Private ruling: GST Treatment of costs incurred in supplying and installing patient hoists
Date of advice: 22 December 2016
Published: June 2017

Ruling: Q1: Are patient hoists considered to be GST-Free supplies under subsection 38-45(1) of the GST Act? | A4: Yes as they are integral in installing the GST-Free hoist system.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. GST Registration ● You are registered for GST from 20XX on a quarterly basis. About you ● You are carrying on an enterprise of supplying and installing patient hoists and accessories in hospitals, aged care facilities, schools and domestic residents. Hoists ● You confirmed the hoists are only for disabled people and are not widely used by people without disabilities. ● You provide and install two types of hoists: ● Demountable: This involves installing tracks in multiple rooms and moving the hoist motor when required. ● Fixed hoists: This involves installing tracks in one or multiple rooms and on each track a hoist motor is installed. ● The hoist system is built up at the location from a kit. Specific items in the kit will usually vary for each particular project depending on the requirements. The kit is incomplete in that it requires additional components and other things such as threaded rod, concrete fixings, steel bracing, wiring and the expertise of the installer. You said that hardware items such as concrete fixings, nuts and bolts are acquired from hardware stores as they are cheaper to get locally and are not the manufacturer's proprietary items. After construction of the hoist system is completed it is identifiable as a particular medical aid or appliance. The kit comprises of: ● Rails of varying lengths / depths. ● Wall brackets. ● Trolleys ● Electrical components. ● The hoist motor unit and accessories. ● Sundry propriety components. Delivery of the goods ● You stated the client has freedom to pick up/arrange pick up of the hoist themselves (or engage a third party) without extra charge instead of having it delivered by you. Expenses and Invoicing ● When you issue an invoice to your client, you itemise the costs in three items: 1) Components of the hoist system listed individually which are all GST Free. 2) Installation- includes GST and the incidental hardware costs. 3) Freight with GST Your Query ● The hoist components from the manufacturer are GST-free however you have always believed the labour to install them, the incidental hardware (nuts, bolts, rods, timber beams etc.) and freight costs are subject to GST and charged your clients accordingly. ● A competitor of yours is quoting all costs in relation to installing the hoist as being GST Free.

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 Subsection 9-30(1) , | A New Tax System (Goods and Services Tax) Act 1999 Section 38-1, | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-45(1) , | A New Tax System (Goods and Services Tax) Act 1999 Schedule 3 , | A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-B , | A New Tax System (Goods and Services Tax) Act 1999 Division 38 and | A New Tax System (Goods and Services Tax) Act 1999 Division 40. ATO view documents | Goods and Services Tax Ruling GSTR 2001/8 - Apportioning the consideration for a supply that includes taxable and non-taxable parts | GSTD 2002/3 Goods and services tax: how do I account for GST when I supply taxable goods, non-taxable goods and delivery services together?

