charge, including: custodial visits, psychosocial assessments, forensic court reports and additional therapeutic services (for example, massage, acupuncture, naturopathy and hypnotherapy). You do not itemise your treatment package fees. However, you provide an indicative cost breakdown for the first week of treatment. Your payments are non-refundable but if a resident exited or chooses to leave the treatment facility, the amount remaining will be in credit for their return to the treatment facility.

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 38-10 | A New Tax System (Goods and Services Tax) Act 1999 Division 40 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: The supply of the treatment package is not a composite supply. It is also not a composite supply of social work or any other GST-free health service. Further, there is no provision in subsection 38-10(1) of the GST Act that would make a supply of a ‘drug addiction treatment package’ GST-free. The supply of the drug addiction treatment package is a mixed supply that consists of a bundle of separate and distinct services to treat a client’s drug addiction issues. In addition to social work, the packages include services such as psychology, acupuncture, dietary, naturopathy and support services. None of these services are integral, ancillary or incidental to each other or to the supply of social work. While each treatment service together with the supply of the accommodation recommended by the social worker may assist with a client’s addiction-related issues and improve effectiveness of the overall treatment package, each of these services are significant, different in nature and separately identifiable in their own right. All play an important role in the overall treatment of the patient, but none are dominant to the rest. As the supply of the treatment package is a mixed supply, you will need to use any reasonable basis to apportion the fee between the taxable and non-taxable portions of the treatment package. The GST treatment of each supply in the treatment package needs to be individually determined. For your information, we have provided general guidance below to assist. | Detailed Reasoning - Composite or mixed supplies: 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) explains how you can identify whether a supply contains taxable and non-taxable parts. It refers to such a supply as a 'mixed supply'. 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. GST is only payable on the taxable part of a mixed supply. It also describes the characteristics of a supply that appears to have more than one part but is essentially a supply of one thing. This type of supply is referred to as a 'composite supply'. A 'composite supply' is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. For example, if a composite supply is taxable, then GST is payable on the whole supply. Paragraphs 19 to 20 of GSTR 2001/8 state: 19. Where a transaction comprises a bundle of features and acts , it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part . The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue . For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised . However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act. 19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character. 19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable , or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part . 20. 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 commonsense approach. We must consider the essential character or features of the transaction, to determine whether the supply has more than one separately identifiable part, or is a supply of one dominant part (with one or more integral, ancillary or incidental parts) (see paragraphs 41 and 44 of GSTR 2001/8). Paragraphs 46 to 49 of GSTR 2001/8 provide examples of mixed and composite supplies: 46. The question in Sea Containers was whether the supply was of transport or of transport and catering. 22 It was decided that the proper approach was to see whether the catering element was significant in its own right or whether it was merely ancillary to the provision of transport. Keene J said: 'The evidence shows that it [the catering] constituted a very important element in its own right in what was being provided by the appellant. Its significance in these transactions went well beyond the point where it could be seen merely as a way of better enjoying the transport element ....it constituted for customers an aim in itself . Not, of course, the sole aim but, given its prominence in the marketing literature, clearly a separate aim from the travel element. The emphasis upon this aspect of the facilities provided is very striking. The fine meals and wines were a vital part of what the customer was paying for, whether by way of a separate or an all-inclusive price.' 23 47. Sea Containers can be contrasted with British Airways plc v . Customs and Excise Commissioners (British Airways ), another United Kingdom case. 24 In this case, the question was whether British Airways was to be taken as making supplies of air transport and of catering services, or a single supply of air transport with the catering services being merely integral or ancillary (a composite supply). 48. In British Airways , the Court of Appeal found that the provision of in-flight catering was, in substance and reality, an integral part of the supply of air transportation. Stuart-Smith LJ said: 'While something that is necessary for the supply will almost certainly be an integral part of it, the converse does not follow... Catering facilities are part of and integral to the transportation in that degree of comfort which British Airways have decided is commercially appropriate and indeed necessary to attract passengers.' 