Private ruling: Goods and services tax (GST) and medical practitioner services
Published: November 2013

Ruling: Q1: Was the certain percentage remitted to you /related company (company 1) from payments collected by the medical practice company (company 2) for medical services provided by you to patients of company 2 from a certain date consideration for GST-free supplies under A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. The payments in question were not consideration for GST-free supplies. GST is payable on the payments in question.

Relevant facts and circumstances: You are a medical practitioner You were registered for GST from a certain date to a certain date. You earn over $75,000 a year in business income from working as a doctor. Company 2 operates a medical practice. You entered into a Contractor Agreement with company 2 on a certain date. Under the Contractor Agreement, you agreed to provide medical services as a general practitioner to patients of the practice. This Contractor Agreement states that: · company 2 requires the provision of services as specified in a certain schedule · company 2 shall pay you (the contractor) at an agreed rate of a certain percentage of receipted billings + something with a guarantee of a certain amount p/hr for a certain period of time · you are aware that you will be making your own arrangements for taxation, superannuation and medical indemnity insurance, and · this agreement commenced on a certain date and shall continue on an ongoing basis. Company 2 provided: · a room/premises from which you could practice · administrative support personnel and services, and · equipment to enable you to carry on your practice of medicine (excluding a stethoscope, otoscope and opthalmoscope which you were required to supply) You are a director of, and shareholder in, company 1. You nominated and directed the certain percentage to be paid into the company 1 bank account. Company 1 has been registered for GST from a certain date. The Contractor Agreement was not revoked, replaced or amended and continued to govern the relationship between you and company 2. There was no change in the character of the relationship between the parties. Remittances up to a certain date Up until a certain date, you received payment advices from company 2. For each remittance period up to a certain date: · company 2 deducted nurse item numbers from the gross fees charged to patients etc for services you performed · from the balance (ie after deducting nurse item numbers), company 2 retained 30% of the remaining billings plus GST (stated to be the Service Fee) · the payment advices included a section 'For your information', which identified the 'GST' claimable by you on the Service Fee. Remittances for a certain date to a certain date Between a certain date and a certain date, you received payment advices from company 2. For each remittance period from a certain date to a certain date: · company 2 deducted nurse item numbers from the gross fees charged to patients etc for services you performed · from the balance (ie after deducting nurse item numbers), company 2 retained the Service Fee (being a certain percentage of the remaining billings plus GST) · the payment advices no longer had a 'For Your Information' section but did record the amount of GST retained by company 2 as a portion of the Service Fee, as paid to the Australian Taxation Office. Remittances for a certain date to a certain date After a certain date, you received payment advices from company 2. For each remittance period between a certain date and a certain date: · company 2 deducted nurse item numbers from the gross fees charged to patients etc for services you performed · from the balance (ie after deducting nurse item numbers), company 2 retained on account of the Service Fee payable to company 2 a certain percentage only (ie. no GST was retained) · the payment advices recorded that the amount remitted to you was Total Gross Billings minus the Service Fee inclusive of GST. The payment advice for the remittance period ending on a certain date included a handwritten statement 'from a certain date GST inclusive, you have to pay it with your BAS'. Virtually all of the patients of company 2 are Medicare bulk billed. The medical services rendered for the remainder of patients would largely be generally accepted in the medical profession as being necessary for the appropriate treatment of the patient.

