Goods and services tax: goods and services supplied by dental prosthetists and technicians (of the Oral Health Professionals Association)

This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

The relevant provisions dealt with in this Ruling are: • section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); • section 9-80 of the GST Act; • section 38-10 of the GST Act; • section 38-45 of the GST Act; and • section 195-1 of the GST Act. All subsequent legislative references in the Ruling are to the GST Act unless otherwise indicated.

A reference to a dental prosthetist is a reference to a recognised professional dental prosthetist.

The class of entities to which this Ruling applies consists of dental prosthetists and dental technicians who are members of the Oral Health Professionals Association (OHPA).

The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 10 to 17 of this Ruling.

If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.

This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: Commonwealth Copyright Administration Copyright Law Branch Attorney-General's Department National Circuit Barton ACT 2600 or posted at: http://www.ag.gov.au/cca

This Ruling applies to tax periods commencing on or after 1 July 2010. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

The following description of the scheme is based on information provided by the applicant.

Members of the OHPA consist of dental prosthetists and dental technicians.

The dental prosthetists supply their services to patients and to business entities such as other dental practices, dental hospitals and laboratories.

Dental technicians do not provide their services directly to patients. They are restricted by the relevant State or Territory legislation from doing so. They only make supplies to other business entities such as dentists, prosthetists and other laboratories.

The dental prosthetists and technicians also supply customised toothbrushes for people with disabilities, dentures and artificial teeth, and mandibular advancement splints. These products are listed as medical aids and appliances in Schedule 3 to the GST Act.

The supplies made by the dental prosthetists and technicians also include specifically designed spare parts for the medical aids and appliances and repairs and modifications to the medical aids and appliances.

There are occasions when the supplies are paid for by someone other than the patient.

The common terminology used for goods and services in the dental industry and their meaning is from the Australian Schedule of Dental Services and Glossary which is published by the Australian Dental Association (ADA).

This Ruling addresses the goods and services tax (GST) consequences of the supply of goods and services by dental prosthetists and dental technicians.

Supplies of dental services by a dental prosthetist to a patient, that is generally accepted in the dental profession as being necessary for the appropriate treatment of that patient, is GST-free under subsection 38-10(1) (see paragraphs 35 to 51 of this Class Ruling).

Supplies of goods to a patient in the course of supplying that patient a GST-free dental service (including a dental prosthetist service) under subsection 38-10(1) is also GST-free under subsection 38-10(3) if the supply is made at the premises at which the GST-free service is supplied (see paragraphs 61 to 63 of this Class Ruling).

Supplies of dental services by a dental prosthetist to a third party (that is a person or a business that is not the patient) are not GST-free under subsection 38-10(1) as they are not for the appropriate treatment of the patient. They will be making a supply to a third party where the third party, rather than the patient, has contracted them for the supply (see paragraphs 49 to 51 and 53 to 60 of this Class Ruling).

Supplies made by dental technicians are not GST-free under section 38-10. Dental technicians are restricted by the relevant State or Territory legislation from providing services directly to patients. As such, they only make supplies to other business entities and those supplies would not be the appropriate treatment of the recipient of the supply, that is, a patient as is required by paragraph 38-10(1)(c) ( see paragraphs 49 to 51 of this Class Ruling).

Supplies of 'customised toothbrushes for people with disabilities', 'dentures and artificial teeth', and 'mandibular advancement splints' are GST-free under subsection 38-45(1) at all points in the supply chain. Things made or consumed in the process of constructing and supplying one of these items form part of the one overall GST-free supply of that item, even if the components are itemised separately on the bill (see paragraphs 64 to 75 of this Class Ruling).

The supply of a specifically designed spare part for a GST-free medical aid or appliance ('customised toothbrushes for people with disabilities', 'dentures and artificial teeth', and 'mandibular advancement splints') is GST-free under subsection 38-45(2). This will include labour services where it is merely incidental to the supply of the specifically designed spare part.

However, specifically designed spare parts will not be GST-free where they are merely incidental to a supply of labour services.

