GST and supply of health services to a third party

Is the entity, a supplier of health services, making a GST-free supply under subsection 38-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a health service pursuant to an agreement between the entity and a third party for the provision of that service?

No, the entity is not making a GST-free supply under subsection 38-10(1) of the GST Act when it supplies a health service pursuant to an agreement between the entity and a third party for the provision of that service. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a supplier of health services. A third party engages the entity to provide a health service. The third party and the entity enter into a written agreement. The agreement creates a binding obligation for the supply of the health service by the entity and for payment by the third party. The agreement specifies the nature of the supply of the health service that is to be made.

The health service is listed in the table in subsection 38-10(1) of the GST Act. The entity is a recognised professional as defined in section 195-1 of the GST Act in relation to the supply of that health service.

The treatment services provided by the entity are generally accepted by the relevant health profession as being necessary for the appropriate treatment of the patient in their circumstances.

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.

Under subsection 38-10(1) of the GST Act, an entity makes a GST-free supply of health services if: • it provides a service of a kind specified in the table in subsection 38-10(1) of the GST Act or of a kind specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) (paragraph 38-10(1)(a) of the GST Act); • the entity is a recognised professional in relation to the supply of services of that kind (paragraph 38-10(1)(b) of the GST Act); and • the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply (paragraph 38-10(1)(c) of the GST Act).

The entity supplies a health service that is listed in the table in subsection 38-10(1) of the GST Act and the entity is a recognised professional, as defined in section 195-1 of the GST Act, in relation to the supply of that health service. Therefore, the requirements in paragraphs 38-10(1)(a) and (b) of the GST Act are satisfied.

Paragraph 38-10(1)(c) of the GST Act requires that the supply must generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply. The treatment services provided by the entity are generally accepted by the relevant health profession as being necessary for the appropriate treatment of the patient in their circumstances. However, the requirement in paragraph 38-10(1)(c) is that there be appropriate treatment of the 'recipient of the supply'. Therefore, it is necessary to determine who is the recipient of the entity's supply.

Section 195-1 of the GST Act defines 'recipient' in relation to a supply to mean 'the entity to which the supply was made'. Where there are only two parties to the supply of services (the entity that supplies the health service and the patient), generally there is a single supply to which the GST Act applies and the recipient of that supply is the patient.

However, where there is a third party payer involved in a transaction there may be one or more supplies to which the GST Act applies and it is necessary to determine what is being supplied and to whom. For example, tripartite arrangements may result in a supply of professional services to a third party payer by an entity that supplies health services with a further supply of treatment services to a patient.

A third party will be the recipient of a supply where: • that third party engages the entity to make, or to be available to make, a supply to them or to someone else; • that third party, by agreement with the entity, determines the nature of the supply to be made to them or to someone else; and • there is a binding obligation between that third party and the entity for the supply and the third party is liable to provide payment.

Where all of the above elements are satisfied there will be a supply made to the third party payer in addition to any supply that is made where a patient receives treatment services.

Generally, where there is a supply made to a third party payer, the arrangements will result in a further supply where a patient receives treatment services. This subsequent supply is considered separately to any supply between the entity that supplies the health services and the third party payer.

In the present case, the third party payer engages the entity to supply a health service. The written agreement between the entity and the third party specifies the nature of the supply that is to be made and it creates a binding obligation for the supply of the health service by the entity and for payment by the third party. Therefore, the third party is the recipient of a supply.

As such, although the treatment services provided by the entity are generally accepted by the relevant health profession, the recipient of the supply is the third party payer and the requirement that there be appropriate treatment of the recipient of the supply is not satisfied. Accordingly, as paragraph 38-10(1)(c) of the GST Act is not satisfied, the entity is not making a GST-free supply to the third party payer under subsection 38-10(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 any other provision in 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 supplies a health service pursuant to an agreement between the entity and a third party for the provision of that service. [Note: In arrangements involving a third party payer, where the requirements of engaging the supplier, determining the nature of the supply and entering into a binding obligation for the supply, etc, are not satisfied, generally there is a single supply to which the GST Act applies for which the third party payer merely makes payment on behalf of a patient who is the recipient of the supply. This supply is GST-free where there is appropriate treatment of that patient as recipient and the other requirements of subsection of 38-10(1) of the GST Act are satisfied].