Private ruling: Goods and services tax and supply of medical aids and appliances
Date of advice: 8 January 2021
Published: March 2021
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Is the supplier of specialist dental medical aids and appliances making a GST-free supply under section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when they supply quality orthodontic products to dental practitioners? | A1: The supply of orthodontic products that are identified as consumables and spare parts would be GST-free under section 38-45 of the GST Act. Please refer to the reasons for decision for more details.

Relevant facts and circumstances: The entity is a supplier of quality orthodontic products to dental practitioners. The entity is registered for goods and services tax (GST). All the products, if and when required, are TGA registered and carry all other required regulatory approvals. The entity imports and sells a range of high-quality Orthodontic products and consumables. Every single product the entity sells is used in some way for the delivery of a GST-free service by qualified dental practitioners. The entire product range is used for providing the listed services from item 811 through to item 881 of Class Ruling 2013/14. The products and services provided by the entity are listed on its website. The entity does not make any supplies listed under items 29,30 and 75 of Schedule 3 of the GST Act.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 - Section 38-45

Reasons for decision: Summary: Under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act), the supply of a medical aid or appliance is GST-free where the medical aid or appliance is: • covered by Schedule 3 to the GST Act, or Schedule 3 to the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) • specifically designed for people with an illness or disability, and • not widely used by people without an illness or disability. The supply of an item that satisfies all of the above elements of section 38-45 of the GST Act will be GST-free all the way down the supply chain and not only when supplied to a person with an illness or disability.However, pursuant to subsection 38-45(3) of the GST Act the supplier and purchaser can agree to treat the supply as if it were a taxable supply. The entity is carrying on an enterprise of supplying quality orthodontic products to dental practitioners. The entity has confirmed that it does not supply items 29, 30 and 75 listed in Schedule 3 of the GST Act which are supplies relevant to the dental industry. None of the products supplied by the entity are listed in Schedule 3 of the GST Act. Class Ruling CR 2013/14: goods and services supplied by dentists issued to the members of Australian Dental Association (ADA) provides details of the GST treatment of the supply of goods and services made by dentist.While the Ruling part of CR 2013/14 is only binding on the Commissioner in relation to supplies made by members of the ADA, the Explanation part in CR 2013/14 is also relevant in this case. | Detailed Reasoning - Consumables: Paragraphs 78 - 81 in the Explanation part of Class Ruling 2013/14 state: 78. Where, in the course of supplying one of the products listed at item 29, item 30 or item 75 in the table in Schedule 3, a dentist consumes various things, there is only one overall supply of the listed item. Things made and consumed in the process of constructing and supplying a listed item form part of the one overall GST-free supply of that product, even if the components are separately itemised in the bill. 79. Examples of things consumed in the process of constructing and supplying a GST-free medical aid or appliance include oil, lubricant, glue and generic parts like screws and wires. Consumable items are acquired with the intention that they will be destroyed, consumed or expended. They do not retain their individual character or nature when a new medical aid or appliance is supplied or when a repaired medical aid or appliance is returned to its owner. 80. However, where these things are supplied separately to the medical aid or appliance, they are only GST-free if they are specifically designed spare parts of that medical aid or appliance (see paragraphs 82 to 84 of this Class Ruling). Example 4 - goods used or consumed in the process of constructing and supplying a GST-free medical aid or appliance 81. Steve (a dentist) contracts Mike (a dental technician) to make a crown for Steve's patient. In order to make the crown, Mike must first create a plaster model. Mike itemises the crown and plaster model separately on his bill to Steve. The plaster model is integral to the manufacturing process and is not used for any other purpose. The plaster model forms part of the overall supply of the crown, all of which is GST-free. Goods made and consumed in the process of constructing and supplying a GST-free medical aid or appliance form part of the overall GST-free supply of that item." In summary, pursuant to CR 2013/14, a supply of a consumable is GST-free if it is consumed in the process of constructing and supplying one of the products listed at item 29, item 30 or item 75. The entity has confirmed that it does not supply the products listed at items 29, 30 and 75 listed in Schedule 3 of the GST Act.This means that the consumable products it supplies to dental practitioners are not used and consumed in the process of constructing and supplying one of the products listed at item 29, item 30 or item 75. For this reason, the consumable products supplied by the entity do not form part of the overall GST-free supply of the products listed at item 29, item 30 or item 75.That is, the consumables supplied by the entity to dental practitioners are supplied separately to the supply of the GST-free medical aid or appliance by the dental practitioner to the patient.The supply of consumable products by the entity will only be GST-free if they are specifically designed spare parts for a GST-free medical aid or appliance. The fact that a dental practitioner may use a consumable product acquired from the entity in the dental practitioner's supply of a product listed at item 29, item 30 or item 75 to a patient does not make the supply of the consumable product from the entity to the dental practitioner GST-free. | Detailed Reasoning - Spare parts: Paragraphs 82 - 85 in the Explanation part of Class Ruling 2013/14 state: 82. Under subsection 38-45(2), a spare part for a GST-free medical aid or appliance is also GST-free if it is specifically designed as a spare part for that GST-free medical aid or appliance and is supplied for that purpose. 83. For GST purposes, a 'spare part' is a part that can be used to replace a faulty, worn or broken part of another thing. The part need only be capable of replacing the faulty, worn or broken part. It does not actually have to be used for that purpose. 84. Spare parts that are not specifically designed to replace a faulty, worn or broken part of a GST-free medical aid or appliance are not GST-free. This means that things like generic screws which are not specifically designed for a GST-free medical aid or appliance are not GST-free spare parts. However, as explained in paragraphs 78 to 80 of this Class Ruling, things used and or consumed in the construction and overall supply of a GST-free medical aid or appliance are part of that overall GST-free supply. Therefore, whilst a generic screw when supplied on its own is not a GST-free spare part for a denture because it is not specifically designed for that purpose, it would be GST-free if that screw formed part of the supply of the denture. Example 5 - a part that cannot be used as a spare part for a GST-free medical aid or appliance 85. A chrome/cobalt casting frame is the internal framework for a denture. Dentures are covered by item 30 in the table in Schedule 3 and are GST-free. Whilst the framework is a component for a denture, it is not a 'spare part' for a denture. This is because if the framework is broken, it is either repaired or a completely new denture is supplied. A new framework is never actually supplied to replace a faulty, worn or broken framework of the denture. Therefore, it is not a GST-free spare part." In summary, pursuant to CR 2013/14, the supply of a spare part for a GST-free medical aid or appliance is also GST-free if it is specifically designed as a spare part for that GST-free medical aid or appliance.A 'spare part' is a part that can be used to replace a faulty, worn or broken part of another thing. The entity supplies various products, as listed on its website, to dental practitioners. However, the entity has not specified the details of these spare parts supplied to dental practitioners to determine whether these goods are GST-free. It has confirmed that most of the products supplied by it would be used by the dental practitioners in making a GST-free supplies to their patients. As explained above, if any of the products supplied by the entity are parts that are specifically designed to replace a faulty, worn or broken part of a GST-free medical aid or appliance such as the dental products listed at item 29, item 30 or item 75 of Schedule 3 to the GST Act, the supply of these spare parts are GST-free. If any of the products the entity supply are not spare parts specifically designed to replace a faulty, worn or broken part of a GST-free medical aid or appliance and can be used as a generic part for other appliances, the supply of those products will not be GST-free.