1 Is the supply by you of 'prescription safety eyewear' a single composite supply that is GST-free under subsection 38-45(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 No. Your supply of 'prescription safety eyewear' is not a single composite supply that is GST-free under 38-45 of the GST Act. Rather it is considered a mixed supply. To the extent your supply consists of the: • prescription lenses it will be GST-free supply under subsection 38-45(1) of the GST Act. • safety glasses frames and safety goggle frames it will be a taxable supply under section 9-5 of the GST Act.
You are registered for the goods and services tax (GST). You supply protective equipment eyewear. Prescription lenses are offered for the safety glasses and safety goggles. For the purposes of this private ruling the term 'prescription safety eyewear' refers to the supply of safety glasses and safety goggles that have been fitted with prescription lenses.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 38-45 A New Tax System (Goods and Services Tax) Act 1999 subsection 38-45(1)
Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Section 38-45 of the GST Act outlines the circumstances in which the supply of certain medical aids and appliances will be GST-free. Subsection 38-45(1) of the GST Act provides that a supply of a medical aid or appliance is GST-free if: (a) it is covered by Schedule 3 (medical aids and appliances), or specified in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST 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.
All the above requirements must be satisfied for the supply of a medical aid or appliance to be GST-free. A medical aid or appliance that is GST-free under subsection 38-45(1) of the GST Act will be GST-free all the way down the supply chain and not only when supplied to a person with an illness or disability. Medical aid covered by Schedule 3 Item 155 in the table in Schedule 3 (Item 155) lists 'lenses for prescription spectacles'. ATO Interpretative Decision ATO ID 2004/440 Goods and Services Tax - GST and the supply of prescription lenses for swimming goggles (ATO ID 2004/440) considers various aspects of prescription lenses. It states: The term 'prescription spectacles' is not defined in the GST Act. Where a term is not defined in the GST Act, it will take on its ordinary meaning unless the term has a special or technical meaning. Where a term has a special or technical meaning, it is necessary to determine its meaning by reference to the industry to which that term relates ( Herbert Adams Pty Ltd v. Federal Commissioner of Taxation (1932) 47 CLR 222).
Given the context in which the term 'prescription spectacles' appears, the term is considered to have a special or technical meaning. Dorland's Medical Dictionary (2000) edition, Newman W. Dorland, WB Saunders, London, defines the word 'prescription' as a 'written direction for the preparation and administration of a remedy'. The word 'spectacles' is defined as 'a pair of lenses in a frame to assist vision'. Accordingly, it is considered that 'prescription spectacles' are a pair of lenses in a frame provided in accordance with a prescription. Further, it is considered that the prescription must be made by an appropriately qualified person (eg an optometrist) for the purpose of remedying a sight defect. The entity is supplying lenses prepared in accordance with a prescription to be used in swimming goggles to allow people who require prescription lenses to see clearly underwater. It needs to be determined whether the word 'goggles' fall within the meaning of the word 'spectacles'.
The Macquarie Dictionary, 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales defines 'goggles' as 'spectacles often with special rims, lenses, or sidepieces, so devised as to protect the eyes from wind, dust, water, or glare'. Therefore, the entity's swimming goggles fall within the meaning of the word 'spectacles' in Item 155. As the entity's swimming goggles are a form of spectacles that have prescription lenses, the entity's supply of the lenses for swimming goggles is covered by Item 155. In addition, lenses for swimming goggles are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability. Therefore, the entity is making a GST-free supply under subsection 38-45(1) of the GST Act when it supplies prescription lenses for swimming goggles. Note: Only the lens component of the supply is GST-free under subsection 38-45(1) of the GST Act. The frame component of prescription swimming goggles is not GST-free under subsection 38-45(1) of the GST Act. We consider that the p rescription safety eyewear is a form of spectacles that have prescription lenses and are covered by item 155.
Medical aid specifically designed for, and not used by people without, an illness or disability To satisfy paragraph 38-45(1)(b) of the GST Act, the p rescription safety glasses; and prescription safety goggles must be both: • specifically designed for people with an illness or disability; and • not widely used by people without an illness or disability. In determining whether a product is specifically designed for people with an illness or disability requires consideration of the product itself, its design objectives, and both its intended and actual usage. The Commissioner's view on subsection 38-45(1) of the GST Act can be found in Goods and Services Tax Determination GSTD 2021/2 Goods and services tax: adjustable beds, pressure mattresses and pressure management overlays (GSTD 2021/2). Although GSTD 2021/2 is made in the context of bedding products for people with disabilities, the principles discussed are applicable to other products that may be considered under subsection 38-45(1) of the GST Act.
As explained in paragraph 3 in GSTD 2021/1, determining if a supply is GST-free involves applying an essential character test to examine its basic nature, taking its composition, function and other factors into account. The footnote to paragraph 3 explains that in the context of section 38-45 of the GST Act, '... the task ... is to determine the essential character of the goods, what essentially the goods are, not some characteristic that the goods might have'. The intended use of the product is to be determined by objective consideration of all the evidence, including how it is marketed and by reference to the type of outlets through which the product is sold. The question here is, is there a design focus on people with an illness or disability and some special design feature for people with an illness or disability? Paragraph 7 of GSTD 2021/2 states: Specifically designed 7. The following factors are a non-exhaustive list of matters you should take into account when considering whether a particular product is specifically designed for people with an illness or disability: •
An objective view of the design features and characteristics of the product indicate whether its essential character is that it is specifically designed for people with an illness or disability. • The designer's or manufacturer's intention of how the particular product is to be used. Indicators of the designer's or manufacturer's intention include an objective consideration of how the product is marketed and the type of outlets at which the product can be purchased. Whether an item is 'not widely used' by people without an illness or disability is a question of degree. Paragraphs 8 to 10 of GSTD 2021/2 provides: Not widely used 8. The phrase 'not widely used' is not defined in the GST Act. It therefore takes its ordinary meaning, having regard to the context in which it appears. It is a question of degree whether a product is not widely used by people without an illness or disability. The Commissioner considers that it is reasonable to conclude that the test is not satisfied if the product is widely purchased by or on behalf of people without an illness or disability, without the need to examine how this class of people in fact use the product.