If the specifically designed spare part or the labour is not incidental to the other, the specifically designed spare part will be GST-free and the labour services will be taxable (see paragraphs 76 to 90 of this Class Ruling).

Generic spare parts that are not specifically designed for a GST-free medical aid or appliance are not GST-free. They are treated in the same way as labour services (see ATO ID 2001/216).

A repair of a medical aid or appliance is only GST-free where it is the supply of specifically designed spare parts for a GST-free medical aid or appliance (see paragraphs 80 to 90 of this Class Ruling).

The supply by a dental prosthetist to a patient of a modification to a denture or other appliance undertaken for the changing condition of the patient is GST-free under subsection 38-10(1) (see paragraph 47 of this Class Ruling).

The supply of a modification to a denture by a dental technician is only GST-free to the extent that a specifically designed spare part would be GST-free under subsection 38-45(2) (see paragraphs 76 to 90 of this Class Ruling).

Under the GST Act, some goods and services supplied by dental prosthetists and dental technicians are GST-free where certain requirements are satisfied. Supplies that do not satisfy the GST-free requirements will be taxable, provided the suppliers are registered or required to be registered for GST.

Under section 9-5, an entity makes a taxable supply if: • it is made for consideration; • it is made in the course or furtherance of an enterprise that the entity carries on; • the supply is connected with Australia; and • the entity is registered or required to be registered for GST.

However, section 9-5 also provides that a supply is not taxable to the extent that it is GST-free or input taxed.

For the purposes of this ruling, the provisions of the GST Act dealing with input taxed supplies are not relevant to any supplies made in the dental industry. The relevant provisions of the GST Act to be considered are those that relate to GST-free supplies.

Subsection 38-10(1) states that a supply is GST-free if: (a) it is a service of a kind specified in the table in this subsection, or of a kind specified in the regulations; and (b) the supplier is a *recognised professional in relation to the supply of services of that kind; and (c) 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.

All three of the requirements must be satisfied for a supply of professional services together with goods to be GST-free under this category.

'Dental' is a service specified at item 6 in the table in subsection 38-10(1).

Under section 195-1, a person is a recognised professional, in relation to the supply of a service of a kind specified in the table in subsection 38-10(1), if: (a) the service is supplied in a *State or *Territory in which the person has a permission or approval, or is registered, under a State law or Territory law prohibiting the supply of services of that kind without such permission, approval or registration; or (b) the service is supplied in a State or Territory in which there is no State law or Territory law requiring such permission, approval or registration, and the person is a member of a professional association that has uniform national registration requirements relating to the supply of services of that kind; or (c) in the case of services covered by item 3 in the table - the service is supplied by an accredited service provider within the meaning of section 4 of the Hearing Services Administration Act 1997 .

Dental prosthetists and dental technicians who are required to be registered pursuant to relevant State or Territory legislation are considered to be a 'recognised professional' in dental services pursuant to paragraph (a) above.

To satisfy this final requirement, the service must generally be accepted in the profession associated with supplying services of that kind (in this case, the dental profession) as being necessary for the appropriate treatment of the recipient of the supply.

A dental prosthetist will provide 'appropriate treatment' to the patient where they assess the patient's state of health and determine a process to pursue in an attempt to preserve, restore or improve the physical or psychological wellbeing of that patient and includes subsequent supplies for that assessed process.

'Appropriate treatment' also includes preventative medicine, for example, a periodic oral examination where there is no evidence of an ailment prior to attendance. However, this does not extend to the supply of services and goods in relation to customised mouthguards. Whilst a customised mouthguard is a device that may prevent or reduce damage sustained to the mouth and teeth in the event of an injury, it is not considered to be 'treatment' that is performed on a patient.

To be GST-free, the dental profession must accept that the service is necessary and acceptable treatment, taking into account the patient's individual circumstances.

Services provided in assessing a patient for insurance or litigation purposes, that is, medico-legal services, are not 'necessary for the appropriate treatment' of the patient and are not GST-free.

