Private ruling: GST and supplies of care in a third party arrangement
Date of advice: 28 May 2020
Published: July 2020

Ruling: Q1: 1. Does the supply of services under Agreement A meet the requirements of a GST-free supply under Subdivision 38-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? 2. Does the supply of services under Agreement B meet the requirements for a GST-free supply under Subdivision 38-B of the GST Act? | A1: 1. Yes, the supplies of specified services are GST-free under Subdivision 38-B of the GST Act where those services are supplied to individuals, the exceptions being the supply of services which are not integral, ancillary or incidental to a GST-free supply of care services. The supply to entity B of making the supplies of GST-free services to individuals under Agreement A is GST-free under subsection 38-60(2) of the GST Act. 2. Yes, the supplies of specified services are GST-free supplies of services under Subdivision 38-B of the GST Act where those services are supplied to individuals, the exceptions being the supply of specified services. The supply to entity B of making these GST-free supplies of care services to individuals under Agreement B is GST-free under subsection 38-60(2) of the GST Act.

Relevant facts and circumstances: Entity A (you) is a not for profit organisation providing a range of care services. Entity A has entered into Agreement A and Agreement B with entity B for Entity A to provide care services to individuals, in accordance with the Agreements. Copies of Agreements A and B were provided setting out the agreed services to be provided and the fees.

Relevant legislative provisions: A New Tax System (Goods and Services) Tax Act 1999 (GST Act) Subdivision 38-B | Section 38-10 | Subsection 38-25(3) | Subsection 38-30(3) | Section 38-60

Reasons for decision: Summary: Under subdivision 38-B of the GST Act, the supply of certain health services are GST-free. Supplies of those health services are generally only GST-free where provided to a recipient who is the actual patient. Supplies of services to another business are not usually GST-free. Medical and other health services are sometimes provided under multi-party arrangements where the service for a patient is organised and paid for by a third party. Section 38-60 of the GST Act provides that when certain specified entities contract with a supplier to supply health services to individual patients, the supply to the specified entity will be GST-free to the extent that the supply of health services from the supplier to the patients is GST-free under subdivision 38-B of the GST Act. In this scenario entity A has been contracted by entity B to provide certain supplies under Agreement A and Agreement B to individual recipients. Entity B meets the costs of services provided to the individuals. As a result, the supply by entity A to entity B of the service of supplying health services to individual recipients will be GST-free to the extent that the supplies from entity A to the individual recipients are GST-free under the provisions of subdivision 38-B of the GST Act. However, for administrative ease, under subsection 38-60(4), the parties may agree for the supply to entity B, or supplies of a kind that include that supply, not to be treated as GST-free. | Detailed Reasoning - Home care services - subsection 38-30(3) of the GST Act: Subsection 38-30(3) is relevant where the supplier of home care services does not receive any government funding for the care. Subsection 38-30(3) of the GST Act states that: A supply of *home care is GST-free if the supply is of services: (a) that are provided to one or more aged or disabled people; and (b) that are of a kind covered by item 2.1 (daily living activities assistance) of Part 2 of Schedule 1 to the *Quality of Care Principles. To satisfy the elements of this provision, there must be a supply of 'home care' comprising certain services that are 'provided' to one or more aged/disabled people 'Home care' has the meaning given by section 45-3 of the Aged Care Act 1997 which provides : Home care is care consisting of a package of personal care services and other personal assistance provided to a person who is not being provided with residential care. Part 2 of Schedule 1 of the Quality of Care Principles 2014 states the following items of daily living activities assistance (Item 2.1): | Detailed Reasoning - Content: 2.1 Daily living activities assistance Personal assistance, including individual attention, individual supervision, and physical assistance, with the following: (a) bathing, showering, personal hygiene and grooming; (b) maintaining continence or managing incontinence, and using aids and appliances designed to assist continence management; (c) eating and eating aids, and using eating utensils and eating aids (including actual feeding if necessary); (d) dressing, undressing, and using dressing aids; (e) moving, walking, wheelchair use, and using devices and appliances designed to aid mobility, including the fitting of artificial limbs and other personal mobility aids; (f) communication, including to address difficulties arising from impaired hearing, sight or speech, or lack of common language (including fitting sensory communication aids), and checking hearing aid batteries and cleaning spectacles. Excludes hairdressing. Common examples of services that are not covered by item 2.1 of Part 2 of Schedule 1 to the Quality of Care Principles (item 2.1) are: · hairdressing · housework and gardening · preparing meals and grocery shopping for individuals · aids, appliances and monitoring medication, however they may be GST-free health supplies under a different section of the GST Act. · rehabilitation and health care