Reasons for decision: Detailed Reasoning - Issue 1 Question 1: Are patient hoists considered to be GST-Free supplies under subsection 38-45(1) of the GST Act? | Summary: Yes. | Detailed Reasoning - When is GST payable: Subsection 7-1(1) states that GST is payable on *taxable supplies. Section 9-5 lists the four key factors of taxable supplies: '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 the indirect tax zone; 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. | Detailed Reasoning - GST-Free Supplies: Subsection 9-30(1) states that a supply is GST-free if: (a) it is GST-free under Division 38 or under a provision of another Act; or (b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a). It is considered that the provisions of the GST Act which deal with input taxed supplies (which is Division 40) will have no application in this ruling. | Detailed Reasoning - Division 38: This division (section 38-1) specifies types of supplies that are GST-free. If a supply is GST-free, then no GST is payable on the supply. Subdivision 38-B of the GST Act provides that certain goods and services relating to health are GST-free. Of relevance to this case is subsection 38-45(1) of the GST Act. | Detailed Reasoning - Section 38-45 Medical Aids and Appliances: Section 38-45 explains when supplies of medical aids and appliances are considered to be GST-free: (1) A supply is GST-free if: (a) it is covered by Schedule 3 (medical aids and appliances) of the GST Act or GST 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. An item will only be GST-free if it meets all the above requirements. A GST-free item is GST-free at all stages of the supply chain and not only when supplied to a person with an illness or disability. | Detailed Reasoning - In your case: You meet the two requirements under subsection 38-45(1) since 1) hoists are covered by Item 88 in Schedule 3 of the GST Act which lists 'manual, electric, track or pool hoists specifically designed for people with disabilities'; and, 2) The hoists are specifically designed for people with disabilities and are only used for the purposes of lifting disabled persons thus would not be widely used by people without a disability. Therefore, you are making GST-Free supplies of hoists. | Detailed Reasoning - Issue 2: Related costs and whether they are GST-Free | Detailed Reasoning - Question 1: Is the supply of installation for the GST-free hoist system considered to be GST-free? | Summary: Yes provided it is considered to be a composite supply with the supply of the GST-free hoist system being the dominant supply. That is, the installation is integral to the supply of the GST-free hoist for it to be capable of use. If the supply of the installation is a separate supply to the supply of the hoist then it will not be GST-free. | Detailed Reasoning - Detailed reasoning: All paragraph references are to GST Ruling (GSTR) 2001/8 Apportioning the consideration for a supply that includes taxable and non-taxable parts. When a number of supplies are provided in one transaction, it is necessary to determine whether it is a mixed or composite supply. | Detailed Reasoning - Mixed supply: Paragraph 16 describes a mixed supply as one that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. | Detailed Reasoning - Composite supply: Paragraph 55 states that some supplies include parts that do not need to be separately recognised for GST purposes which is a composite supply. These parts of a supply are referred to as being integral, ancillary or incidental (IAI) to the dominant supply. In a composite supply, the dominant part of the supply has subordinate parts that complement the dominant part. If such a supply is analysed in a common sense way, it can be seen that the supply is essentially the provision of one thing- it need not be broken down, unbundled or dissected any further. It is treated as if it is the supply of one thing. Paragraph 59 lists some characteristics to determine if a supply is IAI to the dominant supply: ● 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 ● it represents a marginal proportion of the total value of the package compared to the dominant part; or ● it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or ● it contributes to the proper performance of the contract to supply the dominant part. No single factor (by itself) will provide the sole test to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. A common sense and practical approach having regard to all the circumstances is required (paragraph 59). | Detailed Reasoning - Supplies of the aid and labour: Installation, labour or repair costs are not covered in the GST Act, unless they are incidental to the supply of the GST-free aid itself. There are three possible situations to consider when determining the GST treatment of supplying labour and a medical aid in a single transaction: 1. The hoist is the dominant supply- The main supply is the GST-free medical aid or appliance and the labour is integral, ancillary or incidental to that main supply. In this case there is a single GST-free supply of a medical aid or appliance (which includes the labour); or 2. The labour is the dominant supply- The main supply is the labour (as is usually the case for repair work) and the GST-free medical aid or appliance (or most commonly, its GST-free spare part) is integral, ancillary or incidental to that main supply. In this case there is a single taxable supply of labour and the GST-free aid/appliance or spare part is also taxable; or 3. They are separate transactions- There are separately identifiable supplies of GST-free medical aid or appliances and labour, neither of which is integral, ancillary or incidental to the other. This could be when both supplies are provided by separate suppliers. | Detailed Reasoning - In your case: The first scenario applies to your situation based on the facts