Services which are predominantly for the improvement of the appearance of the patient are also not 'necessary for the appropriate treatment' of the patient and therefore, are not GST-free.

Services that are intended to improve the health of the patient but which also comprise a 'cosmetic' component, for example, reconstruction of a badly damaged tooth, are 'necessary for the appropriate treatment' of the patient and are therefore usually GST-free.

A modification to a denture or other appliance undertaken for the changing condition of the patient is appropriate treatment of that patient and is GST-free where supplied by a dental prosthetist to a patient. The 'changing condition of the patient' will include situations such as: • an addition to the denture where the patient has had a tooth extracted; or • a modification or adjustment to a denture due to a change in the shape or structure of a patient's mouth, palate, gums or jaw.

Services in relation to determining that the repair is required and a subsequent service to ensure that the denture fits correctly will also be GST-free where the elements of section 38-10 are satisfied.

For a supply of professional services together with goods to be GST-free under this category, paragraph 38-10(1)(c) 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'.

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 a supply is made to another business or organisation, such as another dental prosthetist, or to other parties such as a government department or insurance company, they will not be receiving 'appropriate treatment'. This means that such supplies are not GST-free under this category. The only entity who can be in receipt of 'appropriate treatment' is the patient and only those supplies that are made to patients can be GST-free under this category.

Dental technicians are restricted by the relevant State or Territory legislation from providing services directly to patients. They only make supplies to other business entities, such as dentists, dental prosthetists or other laboratories. As only supplies made to patients are GST-free under this category, supplies made by dental technicians will not be GST-free under this category.

Some arrangements involve the dental prosthetist, the patient and other people or businesses such as other dental practices, dental hospitals, insurers, government departments or employers. These other people are known as third parties. In determining whether a dental prosthetist has made a supply to a third party, it is necessary to consider the character of each arrangement.

It is the Australian Taxation Office's view that a dental prosthetist will be making a supply to a third party if they have entered into a binding obligation, for example, a contract, under which the dental prosthetist is required to provide something to the third party or to the patient for which the third party is required to pay the dental prosthetist. In other words, who has the dental prosthetist contracted with for that supply, the third party or the patient? If it is the third party, that third party is the recipient of the dental prosthetist's supply.

Any supply that a dental prosthetist makes to a third party is not a GST-free supply of dental services under subsection 38-10(1). The supply will be taxable where the requirements of section 9-5 are met.

If an arrangement does not create a binding obligation between the dental prosthetist and the third party, the dental prosthetist will not be making a supply to that third party. That is, if the dental prosthetist has not contracted with the third party but instead has contracted with the patient, the patient will be the recipient of the dental prosthetist's supply. In this scenario, the dental prosthetist is only making one supply of dental services to the patient and the third party is paying on that patient's behalf. The supply of services to the patient will be GST-free under subsection 38-10(1) where all the requirements of that subsection are met.

Susie is a dental prosthetist. Andrew makes an appointment to see Susie to have his dentures repaired. At the initial consultation, Andrew tells Susie that he sustained the damage to his tooth whilst at work and that she can bill his employer for her costs. Susie confirms with Andrew's employer that she can send the bill to them.

Susie is making a GST-free supply to Andrew. That GST-free supply is paid for by Andrew's employer. Susie is not making any supply to Andrew's employer - they are merely paying the bill on Andrew's behalf. The fact that another entity is paying for a service does not alter its GST-free status.

Susie is contracted by a Government agency to provide denture repair services to a certain group of people in her local community under the Government's dental health care program. Before providing any services, Susie enters into a written agreement with the Government agency which requires Susie to provide the denture repair services and specifies the amount that she will receive from the Government agency in return for those services. The agreement creates a binding obligation on Susie to perform the services and creates a binding obligation on the Government agency to pay. Under the agreement, any services Susie provides to patients beyond what is specified in the agreement must be paid for by the patients themselves. The Government agency then advises people under that scheme that they must go to Susie for their free denture repairs.

Susie is making a taxable supply to the Government agency. Any services that she is asked by the patient to perform but which are not covered by the agreement with the Government agency are supplies by Susie to the patient which may be GST-free.