services, however they may be GST-free health supplies under a different section of the GST Act · help with writing cheques, emails and letter · advocacy services · accommodation · driving individuals to and from appointments and social activities · social and community activities, such as providing companionship, craft and reading activities to individual The supply of social and community activities is not a supply that is covered by item 2.1. However, if you supply services which are covered by item 2.1 to a care recipient at a social or community activity the supply of these item 2.1 home care services will be GST-free. Further, subsection 38-30(3) of the GST Act does not require such services be performed within the patient's residence, and accordingly, these item 2.1 services will be GST-free irrespective of whether those services are provided within a patient's residence or whilst outside that residence. Time spent not actively caring for the individual, but simply being there to provide services of a kind covered by item 2.1 (daily living activities assistance) of Part 2 of Schedule 1 to the Quality of Care Principles as the individual requires, will be GST-free. In summary, where the home care services you supply are of a kind covered by Item 2.1 daily living activities assistance and are supplied to aged or disabled people the supply of those services will be GST-free. There is no requirement in subsection 38-30(3) that the supplier receives a subsidy or funding from the government in respect of the care services supplied. Nursing services - subsection 38-10(1) of the GST Act A supply of nursing services may be GST-free under subsection 38-10(1) of the GST Act which provides: A supply is GST-free if: (a) it is a service of a kind specified in the table in this subsection, or of a kind specified in the regulations; and (b) the supplier is a *recognised professional in relation to the supply of services of that kind; and (c) 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. | Detailed Reasoning - Service: 1 Aboriginal or Torres Strait Islander health 2 Acupuncture 3 Audiology, audiometry 4 Chiropody 5 Chiropractic 6 Dental 7 Dietary 8 Herbal medicine (including traditional Chinese herbal medicine) 9 Naturopathy 10 Nursing 11 Occupational therapy 12 Optometry 13 Osteopathy 14 Paramedical 15 Pharmacy 16 Psychology 17 Physiotherapy 18 Podiatry 19 Speech pathology 20 Speech therapy 21 Social work A recognised professional is a person who is registered, permitted or approved under state or territory law to provide the listed health service. In practice, nurses who are registered with the Australian Health Practitioner Regulation Agency (AHPRA) will satisfy this requirement for being recognised professional nurses. | Detailed Reasoning - Care services in a residential setting: Where no government funding is received, subsection 38-25(3) may be relevant to services supplied in a residential setting. Subsection 38-25(3) provides that a supply of services is GST-free if: (a) the services are provided to one or more aged or disabled people in a residential setting; and (b) the Aged Care Minister has determined in writing that the services are of a kind covered by Schedule 1 to the Quality care principles; and (c) the services include, and are only provided to people who require, the services (care services) set out in: (i) Item 2.1 (daily living activities assistance) of Part 2 of that Schedule; or (ii) Item 3.8 (nursing services) of Part 3 of that Schedule. Residential setting is not defined in the GST Act. Goods and Services Tax Ruling GSTR 2012/3: Goods and services tax: GST treatment of care services and accommodation in retirement villages and privately funded nursing homes and hostels (GSTR 2012/3) explains at paragraph 8, that privately funded nursing homes and aged-care hostels that provide care to aged or disabled people, are considered to be a residential setting for the purposes of paragraph 38-25(3)(a) of the GST Act where they have the following characteristics: · residents do not have a proprietary interest in the property; · residents can be moved at the operator's discretion under certain circumstances; · premises are marketed and held out to the public as a place for care and accommodation, rather than just accommodation; and · residents have limited rights compared to residents who lease or own their premises. This is subject to the application of subsection 38-25(3A) about serviced apartments in retirement villages, the meaning of 'residential setting' in the context in which it appears in paragraph 38-25(3)(a) does not include a person's private home, and excludes settings in which care may be provided but is medical in nature, such as a hospital or a psychiatric facility. Example 1 at paragraph 9 of GSTR 2012/3 provides an example to illustrate the concept of residential setting: | Detailed Reasoning - Example 1 - Residential setting: 9. Redi-Care (RC) is a privately funded facility that provides accommodation and care for aged and disabled people. RC provides studio style apartment accommodation to its 30 residents. All of the residents receive some item 2.1 services for assistance with daily living. Several of the residents also receive some item 3.8 nursing services. These services are provided by a registered nurse and care and support staff employed by RC. 10. Residents occupy the studio apartment accommodation provided by RC by way of licence under an accommodation agreement. The accommodation agreement does not provide the resident with exclusive possession of a particular studio apartment and stipulates that the resident may be moved to a different studio apartment or location at the operator's discretion, to allow the care needs