25 49. The Court was also influenced by the fact that no separate charge was made for the in-flight catering , and the price of the air ticket did not vary , regardless of the type of meal provided or whether or not meals were provided. It was not part of the contractual obligation of the airline to supply meals, even if meals were expected as part of the service. Customers could not obtain a refund if a meal was not served on their flight. Indicators of whether a part may be integral, ancillary or incidental to the dominant part are: ● you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself ● 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, or ● it contributes to the proper performance of the contract to supply the dominant part (See paragraph 59 of the GSTR 2001/8). At issue, is whether you are making a single, composite GST-free supply of a service of a kind listed in the table in subsection 38-10(1) of the GST Act; or whether you are making a mixed bundle of separately identifiable supplies (in which case the GST treatment of each must be determined, and the GST payable on the treatment package fee apportioned between the taxable and GST-free parts). Clients acquire your treatment packages for the purpose of receiving treatment and assistance for their addiction-related issues whilst receiving 24 hour supervision and care at your facility. You advised that this approach is in accordance with industry opinion that co-ordinated treatment with a live-in component is more effective and offers the best possibility of a successful outcome. Despite the single purpose of the treatment package (to establish a life plan to cease use of drugs and/or alcohol), the essential character or features of the package is a bundle of separately identifiable supplies, being the provision of various treatment services and the supply of accommodation and supervised care. While each treatment service together with the supply of the accommodation may assist with a client’s addiction-related issues and improve effectiveness of the overall treatment package, each of these services are significant, different in nature and separately identifiable in their own right. The supply of social work is not dependent upon, or part of, the supply of accommodation or any of the other treatment services such as psychology, acupuncture, dietary, herbal medicine or naturopathy etc. Conversely, supplies of the accommodation, food and amenities, or any of the other treatment services, stands alone and is not dependent upon, or part of, the supply of social work. Although the social worker may recommend a range of treatment services for the client, or the social work profession considers drug addiction treatment programs are better if provided ‘in-house’ with accommodation etc., does not mean that social work services are the dominant part of the entire treatment package, with accommodation and the other treatment services as ancillary. All services contribute to the common purpose of drug addiction treatment. Whilst all play an important role in the overall treatment of the patient, there is not one service that is the single, dominant supply. In discussions with us during the course of your private ruling application, you contended that the supply of accommodation, food and amenities was incidental to the overall supply of GST-free social work services, and was a composite supply analogous to the supply of meals in British Airways . In our view, the supply of the treatment package is a mixed supply. The supply of the accommodation, food and amenities within that package is more akin to the supply of catering in Sea Containers Ltd v. Customs and Excise Commissioners [2000] BVC 60 ( Sea Containers). This is because the supply of accommodation, food and amenities is of significant value and is a vital part of what clients have contracted for. The significance of the supply of the accommodation, food and amenities is not lessened by the fact that your package fee is all inclusive, non-refundable and is not separately itemised. The arrangement between the parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into the circumstances in which the transactions are made (paragraph 180 of Goods and Services Tax Ruling GSTR 2006/9: Supplies). The true character of your supply is the provision of a holistic range of treatment services to clients in a residential setting. Those services vary depending on the individual needs of the client. Clients can only receive your treatment package whilst they reside in your treatment facility. There is a clear nexus or connection between the payment made for the treatment package and the accommodation, food and amenities, regardless of the fact that you do not itemise a specific charge for those supplies, or your contention that the accommodation, food and amenities are ‘free’. The supply of accommodation, food and amenities is a cornerstone of your program, which is based on the theory that in-house treatment is the most effective model. For this reason, supplies of accommodation, food and amenities are critically important in their own right and well beyond just giving clients better enjoyment of the treatment package – the accommodation, food and amenities are an aim in themselves for customers (as per Sea Containers ). The value of the supply of accommodation, food and amenities represents a large proportion of the total package price despite not specifically charged for in your pricing policy. You have a contractual obligation to provide accommodation, food and amenities to your client in return for their payment. There is no option for clients to receive your treatment package without staying at the facility. Clients have paid an inclusive fee for treatment and accommodation. Clients have more than a mere expectation that accommodation, food and