GST and provision of infection control services for a hospital employee under an agreement with a hospital

Is the entity, an approved pathology practitioner, making a GST-free supply under section 38-7 of the A New Tax System (Goods and Services Tax) 1999 (GST Act) when, under an agreement that it has with a hospital, it provides infection control testing services in relation to a hospital employee?

No, the entity is not making a GST-free supply under section 38-7 of the GST Act when, under an agreement that it has with the hospital, it provides infection control testing services in relation to a hospital employee.

The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is an approved pathology practitioner. The entity has entered into an agreement with a hospital. The agreement creates a binding obligation for the supply of infection control testing services by the entity and for the payment for those services by the hospital.

Under the agreement, the entity performs tests in relation to a hospital employee who has a needle stick injury. The testing services that the entity provides are generally accepted in the medical profession as being necessary for the appropriate treatment of the employee in these circumstances.

There is no medicare benefit payable for the supply of these services by the entity. The entity's supply of services is not the supply of hospital treatment under section 38-20 of the GST Act.

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

Under subsection 38-7(1) of the GST Act, the supply of a medical service is GST-free. A 'medical service' is defined under section 195-1 of the GST Act to mean: • a service for which a medicare benefit is payable under Part II of the Health Insurance Act 1973 , or • any other service supplied by or on behalf of a medical practitioner or approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the recipient of the supply.

There is no medicare benefit payable for the services provided by the entity. As such, the service does not fall within the first limb of the definition of medical service as provided in section 195-1 of the GST Act.

Therefore, it is necessary to determine whether the entity is making a supply under the second limb of the definition. One of the requirements of the second limb of the definition is that the supply is generally accepted in the medical profession as being necessary for the appropriate treatment of the 'recipient of the 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 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 provide something to them or to someone else • that third party, by agreement with the entity, determines what is to be provided to them or to someone else, and • there is a binding obligation between that third party and the entity for the thing to be provided 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. There is also a further 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 service and the third party payer.

The entity, an approved pathology practitioner, has entered into an agreement with the hospital to supply testing services in respect of infection control. The agreement creates a binding obligation for the performance of those services by the entity in relation to the hospital's employee and for payment by the hospital. As such, the recipient of the supply is the hospital.

The testing services that the entity provides are generally accepted in the medical profession as being necessary for the appropriate treatment of the employee in these circumstances. However, the hospital is the recipient of the supply. This means that the requirement that there be appropriate treatment of the recipient of the supply is not satisfied.

Accordingly, as the second limb of the definition of medical service is also not satisfied, the entity is not making a GST-free supply under section 38-7 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 nor input taxed under any other provisions of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when, under the agreement that it has with the hospital, it supplies infection control testing in relation to a hospital employee. Note 1. There is an additional supply of treatment services that is made to the hospital's employee. This supply to the employee will be GST-free where the employee pays for the services and the requirements of section 38-7 of the GST Act are satisfied. Note 2. As the entity is registered for GST, it is liable to remit 1/11th of the payment made by the hospital. Where the hospital is registered for GST, it is entitled to claim an input tax credit equal to the GST payable on the supply.