of the resident to be met. 11. RC provides care services to residents. The residents have no proprietary interest in their accommodation. The occupancy rights of the residents are not commensurate with owners or tenants residing in their own private homes. The care services supplied to residents of RC are provided in a 'residential setting' for the purposes of paragraph 38-25(3)(a). Further, Example 2 of GSTR 2012/3 provides an illustration of what is not a 'residential setting': | Detailed Reasoning - Example 2 - Not a 'residential setting': 12. Plane View (PV) is a privately funded aged care facility that provides accommodation and services for aged or disabled people in one room, studio style apartments. All of the 25 residents of PV receive some item 2.1 services for assistance with daily living. These services are provided by care and support staff employed by PV. 13. PV residents occupy their accommodation by way of lease of an apartment within the facility. Under the lease, residents have exclusive occupancy of a specific studio apartment. The resident cannot be unilaterally moved to another apartment by the operator of PV. The resident can have overnight guests, and does not have to seek approval for temporary absences, for example, to attend external appointments or to visit friends and relatives. 14. The services supplied to residents by PV are not provided in a 'residential setting' and are not GST-free under subsection 38-25(3) . The occupancy rights of residents of PV are such that they are tenants living in their private homes. Based on the facts provided, we consider that the requirement under paragraph 38-25(3)(a) of the GST Act is met. For the purposes of paragraph 38-25(3)(b) of the GST Act, the Aged Care Minister has made a written determination being the A New Tax System (Goods and Services Tax) (GST-free Supply - Residential Care - Non-government-Funded Supplier) Determination 2015 (the 38-25(3) Determination). This 38-25(3) Determination duplicates the services listed in Schedule 1 of the Quality of Care Principles and provides that these services are of a kind covered by Schedule 1 to the Quality of Care Principles if supplied in the circumstances mentioned in the 38-25(3) Determination. Section 6 of the Determination provides that the circumstances are that: · the resident has a continuing need for the services mentioned in item 2.1 or 3.8 of Schedule 1 to the QOC, and · the services are supplied, under a written agreement with the supplier, as a package made up of: · the services mentioned in item 2.1 or 3.8, and · the other services mentioned in Schedule 1 that are needed by the resident, and · accommodation; and · the charges for services and for accommodation are payable to the same entity. Services supplied to residents who do not satisfy these requirements are not GST-free supplies of residential care under subsection 38-25(3) of the GST Act. In addition, paragraph 38-25(3)(c) must be satisfied. Paragraphs 73-75 of GSTR 2012/3 explain that paragraph 38-25(3)(c) of the GST Act, requires services to be provided to a resident who requires item 2.1 services for daily living activities assistance or item 3.8 services. This is similar to the requirement in the 38-25(3) Determination for paragraph 38-25(3)(b) which requires a care recipient to have a continuing need for those services. It is not necessary for the resident to require and to have a continuing need for all of the item 2.1 and item 3.8 services set out in Schedule 1 of the Quality of Care Principles. However, a resident must have a current existing need for one or more of those services that is ongoing rather than isolated or sporadic. In determining whether this requirement is satisfied, the Commissioner will consider objective evidence of a resident's requirement and continuing need for item 2.1 or item 3.8 services. This objective evidence may include one or more of the following factors: · a report of an assessment of a resident's care requirements by a registered medical practitioner; · a report of an assessment of a resident's care requirements by a registered nurse, a registered physiotherapist, or a registered occupational therapist; or · a report of an assessment of a resident's care requirements undertaken by more than one person, including at least one registered health professional. The Quality of Care Principles in item 2.1 were discussed in detail above. Item 3.8 of Schedule 1 of the Quality Care Principles specifies the following services: Nursing services Initial assessment and care planning carried out by a nurse practitioner or registered nurse, and ongoing management and evaluation carried out by a nurse practitioner, registered nurse or enrolled nurse acting within their scope of practice. Nursing services carried out by a nurse practitioner, registered nurse or enrolled nurse, or other professional appropriate to the service (for example, medical practitioner, stoma therapist, speech pathologist, physiotherapist or qualified practitioner from a palliative care team), acting within their scope of practice. Services may include, but are not limited to, the following: (a) establishment and supervision of a complex pain management or palliative care program, including monitoring and managing any side effects; (b) insertion, care and maintenance of tubes, including intravenous and naso-gastric tubes; (c) establishing and reviewing a catheter care program, including the insertion, removal and replacement of catheters; (d) establishing and reviewing a stoma care program; (e) complex wound management; (f) insertion of suppositories; (g) risk management procedures relating to acute or chronic infectious conditions; (h) special feeding for care recipients with