Private ruling: Goods and services tax (GST) and sale of mattress protectors.
Published: June 2012

Ruling: Q1: Will GST be payable on your sale of the mattress protectors? | A1: 

Relevant facts and circumstances: You are registered for GST. You will sell a number of mattress protector products as distributor for the manufacturer: The manufacturer will re-label the products with the (your name) brand for resale by you. You stated that the products in question are specifically designed for people with an illness or disability, that is, each has a waterproof membrane that will stop mattresses staining and dust mites and bacteria from breeding in mattresses and pillows. These products are used mainly by people who have the illness or disability of incontinence or suffer from dust mite allergies. You will not market the products on-line. You will sell the products to stores that sell mattresses such as certain retail stores. The manufacturer warranty cards completed by private consumers who have purchased the products reveal that a majority of private consumers of these products have incontinence/bed-wetting problems or allergies and a large minority do not have an illness or disability. You will supply the products Australia wide.

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 subsection 38-45(1) | A New Tax System (Goods and Services Tax) Act 1999 section 182-15

Reasons for decision: Summary: GST will be payable on your supplies of the products in question as all of the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied. Your supplies of the products will not be GST-free supplies of medical aids or appliances as they would be widely used by people without an illness or disability for the purposes of paragraph 38-45(1)(b) of the GST Act. | Detailed Reasoning - Detailed reasoning: GST is payable by you where you make a taxable supply. 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: · you make the supply for *consideration; and · the supply is made in the course or furtherance of an *enterprise that · you *carry on; and · the supply is *connected with Australia; and · 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) The requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied in your case. You will supply the products in question for consideration and in the course or furtherance of the enterprise that you carry on. Additionally, these supplies will be connected with Australia and you are registered for GST. There are no provisions in the GST Act under which your supplies of the products will be input taxed. Therefore, what remains to be determined is whether your supplies of the products will be GST-free. Subsection 38-45(1) of the GST Act provides that where the elements of that provision are satisfied, a supply of a medical aid or appliance is GST-free. Subsection 38-45(1) of the GST Act states: A supply is GST-free if: (a) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations (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. Item 16 in Schedule 3 (item 16) lists "waterproof covers or mattress protectors". Item 22 in Schedule 3 (item 22) lists "waterproof protection for beds and chairs". The term "waterproof covers or mattress protectors" as used in item 16 in Schedule 3 to the GST Act is very wide in meaning. For clarity as to the characteristics or class of goods that are covered, pursuant to section 182-15 of the GST Act, the category heading in the table may be used. The category heading relevant to item 16 is "Continence". Therefore, the Australian Taxation Office (ATO) considers that for a product to fall within item 16, the "waterproof covers or mattress protectors" must be designed for the purpose of assisting with the treatment or management of incontinence. Similarly, as the category heading relevant to item 22 is "Continence", the ATO considers that for a product to fall within item 22, the "waterproof protection for beds and chairs" must be designed for the purpose of assisting with the treatment or management of incontinence. The products in your case are waterproof mattress protectors and waterproof protection for beds. You stated that the products in question are specifically designed for people with an illness or disability, that is, each has a waterproof membrane that will stop mattresses staining and dust mites and bacteria from breeding in mattresses and pillows. You also stated that these products are used mainly by people who have the illness or disability of incontinence or suffer from dust mite allergies. This indicates that the products are specifically designed for the purpose of assisting with the treatment or management of incontinence and dust mite allergies. Therefore, the products are covered by item 16 and item 22 and are specifically designed for people with an illness or disability for the purposes of paragraph 38-45(1)(b) of the GST Act. Issue 1.d. of the GST Pharmaceutical Health Forum - issues register provides guidance on determining whether a medical aid or appliance is widely used by people without an illness or disability. It states: 1.d. What factors should be taken into account in determining whether a medical aid or appliance is widely used by people without an illness or disability? This issue is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953 . In determining whether a medical aid and appliance is used by people without an illness or disability reference should be made to how the wider community uses these goods. That is, the common purpose for which the goods are purchased. Subsection 38-45(1) does not require the GST treatment of a medical aid and appliance to be determined by reference to the actual use for which an item is being purchased but rather focuses on the purpose for which the wider community purchases these products. Accordingly, it is considered that irregular and uncommon use of a medical aid and appliance in a way contrary to it's manufactured purpose will not prevent the good from being GST-free. The products in your case would be widely used by people without an illness or disability as: · You will sell the products to stores that sell mattresses to the wider community (not just people with an illness or disability), including stores owned by certain entities, etc rather than hospitals, nursing homes and chemists or other health care or aged care businesses/establishments. · Manufacturer warranty cards completed by private consumers who have purchased the products reveal that a large minority of private consumers of these products do not have an illness or disability. As not all of the requirements of subsection 38-45(1) of the GST Act are satisfied, your supplies of the products in question will not be GST-free under that provision. Your supplies of the products in question will not be GST-free under any provision in the GST Act. Therefore, your supplies of the products will be taxable supplies, as all of the requirements of section 9-5 of the GST Act will be satisfied. Hence, GST will be payable on your supplies of the products.

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