9. In the context of paragraph 38-45(1)(b), the Commissioner considers 'not widely used' to mean not used by many people who do not have an illness or disability. 10. The following factors will be relevant, but are not an exhaustive list, when considering whether a product is widely used by people without an illness or disability: • The product is widely sold in retail or other outlets that predominantly sell standard beds (that is, beds that do not have features specifically designed for people with an illness or disability) to the general public. • The marketing material for the product emphasises how it enhances the lifestyle of people without an illness or disability. In considering the essential character of the p rescription lenses for the safety glasses, and prescription lenses for safety goggles it is considered that they are specifically designed for people with an illness or disability resulting from a vision impairment. The lenses for the p rescription safety glasses, and lenses for the prescription safety goggles are tailored to an individual's specific vision needs and therefore will not be widely used by people without an illness or disability.
Therefore, the lenses for the p rescription safety glasses, and prescription lenses for the safety goggles are GST-free under subsection 38-45(1) of the GST Act. As the prescription lenses are GST-free under subsection 38-45(1) of the GST Act the issue to be determined now is the GST status of the safety glasses frames and safety goggle frames. The frame component of the prescription safety glasses, and prescription safety goggles are not GST-free under subsection 38-45(1) of the GST Act. We note, as part of your private ruling request you have made a submission that the supply of the prescription safety eyewear is a single composite supply. In this case we disagree with your submission. Our reasons are as follows. Mixed and Composite supplies Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8)provides guidance on how we identify whether a supply includes a taxable and non-taxable part under the GST Act.
GSTR 2001/8 further provides the Commissioner's view on how to determine whether parts in a supply should be separately recognised for GST purposes or if in fact they are integral, ancillary and incidental to a dominant supply. Paragraph 16 of GSTR 2001/8 explains that 'a mixed supply is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised'. GST is only payable on the taxable part of a mixed supply. Paragraph 17 of GSTR 2001/8 explains that 'a composite supply is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part'. It is treated as a supply of a single thing. Where the dominant part of a composite supply is taxable, the whole supply is taxable. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part, we take the view that you adopt a commonsense approach.
Where a transaction consists of a bundle of features and actions, all of the circumstances of the transaction must be considered to ascertain its essential character. The effect of the GST Act on the supply or any of its individual parts must also be considered. Only then is it possible to determine whether the transaction is a mixed or a composite supply. Mixed supplies In determining whether a supply has separately identified taxable and non-taxable parts that need to be individually recognised GSTR 2001/8 states: 19. Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.
19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character. 19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part. Paragraph 40 of GSTR 2001/8 provides in part that if a provision of the GST Act specifically requires treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.
Further in paragraph 53 of GSTR 2001/8 states '...a supply may be considered to have more than one part because of the effect of a provision of the GST Act, as was the case in Luxottica (see paragraph 44C of this Ruling) ... Paragraph 44C of GSTR 2001/8 states: 44C. In Luxottica , taking a commonsense and practical approach, the supply was characterised as the supply of one thing, namely spectacles. However, the supply was a mixed supply because of the effect of a particular provision of the GST Act. The supply of lenses for prescription spectacles is GST-free under section 38-45 and Item 155 of Schedule 3. Regarding separately identifiable parts paragraph 45 of GSTR 2001/8 states: 45. In many circumstances, it will be a matter of fact and degree whether the parts of a supply are separately identifiable, and retain their own identity. Paragraph 59 of GSTR 2001/8 lists some indicators to determine whether a part of a supply may be integral, ancillary or incidental to the dominant part of the supply, which include where:
• you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or • it represents a marginal proportion of the total value of the package compared to the dominant part; or • it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or • it contributes to the proper performance of the contract to supply the dominant part. These factors are not exhaustive and must be applied by having regard to all the circumstances and by taking a common sense and practical approach. By having regard to the essential character or features of the transaction, it can be ascertained whether a supply is a mixed supply or a composite supply. Essential character of prescription safety eyewear
In examining the essential character of safety glasses and in this case prescription safety eyewear the essential character is the safety and protection of the eyes of the wearer. The prescription lenses allow the wearer to correct their vision impairment, and it is acknowledged that the prescription lenses in the prescription safety eyewear provide a primary source of protection. However, in prescription safety eyewear the frames play a significant role in protecting the eyes of the wearer. We do not consider that the prescription lenses are the dominant part of the prescription safety eyewear despite their value in the cost of the overall product and the protection they offer. The frames in all spectacles have a significant purpose and more so in safety eyewear where they are a significant factor in the eye protection provided. In this case, consistent with the view in GSTR 2001/8 we consider the character of the supply of prescription safety eyewear is a mixed supply. This approach is also clear in the note in ATO ID 2004/440 in which it was concluded that the frames are separate to the lenses.