Dental prosthetists who are making GST-free supplies of dental services under subsection 38-10(1) are also capable of supplying GST-free goods together with those services under subsection 38-10(3).

If a dental prosthetist supplies goods as part of a GST-free dental service, those goods are also GST-free if they are supplied to the patient in the course of supplying a dental service and the supply is made at the premises at which the service is supplied.

The phrase 'in the course of supplying' means that the goods are supplied at the same time as the dental service and they are: • individually customised or manipulated for the treatment of the illness or disability of that particular patient; or • essential for treating that patient during that particular consultation.

Subsection 38-45(1) states: A supply is GST-free if: (a) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and (b) the thing supplied is specifically designed for people with an illness or disability, and is not widely used by people without an illness or disability.

A supply that satisfies all the requirements in subsection 38-45(1) will be GST-free at all points in the supply chain. The supply remains GST-free no matter who supplies it or who the supply is made to.

In determining whether a medical aid and appliance is specifically designed for people with an illness or disability, reference should be made to the designer's/manufacturer's intention of how the good is to be used and its features. Indicators of the designer's/manufacturer's intention of how a good is to be used include how the good is marketed and the type of retail outlets at which the goods can be purchased (see Issue 1.c of the GST Pharmaceutical Health Forum - Issues Register.) [2]

In determining whether a medical aid or appliance is used by people without an illness or disability, reference should be made to how the wider community uses these goods. That is, the common purpose for which the goods are purchased. Subsection 38-45(1) does not require the GST treatment of a medical aid or appliance to be determined by reference to the actual use for which an item is being purchased but rather focuses on the purpose for which the wider community purchases these products. Accordingly, irregular and uncommon use of a medical aid or appliance in a way contrary to its manufactured purpose will not prevent the good from being GST-free (see Issue 1.d of the GST Pharmaceutical Health Forum - Issues Register). [3]

The items in the table in Schedule 3 that are of relevance to the dental industry are: • item 29 - 'customised toothbrushes for people with disabilities'; • item 30 - 'dentures and artificial teeth'; and • item 75 - 'mandibular advancement splints'.

For GST purposes, 'customised toothbrushes for people with disabilities' are considered to be toothbrushes that have been adapted, for example, contoured, to suit the needs of a class of disabled persons.

'Dentures', for GST purposes, are considered to be an artificial restoration of several teeth (partial denture) or of all of the teeth of either jaw (full denture). 'Artificial teeth' are considered to be those which are fabricated and replace natural teeth in form and function. The phrase 'artificial teeth' includes one single tooth as well as a multiple of teeth. Full crowns and bridges are artificial teeth.

A 'mandibular advancement splint' is a small device made of plastic or similar material that is worn in the mouth whilst sleeping (similar in appearance to a mouthguard). It is designed to help or assist to stop some types of snoring. The splint is designed to push the mandible (lower jaw) forward helping to keep the tongue clear of the pharynx (the back of the throat). The splints are also sometimes used for the treatment of temporomandibular joint disorder (TMJ).

Where, in the course of supplying one of the products listed at item 29, item 30 or item 75 in the table in Schedule 3 to the GST Act, a dental prosthetist or dental technician consumes various other things, there is only one overall supply of the listed product. Things made and consumed in the process of constructing and supplying a listed product form part of the one overall GST-free supply of that product, even if the components are separately itemised in the bill.

Examples of things consumed in the process of constructing and supplying a GST-free medical aid or appliance include oil, lubricant, glue and generic parts like screws and wires. Consumable items are acquired with the intention that they will be destroyed, consumed or expended. They do not retain their individual character or nature when a new medical aid or appliance is supplied or when a repaired medical aid or appliance is returned to its owner.

David (a dental technician) is contracted by Owen (a dentist) to make a crown for Owen's patient. In order to make the crown, David must first create a plaster model. David itemises the crown and plaster model separately on his bill to Owen. The plaster model is integral to the manufacturing process and is not used for any other purpose. The plaster model forms part of the overall supply of the crown, all of which is GST-free. Goods made and consumed in the process of constructing and supplying a GST-free medical aid or appliance form part of the overall GST-free supply of that item.

