Private ruling: GST and a mixed supply of medical services
Date of advice: 23 January 2017
Published: July 2017

Ruling: Q1: Is the supply of cosmetic medical procedure made by a registered medical practitioner in the course of a medical procedure GST-free? | A1: Yes | Q2: Is the medical service of administering a cosmetic medical procedure provided by a registered medical practitioner in the course of a medical procedure GST-free? | A2: No, unless one of the exceptions apply. | Q3: If a supply is comprised of both taxable and GST-free elements, what proportion of the consideration received is subject to GST? | A3: Only the taxable part of the supply is subject to GST and any method of apportionment used to ascertain the taxable part must be fair and reasonable and able to be substantiated.

Relevant facts and circumstances: You are a cosmetic and specialised medical service clinic, and you are registered for GST. You provide two types of services: ● specialised medical service checks and surgery, and ● administering a cosmetic medical procedure. These services are carried out by a registered medical practitioner. You have not been charging GST on supplies made by you in either of these services as you thought that they were GST free. Prior to any treatment being performed, every patient has a consultation with a registered medical practitioner. The medical substances provided are prescription medicines and are listed in Schedule 4 of the Standard for the Uniform Scheduling of Drugs and Poisons (SUSDP). You believe that your application of cosmetic medical procedure has an immediate, positive effect on your clients' confidence and self-worth. You issue recipients of the cosmetic medical procedures a single invoice, featuring a total comprised solely of the costs of the medical substances provided. No separate medical services fee is included on the invoice.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) 1999 section 38-7 | A New Tax System (Goods and Services Tax) 1999 section 38-50 | A New Tax System (Goods and Services Tax) 1999 section 195-1 | A New Tax System (Goods and Services Tax) 1999 section 9-80