dysphagia (difficulty with swallowing); (i) suctioning of airways; (j) tracheostomy care; (k) enema administration; (l) oxygen therapy requiring ongoing supervision because of a care recipient's variable need; (m) dialysis treatment. The Minister's determination referred to in paragraph 38-25(3)(b) of the GST Act also requires accommodation to be included in a package of services supplied to a resident under a written agreement, and the charges for both the services and accommodation must be payable to the same entity. However, accommodation is not required to be included in a package of services supplied to residents of serviced apartments when a serviced apartment is supplied by way of lease, hire or licence, or by sale, or by supply of certain securities; and the other circumstances stated in section 38-25(4A) of the GST Act apply. In those cases, the written agreement required by the 38-25(3) Determination only has to provide for a supply of a package of services. The written agreement required under the 38-25(3) Determination must stipulate a package of services that the operator is obligated to provide to the resident, consistent with the resident's care requirements, and those services must include some item 2.1 or item 3.8 services. A general provision in an accommodation agreement, lease, licence, or hire agreement stating that the provision of item 2.1 or item 3.8 services can be arranged if the resident requires them is not sufficient to satisfy the requirements specified in paragraph 6(4)(b) of the 38-25(3) Determination (GSTR 2012/3 paragraphs 76-80). Based on the information provided, most of the individuals in the residential setting would likely have a continuing need for the services mentioned in item 2.1 or item 3.8. Provided there is a written agreement between you and each resident that outlines the services that they will receive, consisting of a package made up of the requisite services, the care services will satisfy the requirements of paragraph 38-25(3)(b) on the basis that the individuals have a continuing need for the services mentioned in item 2.1 or item 3.8. As stated above, since most of the individuals would likely have a requirement and continuing need for the services mentioned in item 2.1 or 3.8 and the care services supplied to those individuals include item 2.1 or item 3.8 services, paragraph 38-25(3)(c) is met. Therefore, the supply of residential care services in the residential setting are GST-free under subsection 38-25(3) provided the individual has a requirement and continuing need for, and is provided with at least one of the services mentioned in item 2.1 or item 3.8 and there is a written agreement with each individual outlining the services they will receive as explained above. Further, we do not consider that the provision of a specified service is a supply that is ancillary, integral or incidental to the supply of care services under the Agreement B. As per the terms above, we consider that the specified service is a supply in its own right that you make to entity B under the agreement. As explained further below, 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), describes the characteristics of a supply that contains taxable and non-taxable parts, referred to as a mixed supply. It provides methods and examples that you may use to help you work out how to apportion the consideration for a mixed supply. The method of apportionment will need to be on a reasonable basis. A reasonable basis will be one which does not favour either the non-taxable part, or the taxable part over the other part of the supply. There is nothing specific in the GST Act that provides that these types of additional specified services are GST-free. The health provisions in Subdivision 38-B of the GST Act are very specific and prescriptive on the types of services that are GST-free. Only those health services specified in Subdivision 38-B are capable of being GST-free under the GST Act. 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), describes the characteristics of a supply that contains taxable and non-taxable parts. It refers to such supply as a 'mixed supply'. GSTR 2001/8 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 mixed supply is a supply consisting of at least one taxable and one non-taxable part, each of which is separately identifiable. A part of a supply will be recognised as separately identifiable if it is not integral, ancillary or incidental to another part of the supply. A composite supply is a supply with one identifiable/recognisable part, but also includes another supply that is not recognised in its own right - it is integral, ancillary or incidental to the dominant part of the supply. GSTR 2001/8 at paragraph 59 explains that no single factor (by itself) will provide the sole test to use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a common sense and practical approach, indicators that a part may be integral, ancillary or incidental include where: (a) 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; or (b) it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or (c) it contributes to the proper performance of the contract to supply the dominant part; or (d) it represents a marginal proportion of the total value of the package compared to the dominant part; or Further, GSTR 2001/8 states that you may treat a supply as integral, ancillary or incidental to a dominant supply if the consideration for it does not exceed the lesser of: $3.00, or 20% of the consideration for the total supply. The method of apportionment will need to be on a reasonable basis. A reasonable basis will be one which does not favour either the GST-free part, or the taxable part over the other part of the supply.