However, where these things are supplied separately to the medical aid or appliance, for example, in the course of a repair service or as spare parts themselves, they will only be GST-free if they are specifically designed spare parts of that medical aid or appliance. Generic spare parts which do not form part of the initial GST-free supply of the aid or appliance but which are supplied separately on their own will not be GST-free.

Under subsection 38-45(2), a spare part for a GST-free medical aid or appliance is also GST-free if it is specifically designed as a spare part for a GST-free medical aid or appliance and is supplied for that purpose.

For GST purposes, a 'spare part' is a part that can be used to replace a faulty, worn or broken part of another thing. To be GST-free, the part need only be capable of replacing the faulty, worn or broken part. It does not actually have to be used for that purpose.

Spare parts that are not specifically designed to replace a faulty, worn or broken part of a GST-free medical aid or appliance are not GST-free. This means that things like generic screws which are not specifically designed for a GST-free medical aid or appliance are not GST-free spare parts. However, as explained in paragraphs 66 to 69, things used and/or consumed in the construction and overall supply of a GST-free medical aid or appliance are part of that overall GST-free supply. Therefore, whilst a generic screw when supplied on its own is not a GST-free spare part for a denture because it is not specifically designed for that purpose, would be GST-free if that screw formed part of the initial supply of the denture.

A chrome/cobalt casting frame is the internal framework for a denture. Dentures are covered by item 30 in the table in Schedule 3 to the GST Act and are GST-free. Whilst the framework is a component for a denture, it is not a 'spare-part' for a denture. This is because if the framework is broken, it is either repaired or a completely new denture is supplied. A new framework is never actually supplied to replace a faulty, worn or broken framework or the denture. Therefore, it is not a GST-free spare part.

There is no specific exemption in the GST Act for the supply of any labour services relating to the installation, fitting or repair of medical aids or appliances or their spare parts.

However, where the specifically designed spare parts are supplied together with a labour service component as part of one single transaction, the GST treatment of that transaction will depend on how the supply is characterised. What is the character of the supply? Type Main component Integral, ancillary or incidental component GST outcome A Specifically designed spare parts Labour services A single GST-free supply of specifically designed spare parts B Labour services Specifically designed spare parts A single taxable supply of labour services C Separately identifiable supplies of spare parts and labour services Neither is integral, ancillary or incidental to the other A partly taxable and partly GST-free supply - GST is only payable on the taxable part - use a reasonable basis for apportionment

Some indicators that something may be integral, ancillary or incidental to another thing are: • it represents a marginal proportion of the total value of the package compared to the dominant part; • it is necessary or contributes to the supply as a whole but cannot be identified as the dominant part of the supply; • it contributes to the proper performance of the contract to supply the dominant part; and • a supplier would reasonably conclude that it does not constitute for customers an aim in itself but is a means of better enjoying the dominant thing supplied.

Therefore, a part of a supply will be integral, ancillary or incidental to another part of the supply where it is insignificant in value or function, or merely complements the dominant part of the supply.

A tooth is added to a denture to replace a broken or missing tooth under a 'supply and fit' contract. The fitting of the tooth will be integral, ancillary or incidental to the supply of the tooth itself. The whole supply is GST-free as the supply of an 'artificial tooth'. See Type A in the table in paragraph 81.

A denture is in poor condition and is sent to be restored which involves a significant amount of labour services. As part of that restoration, a clasp is replaced. Of itself, the clasp is a GST-free spare part for a denture. However, in this case, the supply of the clasp is integral, ancillary or incidental to the supply of the restoration service. The supply of the clasp merely contributes to the proper performance of the contract to restore the denture, takes up a marginal proportion of the total value of the service package, and the customer does not seek the supply of the clasp as an aim in itself, but merely as part of the supply of the restoration service. The whole supply is taxable. See Type B in the table in paragraph 81.