provided. This means that when first installing the hoist the dominant supply is the hoist itself and the initial installation is IAI to it. This is due to the following reasons by applying the characteristics listed in paragraph 59 above: ● The main aim in itself of the transaction is for your client to receive a fully functioning hoist system; ● The installation is required for your client to be able to better enjoy the hoist; ● The installation is necessary to combine all the components of the hoist system in the kit; and, ● The installation contributes to the proper performance of the hoist. This means that since your supply of the hoist is GST-free, the installation charge will also be GST-Free as it is a composite supply. It is important to note, however, that where the supply of the installation is a separate supply to the supply of the hoist, then the supply of the installation will not be GST-free under subsection 38-45(1). This is because it is a separate supply of labour rather than an integral part of the overall supply of the hoist. | Detailed Reasoning - Issue 2 Question 2: Is the supply of freight services to deliver the hoist to your customers considered to be GST-free? | Summary: No. It is considered to be a taxable supply as you are making a mixed supply. This means that GST is payable on the freight costs. | Detailed Reasoning - Detailed reasoning: The words freight and delivery are used interchangeably. You already treat delivery as taxable however, we believe that the inward freight charge is part of supplying the GST-free hoist system itself therefore it would also be GST-Free when on-charged to the customer. This means that only the outward freight (delivering to the installation site) is considered to be a taxable supply. GST Determination 2002/3 discusses how to treat a delivery service when it is provided in combination with the supply of other goods. Paragraph 1 states that delivery services are often associated with the supply of goods. Where you supply goods delivered to an address specified by your customers, the facts will determine whether the goods and delivery are separate supplies, separately identifiable parts of a mixed supply, or a composite supply of delivered goods. Paragraph 2 explains you may make supplies of goods and delivery, or arranging delivery, under separate contractual arrangements. Alternatively, you may supply goods and a separate service of delivery under one contract where the goods and the delivery service are separately identifiable parts of a mixed supply. We consider that delivery is a separately identifiable part of a mixed supply where it is significant and could realistically be made as a separate supply. | Detailed Reasoning - When is a delivery service considered to be significant?: A delivery service is significant where it is an aim in itself. That is, your customers have a genuine choice under the contract about whether you deliver their goods. Such a choice is indicated where: ● your customers are not obliged to use your delivery service; and ● you provide reasonable access, at no extra charge, to customers who choose to make their own arrangements to collect the goods. Paragraph 6 states where you supply a delivery service that is a separate supply, or a separate part of a mixed supply, the supply of the service will be taxable regardless of whether the service is associated with the supply of taxable or non-taxable goods. | Detailed Reasoning - In your case: You stated that your client has the freedom to pick up/arrange pick up of the hoist themselves (or engage a third party) instead of having it delivered by you without extra charge. This means that in some cases where you provide a delivery service to deliver the hoists, this is an extra service which you are providing which will be taxable as it is part of a mixed supply. Under Question 2 above, we described a mixed supply as one that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. You already treat delivery as taxable however, we believe that the inward freight charge is part of supplying the GST-free hoist system itself therefore it would also be GST-Free when on-charged to the customer. This means that only the outward freight (delivering to the installation site) is considered to be a taxable supply. | Detailed Reasoning - Issue 2 Question 3- Incidental hardware: Is the supply of incidental hardware items utilised in installing the hoist system considered to be GST Free? | Summary: Yes as they are integral in installing the GST-Free hoist system. | Detailed Reasoning - Detailed reasoning: As discussed in Issue 2 Question 1 above, it is necessary to determine when a number of supplies are provided together whether they can be treated as one supply (composite supply) or they need to be separately identified for GST purposes (mixed supply). The factors to determine a composite supply was to consider whether the secondary supply is integral, ancillary or incidental to the dominant supply. We have established that the dominant supply is the hoist. It is considered that the supply of the incidental hardware items (such as nuts, bolts and timber beams required to assemble and install the hoist system) are GST-Free as part of the supply of the GST-free hoist since: These items are required to assemble the hoist so that the client can utilise it; The value of the items would represent a marginal proportion of the total value of the package compared to the dominant part (the hoist); They cannot be identified as the dominant part of the supply; and, They contribute to the proper performance of the hoist. Therefore, the supply of the incidental hardware items forms part of the composite supply of the installed GST-free hoist and the incidental hardware costs are not required to be separately categorised for GST purposes. This means such hardware items will be treated as GST-Free.