Reasons for decision: Summary: Section 38-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) outlines the circumstances in which the supply of a drug or medicinal preparation will be GST-free. As a threshold issue, subsection 38-50(7) of the GST Act provides that the section will only apply if ● the drug or medicinal preparation is for human use or consumption, and ● the supply is to an individual for private or domestic use or consumption. On the basis of the facts provided, it is apparent that the cosmetic medical procedure you provide are preparations fit for human use, and that you make the supply of those substances to your patients as individuals for private use. Therefore, your supplies fall within the scope considered by section 38-50 of the GST Act and may be considered GST-free if they meet the requirements of a subsection to that section. Subsection 38-50(1) of the GST Act provides that a supply of a drug or medicinal preparation is GST-free if the supply is on prescription and: ● 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 ● the drug or medicinal preparation is a pharmaceutical benefit (within the meaning of Part VII of the National Health Act 1953 ). You have indicated that the relevant cosmetic medical procedure substances are listed in Schedule 4 of the SUSDP. The SUSDP have been adopted for use in the State in which you make supplies through State legislation. Further State legislation provides that substances listed in Schedule 4 of the SUSDP must not be prescribed except in certain circumstances. Therefore, supply of Schedule 4 of the SUSDP medicinal preparations is restricted under a State law in the State in which you make such supplies. It follows that your supply of cosmetic medical procedure substances listed in Schedule 4 of the SUSDP by a registered medical practitioner to an individual for private use or consumption in the course of a medical procedure is GST-free. For the purposes of the GST Act, a 'medical service' is defined at section 195-1 as: ● a service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973 , or ● any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply. Section 38-7 of the GST Act outlines the circumstances in which the supply of a medical service will be GST-free. Subsection 38-7(1) of the GST Act provides the initial, general position that the supply of a medical service is GST-free. However, subsection 38-7(2) of the GST Act provides that a supply of a medical service is not GST-free under subsection (1) if: ● it is a supply of a professional service rendered in prescribed circumstances within the meaning of regulation 14 of the Health Insurance Regulations made under the Health Insurance Act 1973 (other than the prescribed circumstances set out in regulations 14(2)(ea), (f) and (g)), or ● it is rendered for cosmetic reasons and is not a professional service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973 . In regards to the service of administering cosmetic medical procedure, this service will not be GST-free if: ● the medical service is rendered for cosmetic reasons, and ● the service is not a professional service for which a Medicare benefit is payable under Part II of the Health Insurance Act 1973 . If a Medicare benefit is payable in relation to a medical service provided by you then it is not necessary to enquire whether the service was rendered for cosmetic reasons as the supply would be GST-free. It is considered that the term 'payable' as it appears in subsection 38-7(2) of the GST Act is satisfied if the service is one that could be submitted to Medicare for payment. That is, it is our understanding that certain applications of cosmetic medical procedure appear on the Medicare Benefits Schedule, entitling the recipient to a Medicare benefit. However, if a Medicare benefit is not payable then it is necessary to consider whether the medical service is rendered for cosmetic reasons. The term 'for cosmetic reasons' is not defined in the GST Act and, as such, the term will take on its ordinary meaning. The Macquarie Concise Dictionary defines 'cosmetic' as: 'serving to beautify: imparting or improving beauty, especially of the complexion: designed to effect a superficial alteration while keeping the basis unchanged'. Therefore, a medical service will be rendered for cosmetic reasons if it is predominantly performed for, or is rendered for the purpose of permitting, the improvement of the personal appearance of a patient, such as a face-lift. Whether a service is for cosmetic reasons must be evaluated on a case by case basis. Procedures that alter or enhance a patient's appearance but have no medical or reconstructive purpose are considered to be cosmetic and are taxable. The fact that a cosmetic procedure may have ensuing positive impacts on mental health does not prevent the underlying, predominant purpose of the initial procedure being beautification. However, a procedure that is performed for medical or reconstructive reasons is not cosmetic and is GST-free. A procedure will be for medical reasons if it is predominantly performed for, or is rendered for the purpose of permitting, the alteration of a significant defect in appearance caused by disease, trauma or congenital deformity and: ● it is recommended by a psychiatrist or psychologist as being necessary for the psychological wellbeing, or for the appropriate treatment of a psychiatric condition, of that patient, or ● the patient is less than 18 years of age and a defect is in an area of the body, which normally and usually would not be clothed. Typically, procedures to alleviate the appearance of facial features and would not be considered to be altering a significant defect: such defects would generally fall short of the required level of severity. For guidance, an example of altering a significant defect with a reconstructive purpose is performing a skin graft on a burn victim. Therefore, the supply of the medical service you make in administering cosmetic medical procedure is not GST-free, except where either: ● a Medicare benefit is payable for the service under Part II of the Health Insurance Act 1973 , or ● the service is a procedure that is performed for medical or reconstructive reasons, as discussed above. Section 9-80 of the GST Act concerns the supplies that are partly taxable and partly GST free or input taxed, and describes how to calculate the value of the part of the actual supply that is a taxable supply. In addition, Goods and Services Tax Ruling 2001/8: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) provides guidance on this issue. The ruling classifies supplies that contain separately identifiable taxable and non-taxable parts as 'mixed supplies'. It is considered that your cosmetic medical procedures are generally mixed supplies, as they are comprised of a taxable element, being the medical service, and a non-taxable element, being the provision of the cosmetic medical substance. Paragraph 25 of GSTR 2001/8 provides that the consideration received for a mixed supply must be apportioned between the taxable and non-taxable parts. Following on from this, paragraph 26 states: 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. This means that you may use any reasonable method (direct or indirect) to apportion the consideration for a mixed supply. However, the apportionment must be fair and reasonable in the circumstances of the case and not just the method that gives the best result. Plus, you must keep records to explain the method used. As well, if you issue a single invoice for your cosmetic medical procedures, you must apportion the consideration received for the procedure and account for GST on the taxable element, being the medical service. Examining your circumstances, it is considered that it would be unreasonable to conclude that no consideration relates to the medical service, due to the level of professional skill and time involved.