A tooth is added to a denture to replace a broken or missing tooth under a 'supply and fit' contract. At the same time, the technician discovers a small crack in the denture base and repairs this also. An extra or increased charge is made for the repair of the crack. The supply of the service of repairing the crack is taxable. The supply of the fitted tooth is a separately identifiable supply in which the fitting of the tooth is integral, incidental or ancillary to the GST-free supply of the tooth itself. The supply is partly taxable and partly GST-free. See Type C in the table in paragraph 81.

When a dental prosthetist or dental technician makes a supply which is partly taxable and partly GST-free (a mixed supply), they will need to apportion the consideration charged for the supply between the GST-free and taxable parts pursuant to section 9-80.

A reasonable basis for apportionment must be used and each case must be determined on its own facts. Records must be kept that explain the method of apportionment used. Goods and Services Tax Ruling GSTR 2001/8: apportioning the consideration for a supply that includes taxable and non-taxable parts gives further guidance on mixed supplies and apportionment.

In some circumstances, it may be difficult to determine those parts of a supply that are GST-free and those parts that are taxable or it may be difficult to work out those supplies that are GST-free and those that are taxable.

Subsection 38-45(3) allows a supplier and recipient to agree not to treat supplies, or a particular supply, as GST-free. In other words, where a supply is made to another business, both businesses can agree to treat the supply as taxable. This reduces the administrative burden while allowing the other business to claim a GST credit.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provision(s) 2 Class of entities 4 Qualifications 5 Date of effect 9 Scheme 10 Ruling 18 Supplies made by dental prosthetists under section 38-10 19 Supplies of services to patients 19 Supplies of goods to patients (goods other than medical aids and appliances covered by Schedule 3 to the GST Act) 20 Supplies of services to third parties 21 Supplies made by dental technicians under section 38-10 22 Supplies of medical aids and appliances 23 Supplies of medical aids and appliances used in the dental industry 23 Supplies of specifically designed spare parts for medical aids and appliances 24 Supplies of repairs of medical aids and appliances 28 Supplies of modifications of medical aids and appliances 29 Appendix 1 - Explanation 31 Taxable supplies - section 9-5 32 GST-free supplies: section 38-10 and section 38-45 35 Category 1: Dental services and goods supplied together by recognised professionals to patients - section 38-10 35 Dental Services - subsection 38-10(1) 35 Paragraph 38-10(1)(a) 37 Are dental services specified in the table or the regulations? 37 Paragraph 38-10(1)(b) 38 Who is a recognised professional in relation to the supply of dental services? 38 Paragraph 38-10(1)(c) 40 What is 'appropriate treatment'? 41 Who is the 'recipient of the supply'? 49 Why doesn't this category apply to dental technicians? 52 Are the supplies being made to someone else who is not the patient? 53 What about supplies paid for by someone else other than the patient? 56 Example 1 - third party paying on a patient's behalf 57 Example 2 - taxable supply to a third party 59 Dental goods - subsection 38-10(3) 61 Category 2: Certain medical aids and appliances and their specifically designed spare parts - section 38-45 64 Medical aids and appliances - subsection 38-45(1) 64 Consumables 72 Example 3 - goods used/consumed in the process of constructing and/or supplying a GST-free medical aid or appliance 74 Spare parts for GST-free medical aids and appliances - subsection 38-45(2) 76 Example 4 - a part that cannot be used as a spare part for a GST-free medical aid or appliance 79 Repair services 80 What does integral, ancillary or incidental mean? 82 Example 5 - GST-free supply of spare parts to which labour services are integral, ancillary or incidental 84 Example 6 - taxable supply of labour services to which the spare parts are integral, ancillary or incidental 85 Example 7 - GST-free supply of spare parts and taxable supply of labour services as neither is integral, ancillary or incidental 86 Apportionment 87 A supply that is partly taxable and partly GST-free 87 Charging GST on a GST-free medical aid or appliance or a specifically designed spare part 89 Appendix 2 - Detailed contents list 91 Attachment A Page 20 Attachment B Page 21