GST and supply of hip prostheses to a hospital

Is the entity, a supplier of health goods, making a GST-free supply under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a hip prosthesis to a hospital?

No, the entity is not making a GST-free supply under subsection 38-45(1) of the GST Act when it supplies a hip prosthesis to a hospital. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a supplier of health goods. The entity sells a hip prosthesis to a hospital. A hip prosthesis is an artificial hip that is surgically implanted by a medical practitioner.

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

Under subsection 38-45(1) of 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 (Schedule 3), or specified in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations); and • is specifically designed for people with an illness or disability; and • is not widely used by people without an illness or disability.

The only listed item of relevance to this case is item 83 in the table in Schedule 3 (Item 83) which lists 'artificial limbs and associated supplements and aids'.

The phrase 'artificial limbs and associated supplements and aids' is not defined in the GST Act. Generally, where a word or phrase is not defined, it is usually interpreted in accordance with its ordinary meaning unless it has a special or technical meaning. Where a word or phrase has a special or technical meaning, it is necessary to determine the meaning by reference to the industry to which that word or phrase relates ( Herbert Adams Pty Ltd v FCT (1932) 47 CLR 222).

After consultation with the Health Industry, it is considered that an artificial limb includes an artificial arm or leg but excludes surgically implanted prostheses (for example, artificial hips and knees). Therefore, the hip prosthesis is not covered by Item 83. As there are no other items in Schedule 3 which cover the supply of the hip prosthesis, it is not GST-free under subsection 38-45(1) of the GST Act.

The entity is registered for GST and the supply satisfies 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 when it sells a hip prosthesis to a hospital. [Note 1: Prior to 31 October 2005, the supply of a hip prostheses to a patient in the course of supplying a GST-free medical service is GST-free where the requirements of subsection 38-7(3) are met. Note 2: From 31 October 2005, the supply of a hip prosthesis to a patient as part of an episode of hospital treatment will be GST-free where the requirements of section 38-20 of the GST Act are satisfied.]

Date of Amendment Part Comment 9 April 2019 Throughout Updated A New Tax System (Goods and Services Tax) Regulations 1999 to A New Tax System (Goods and Services Tax) Regulations 2019 . November 2005 add 'Prior to 31 October' into Note 1 and to add Note 2 as a result of an amendment to the definition of 'hospital treatment' in subsection 67(4) of the National Health Act 1953, which applies to section 38-20 of the GST Act. The amendment came into effect on 31 October 2005.

Date of Amendment | Part | Comment

9 April 2019 | Throughout | Updated A New Tax System (Goods and Services Tax) Regulations 1999 to A New Tax System (Goods and Services Tax) Regulations 2019 .

November 2005 | add 'Prior to 31 October' into Note 1 and to add Note 2 as a result of an amendment to the definition of 'hospital treatment' in subsection 67(4) of the National Health Act 1953, which applies to section 38-20 of the GST Act. The amendment came into effect on 31 October 2005.