amenities would be provided to them in exchange for the fees paid. This is evidenced by your Schedule of Fees, which states that whilst the payment is non-refundable, if a client chooses to leave the treatment facility early, the amount remaining will be in credit for their return to the facility. This term gives the client a contractual right of recourse should an amount not be credited. The contractual obligation to provide accommodation makes your supply distinguishable to British Airways where there were no enforceable rights for passengers to demand the supply of meals. Having regard to the arrangements entered into, it is clear that the supply of accommodation, food and amenities in the facility is of significant value and is a vital part of your supply that is not integral, ancillary or incidental to any of the other treatment services. | Detailed Reasoning - Social work and other health services: You contend that the dominant supply in the treatment package was of GST-free social work, and that the other services (and accommodation, food and amenities) were incidental to social work. ‘Social work’ is one of the health services listed in the table in subsection 38-10(1) of the GST Act. A supply is GST-free under this subsection if it is: ● a service of a kind specified in the table ● the supplier is a recognised professional in relation to the supply of services of that kind, and ● the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply. ‘Social work’ is not defined in the GST Act, and accordingly takes its ordinary meaning, and/or where appropriate, its industry specific meaning. The AASW’s draft definition of social work describes the social worker as a facilitator of social change and development who undertakes a range of support roles to address personal and social issues. You supply a treatment package to clients that includes supplies by a social worker, together with supplies by a range of other health professionals plus accommodation, food and use of amenities. The social worker’s role is to assess the clients and develop and monitor their ITP. That ITP may involve supplies of services by a range of other health professionals. Each of those other health professionals also has a specific role and provides a particular service, in the delivery of that ITP. Supplies such as psychology, acupuncture, dietary, and naturopathy are not services ‘of a kind of social work’ as per the definition of that term from the AASW. These roles and services are distinct and separate from the role and services of the social worker, albeit all are directed to achieving the same goal for the client. Further, each of those services are separately listed in the table in subsection 38-10(1) of the GST Act, supporting the conclusion that the GST Act considers them to be different and separate to the supply of social work. | Detailed Reasoning - Support workers: It is arguable that supplies of support services recommended and/or in relation to social work (or any of the other GST-free health services that may be provided as part of the treatment package), but delivered by the support workers, could also qualify as ‘social work’ (or other GST-free health services) provided on behalf of the recognised professional social worker. However, for a supply provided by an assistant to be a part of a GST-free supply by a recognised professional, amongst other things, the recognised professional would need to supervise the support worker directly by: ● attending to the patient at the start of each treatment ● being readily available for the whole time the assistant works with the patient ● being available to take appropriate action if there is an emergency ● planning all the treatment the assistant provides, and ● being able to provide evidence that they monitor the assistant’s services. Support workers are rostered on at the facility 24/7 and provide care and supervision to the clients when other recognised professionals are not physically present. Based on the facts, the recognised professionals do not supervise the support worker as per the requirements above and therefore, supplies by the support workers are not part of any GST-free supplies made by those recognised professionals. For a detailed explanation of the GST-free treatment other health services under subsection 38-10(1) of the GST Act, please refer to the additional guidance below under the heading ‘GST-free supplies’. | Detailed Reasoning - Conclusion: Your supply of the treatment package is not a composite supply of a single GST-free health service (being social work or any other listed health service) but is a mixed supply of a drug addiction treatment package involving separately identifiable parts of services performed by various personnel, together with a supply of accommodation, food and amenities. Each health and support service (including accommodation, food and amenities) supplied as part of the package must be analysed separately for GST purposes. 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 a mixed supply between the taxable and non-taxable parts to find the consideration for the taxable part. Paragraphs 26 to 27 of GSTR 2001/8 provide that you may use any reasonable basis to apportion the fee between the taxable, GST-free or input taxed portions of your supply. These paragraphs are reproduced below: 26. Apportionment must be undertaken as a matter of practical commonsense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances. 27. You should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply. 8 Note: This ruling only considers whether the supply of drug addiction treatment packages designed and delivered by your social worker is a composite GST-free supply under subsection 38-10(1) of the GST Act and does not deal with the GST treatment of each supply in the package.