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Is the entity, a supplier of medical aids and appliances, making a GST-free supply under subsection 38-45(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a component part for a hearing aid?

No, the entity is not making a GST-free supply under subsection 38-45(2) of the GST Act when it supplies a component part for a hearing aid. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a supplier of medical aids and appliances. The entity is supplying a component part for a hearing aid. The supply of the hearing aid is GST-free under subsection 38-45(1) of the GST Act.

This component part is supplied as a spare part for a hearing aid but is not specifically designed as a spare part for a hearing aid.

The entity is registered for goods and services tax (GST). The supply satisfies the other positive limbs of section 9-5 of the GST Act.

Subsection 38-45(2) of the GST Act provides that a supply of a spare part is GST-free if it is 'supplied as a spare part' for a GST-free medical aid or appliance; and it is 'specifically designed as a spare part' for a GST-free medical aid or appliance.

In this case, although the component part is supplied as a spare part for a hearing aid that is a GST-free medical aid or appliance (under subsection 38-45(1) of the GST Act); it is not specifically designed as a spare part for the hearing aid. As such, the entity is not making a GST-free supply of a spare part under subsection 38-45(2) of the GST Act.

The entity is registered for GST and the supply meets the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act.