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 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 38-7 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: You were not making GST-free supplies of medical services to company 2 because Medicare benefits were not payable for these supplies and the services you supplied to company 2 were not for the treatment of the recipient of the supply, which was company 2. GST was payable by you on the payments in question because: · you made supplies for consideration (the payments in question) · you made these supplies in the course or furtherance of an enterprise that you carry on · these supplies were connected with Australia · you are required to be registered for GST, and · these supplies were not GST-free or input taxed. | Detailed Reasoning - Detailed reasoning: GST is payable by you on your taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act which states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (*Denotes a term defined in section 195-1 of the GST Act) You meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act. This is because: · you supplied services for consideration · you supplies these services in the course or furtherance of an enterprise that you carry on, and · your supplies of the services were connected with Australia. There are not provisions of the GST Act under which the supplies in question would have been input taxed. Therefore, what remains to be determined is whether you are registered or required to be registered for GST and whether you made GST-free supplies in return for the payments in question. | Detailed Reasoning - Required to be registered for GST: An entity is required to be registered for GST if it meets the requirements of section 23-5 of the GST Act, which states: You are required to be registered under this Act if: (a) you are *carrying on an *enterprise; and (b) your *GST turnover meets the *registration turnover threshold. You are carrying on an enterprise. Therefore, you meet the requirement of paragraph 23-5(a) of the GST Act. You earn over $75,000 a year in GST turnover. Therefore, you meet the requirement of paragraph 23-5(b) of the GST Act. As you meet both requirements of section 23-5 of the GST Act, you are required to be registered for GST. Therefore, you meet the requirement of paragraph 9-5(d) of the GST Act. | Detailed Reasoning - GST-free supplies of medical services: A supply of a medical service (as defined in the GST Act) is GST-free under subsection 38-7(1) of the GST Act. Medical service is defined in section 195-1 of the GST Act to mean (a) a service for which Medicare benefit is payable; or (b) 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. Paragraph 23 of Goods and Services Tax Ruling GSTR 2006/9 provides that when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow). Examples 4 and 5 in GSTR 2006/9 are examples of such a contractual arrangement. Paragraphs 157 to 160 of GSTR 2006/9 state: Example 4: ambulance services supplied to hospital 157. A, a supplier of ambulance services, enters into an agreement with B, a hospital, under which A agrees to provide ambulance services as and when B requests them and B agrees to pay for the services. B is not an Australian government agency. The obligations under the agreement between A and B are binding. 158. Pursuant to the agreement, A transfers C, a patient, from hospital B to another hospital. The transfer of C is in the course of C's treatment and B pays A to provide A's services to C. 159. The recipient of A's supply of ambulance services is hospital B. A's supply is made to B and provided to C. (See GSTR 2006/9 on ato.gov.au for diagram) 160. One of the requirements under subsection 38-10(5) for a supply of an ambulance service to be GST-free is that the service is supplied in the course of treating the recipient of the supply. As hospital B is the recipient of the supply, not the patient, and there is no treatment of the hospital, the supply of the ambulance service is not GST-free. Paragraphs 161 to 164 of GSTR 2006/9 state: Example 5: occupational therapist 161. A, an occupational therapist, is engaged by B, a company, to assess the needs of C, its employee. C suffers from multiple sclerosis and needs to use a wheelchair. A and B enter into an agreement which requires A to undertake an assessment of C's condition, to give recommendations in a report to B and for B to pay for the service. 162. A's supply of services is made to B. Although C may benefit from these services, it is B who contracts for the supply of these services and is the recipient of the supply. (See GSTR 2006/9 on ato.gov.au for diagram) 163. This supply is not GST-free under subsection 38-10(1). This is because paragraph 38-10(1)(c) requires the supply to be generally accepted in the relevant profession as being necessary for the appropriate treatment of the recipient of the supply. B is the recipient of the supply. The supply is not for the treatment of B. Paragraph 38-10(1)(c) is not satisfied. 164. If C engages the occupational therapist to supply its services and B merely pays the therapist on behalf of C, the recipient of the occupational therapist's services is C. This supply will be GST-free if all of the requirements of subsection 38-10(1) are satisfied. ( See GSTR 2006/9 on ato.gov.au for diagram ) The Contractor Agreement you had with company 2 indicates that company 2 had contracted you to supply services. The recipient of the supplies you made in return for the payments company 2 made to you/company 1 was company 2 because company 2 contracted you to make supplies to it in return for these payments. This is despite the fact that you provided the supplies to third parties, for example, patients. Medicare benefits were not payable for the supplies you made to company 2 (although they are payable on many of the supplies company 2 makes to patients). Therefore, you did not make supplies of medical services under paragraph (a) in return for the payments in question. As your supplies to company 2 were not for the appropriate treatment of the recipient of the supply, which was company 2, you did not make supplies of medical services under paragraph (b) in return for the payments in question. Therefore, you did not make supplies of medical services (as defined in the GST Act) in return for the payments in question. Hence, you did not make GST-free supplies under subsection 38-7(1) of the GST Act in return for the payments in question. There are no other provisions of the GST Act under which you were making GST-free supplies to company 2 in return for the payments in question. Therefore, as all of the requirements of section 9-5 of the GST Act are met, you made taxable supplies to company 2 in return for the payments in question. Hence, GST is payable by you on the payments in question. (The GST status of the supplies you made to company 2 is not determined by the GST status of the supplies company 2 made to patients etc.)