Private ruling: Goods and services tax and medical aids
Published: August 2014
Ruling period: N/A
Date scheme commenced: N/A

Ruling: Q1: Is your supply of pulse oximeters a GST-free supply under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | A1: No, your supply of pulse oximeters is not a GST-free supply under subsection 38-45(1) of the GST Act.

Relevant facts and circumstances: You are registered for GST. You are a new supplier of a medical device called the pulse oximeter. You are going through the process of setting up the pulse oximeter with the Therapeutic Goods Administration (TGA) and are waiting for an Australian Register of Therapeutic Goods number (ARTG number). You have advised that a pulse oximeter is a wireless medical device that monitors pulse rate and oxygen saturation through a person's fingertip. You have asked us to consider if the pulse oximeter is a GST-free medical aid under the following items of Schedule 3 - Medical aids and appliances of the GST Act: • Item 1 - Cardiovascular - heart monitors • Item 129 - Respiratory appliance - peak flow meter • Item 136 - Respiratory appliances - oxygen concentrators • Item 137 - Respiratory appliances - breathing monitors


Reasons for decision: Summary: A supply of a medical aid or appliance will be GST-free where it satisfies section 38-45 of the GST Act. Section 38-45 of the GST Act states: (1) 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. (2) A supply is GST-free if the thing supplied is supplied as a spare part for, and is specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection (1). (3) However, a supply is not GST-free under subsection (1) or (2) if the supplier and the recipient have agreed that the supply, or supplies of a kind that include that supply, not be treated as GST-free supplies. The first requirement of subsection 38-45(1) of the GST Act is that the item must be listed in Schedule 3 to the GST Act or specified in Schedule 3 to A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations). A pulse oximeter is not specifically listed in Schedule 3; nor is it specified in the Regulations. As such it is necessary to determine whether a pulse oximeter is a medical aid or appliance that is covered by Schedule 3. ATO Interpretative Decision ATO ID 2004/804 GST and spare part for a vital signs monitor states: In a Sales Tax context, in determining how goods might be covered by one or other of the items in the various Schedules, the tribunals and courts have often looked to the 'essential character' or 'objective characterisation' of goods. Essential character tests have been established by the Courts in cases such as Thomson Australia Holdings Pty Ltd v. Federal Commissioner of Taxation (1988) 20 FCR 85; 88 ATC 4916; (1988) 19 ATR 1896 and FC of T v. Rotary Offset Press Pty Ltd 71 ATC 4170; (1971) 2 ATR 411. Davies J. said in Thomson Australia Holdings: the task of the court is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have. Essential character derives from the basic nature of the goods, from what they are, though composition, function and other factors necessarily play a part. ….. Similarly for GST, to determine whether a thing is covered by an item in Schedule 3 or the GST Regulations, it is considered necessary to have regard to the essential character of the thing. This means deciding what the goods essentially are, as distinct from merely identifying one of a number of characteristics the goods might have. This approach relies upon deciding what is the basic nature of the goods and involves consideration of what the goods are made of and what they might be used for. Therefore in determining whether the pulse oximeter is covered by any of the items in Schedule 3, it is necessary to determine its primary function or essential character relative to the items listed in Schedule 3. | Detailed Reasoning - Item 1 - heart monitors: The term 'heart monitors' is not defined in the GST Act. The Stedman's Medical Dictionary (2000) defines a cardiac (heart) monitor to mean: 'an electronic monitor which, when connected to the patient, signals each heart beat with a flashing light, an electrocardiographic curve, an audible signal, or all three'. Accordingly, a device with the primary function of monitoring a patient's heartbeat is considered to be a 'heart monitor' and is covered by item 1 in Schedule 3 to the GST Act. The Stedman's Medical Dictionary (2000) defines an oximeter as 'an instrument for determining photoelectrically the oxygen saturation of a sample of blood'. 'Pulse oximetry' is defined as a procedure performed usually on the finger or the ear lobe 'in which the small increase in the absorption of light during the systolic pulse is used to calculate oxygen saturation'. Accordingly, a pulse oximeter's primary function is not to monitor a patient's heartbeat but rather to determine the oxygen saturation in the blood. The function of measuring the pulse rate is ancillary to its primary function of measuring the oxygen saturation in the blood. Therefore, a pulse oximeter is not a 'heart monitor' for the purposes of item 1. (See ATO Interpretative Decision ATO ID 2001/303 GST and pulse oximeters ). | Detailed Reasoning - Item 129 - peak flow meter: The term 'peak flow meter' is not defined in the GST Act. The Stedman's Medical Dictionary defines a peak flow meter as 'A portable instrument that detects minute decreases in air flow and that is used by people with asthma to monitor small changes in breathing capacity.' Generally the device requires you to blow into it to measure lung capacity in asthma cases. The pulse oximeter does not perform this function and therefore it is not a 'peak flow meter' for the purposes of item 129. | Detailed Reasoning - Item 136 - oxygen concentrators: GST Pharmaceutical Health Forum - issues register - attachment A - schedule 3 - medical aid or appliance describes Item 136 - oxygen concentrators as 'A device used to concentrate the amount of oxygen in/from the surrounding air'. The pulse oximeter does not perform this function and therefore is not an 'oxygen concentrator' for the purposes of item 136. | Detailed Reasoning - Item 137 - breathing monitors: The term 'breathing monitors' is not defined in the GST Act. The health industry considers a breathing monitor to be a device with the primary purpose of measuring a patient's breathing in circumstances where such monitoring is essential (for example, the patient is unconscious, under an anaesthetic, etcetera) (See ATO Interpretative Decision ATO ID 2002/301 GST and the supply of an indirect calorimeter ). The pulse oximeter's primary function is not that of a breathing monitor as stated above and therefore it is not a 'breathing monitor' for the purposes of item 137. | Detailed Reasoning - Conclusion: A pulse oximeter's primary function is to determine the oxygen saturation in the blood rather than to perform the functions of the devices listed in Items 1, 129, 136 and 137 as described above. Any other function it may perform is ancillary to this primary function. Additionally, pulse oximeters are not covered by any of the other items in Schedule 3 to the GST Act or Schedule 3 to the GST Regulations. Hence, your sales of pulse oximeters do not satisfy the condition at paragraph 38-45(1)(a) of the GST Act. As your sales of the pulse oximeters do not satisfy all of the requirements of subsection 38-45(1) of the GST Act, they are not GST-free under that provision. Your supply of the pulse oximeters is neither GST-free under any other provision of Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. You are registered for GST and where your supply of the pulse oximeters satisfies the other positive limbs of section 9-5 of the GST Act, that is, the supply is made for consideration, is made in the course of furtherance of an enterprise that you carry on and is connected with Australia, it will be a taxable supply and be subject to GST.