GST and spare parts for medical aids and appliances

Is the entity, a supplier of parts, 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 part for a GST-free medical aid, where that part is a generic component designed for various uses?

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

The entity is a supplier of parts. The entity is supplying a part to replace a worn component of a medical aid. The supply of the medical aid is GST-free under subsection 38-45(1) of the GST Act.

The part is generic and can be used as a part in many appliances other than the medical 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 will be a GST-free supply if the spare part is: • supplied as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act; and • specifically designed as a spare part for a medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act.

The term 'spare part' is not defined in the GST Act. As such, it is necessary to rely on the ordinary meaning of that phrase. The Macquarie Dictionary , 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales defines 'spare part' as, amongst other things, 'a part which replaces a faulty, worn, or broken part of a machine...'

In this case, the part is supplied to replace a worn component of a medical aid. As such, the part is considered to be a 'spare part' for the purposes of the GST Act. Furthermore, as the part is supplied as a spare part for a medical aid that is GST-free under subsection 38-45(1) of the GST Act; the supply satisfies the first requirement in subsection 38-45(2) of the GST Act.

However, as the spare part is a generic component that can be used as a spare part for many appliances, it is considered that it is not specifically designed as a spare part for the GST-free medical aid in question. Therefore, as the supply does not meet the second requirement in subsection 38-45(2) of the GST Act, the entity is not making a GST-free supply of a spare part.

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