1 Are your supplies of the products GST-free under subsection 38-45(1) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act) as a medical aid and appliance?
1 No, your supplies of the products are not GST-free under subsection 38-45(1) of the GST Act as a medical aid and appliance. Question 2 Are your supplies of the products GST-free under section subsection 38-45(2) of the GST Act as a spare part? Answer 2 Yes, your supplies of the products are GST-free under subsection 38-45(2) of the GST Act as a spare part. This ruling applies for the following period : DD MM 20YY to DD MM 20YY
You are registered for GST. You carry on a business in Australia of selling products used with glucose monitors, infusion sets and infusion pumps. You do not have agreements with any of your customers to treat your sales of these products as being taxable. Some of your products are made from polyurethane.
A New Tax System (Goods and Services Tax) Act 1999 section 38-45 A New Tax System (Goods and Services Tax) Act 1999 section 182-10 A New Tax System (Goods and Services Tax) Act 1999 section 182-15 A New Tax System (Goods and Services Tax) Regulations 2019 section 38-45
Question 1 Are your supplies of the products GST-free under subsection 38-45(1) of GST Act as a medical aid and appliance? Detailed Reasoning Subsection 38-45(1) of the GST Act states: A supply is GST-free if: (i) it is covered by Schedule 3 (medical aids and appliances), or specified in the regulations; and (ii) the thing supplied is specifically designed for people with an illness or disability, and it is not widely used by people without an illness or disability We must first determine whether your products are covered by the list of medical aids and appliances in Schedule 3 to the GST Act or the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations). Are your products covered by Schedule 3 or the GST Regulations? None of the products are covered by any of the items listed in Schedule 3 to the GST Act. Most of the products are not covered by any of the items listed in the table in subsection 38-45.01(1) of the GST Regulations. However, some of your products are made of polyurethane. Item 1 in the table in subsection 38-45.01(1) of the GST Regulations (Item 1) lists the following: (a) alginate; (b) hydro colloids; (c) hydro gel; (d) polyurethane film;
(e) polyurethane foam. Therefore, we need to consider whether your products that contain polyurethane are covered by paragraph (d) of item 1 in the GST Regulations. The term 'polyurethane film' is not defined in the GST Act or GST Regulations. Undefined terms or expressions take the ordinary meaning of the word or expression in the context in which it appears. Dictionaries can be consulted to confirm the ordinary meaning of words, however noting 'not to make a fortress out of a dictionary'. Dictionaries are not decisive on the meaning of statutory words and are to be treated with caution. The legal meaning of words and expressions is to be determined by reference to the text, context and purpose. The Macquarie Dictionary online defines 'polyurethane' as follows: noun a class of synthetic materials made from a polymer of urethane; used in foam form as lightweight insulation and packing, but also produced as fibres, coatings, and in a flexible form for diaphragms and seals.
The ordinary meaning of 'polyurethane' is broad. The list of medical aids and appliances in Schedule 3 to the GST Act and GST Regulations are grouped into categories, as indicated by column 2. The schedules are part of the context of the requirements in subsection 38-45(1) of the GST Act. However, these categories are not an operative part of the GST Act. Although column 2 in the table under subsection 38-45.01(1) of the GST Regulations is not operative, section 182-15 of the GST Act provides that this column can be consulted, 'in interpreting an item in those tables, or any other operative provision, those columns may only be considered for a purpose for which an explanatory section may be considered under subsection 182-10(2)'. Relevantly, column 2 may be considered if, among other things, the provisions meaning is, 'ambiguous or obscure' per paragraph 182-15(2)(c) of the GST Act. Given item 1 of the GST regulations merely lists 5 ingredients, reference to column 2 is necessary to determine the meaning.
Item 1 in the table in subsection 38-45.01(1) of the GST Regulations comes under the category heading of 'advanced wound care'. By referring to column 2, we can ascertain that those ingredients must be in a product that is designed to treat wounds and is advanced in its design. Therefore, not every item that contains alginate, hydro colloids, hydro gel, polyurethane film or polyurethane foam will be covered by the items listed. Based on the information provided, your products are not designed to treat wounds. Therefore, we do not consider that the products that contain polyurethane are covered by paragraph (d) under item 1 in the table under subsection 38-45.01(1) of the GST Regulations. All of the products are not GST-free under subsection 38-45(1) of the GST Act because they are not covered by Schedule 3 or the GST Regulations. Question 2 Are your supplies of the products GST-free under section subsection 38-45(2) of the GST Act as a spare part? Detailed Reasoning Subsection 38-45(2) of the GST Act states: A supply is GST-free
if the thing supplied is supplied as a spare part for, and it is specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection (1). Before we consider whether your products are spare parts, we need to determine whether the glucose monitors, infusion sets and infusion pumps they are compatible with are GST-free under subsection 38-45(1) of the GST Act. Are glucose monitors, infusion sets and infusion pumps GST-free? Glucose monitors are listed at item 38 in the table in Schedule 3 to the GST Act. The glucose monitors are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability. Therefore, the supply of glucose monitors are GST-free under subsection 38-45(1) of the GST Act. Infusion sets and infusion pumps are listed at item 6 in the table in subsection 38-45.01(1) of the GST Regulations. The infusion pumps are specifically designed for people with an illness or disability and are not widely used by people without an illness or disability. Therefore, the supply of the infusion pumps are GST-free under subsection 38-45(1) of the GST Act.
We must consider whether your products are a spare part that has been specifically designed for the glucose monitors or infusion pump sets or infusion pumps. Are your products specifically designed as spare parts? The Commissioner's view on subsection 38-45(2) of the GST Act is set out in Goods and Services Tax Determination GSTD 2021/2 Goods and services tax: adjustable beds, pressure management 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 for GST-free treatment under subsections 38-45(1) and (2) of the GST Act. Paragraph 11 of GSTD 2021/2 provides: 11. Subsection 38-45(2) provides that a spare part is GST-free where it is supplied as, and specifically designed as, a spare part for a product that would be GST-free under subsection 38-45(1 ). A spare part is a part which has been specifically designed to replace a faulty, worn or broken part of a medical aid or appliance . A spare part can also have characteristics that enhance or improve the faulty, worn or broken part.
Several ATO Interpretive Decisions (ATO IDs) have considered subsection 38-45(2) of the GST Act. While these ATO IDs consider different products, we consider the principles discussed are applicable to your products. ATO Interpretative Decision ATO ID 2005/4 Goods and Services Tax: GST and mattress as spare part for hospital bed concludes that a hospital bed mattress is a GST-free spare part. In considering what is a 'spare part', the ATO ID provides: The term 'spare part' is not defined in the GST Act. 'Spare part' is defined in The Macquarie Dictionary , 1997, 3rd edition, The Macquarie Library Pty Ltd NSW, as a 'part which replaces a faulty, worn or broken part of a machine'. Accordingly, a part need not actually be replacing something which is faulty, worn or broken to qualify as a spare part, but just be capable of doing so . Therefore, it needs to be determined if a mattress is 'part' of a bed.
The part merely needs to be capable of replacing something that is faulty, worn or broken as opposed to actually replacing the part. That is, the only necessary requirement is that the product can or could be used as a replacement. The product does not need to be a direct or exact replacement for the faulty, broken or worn part. This is also supported by paragraph 11 of GSTD 2021/2, where it is noted that a spare part can enhance or improve the faulty, worn or broken part. ATO Interpretative Decision ATO ID 2002/1060 Goods and Services Tax: GST and batteries used in wheelchairs and scooters concludes that a multi-purpose battery is not a GST-free spare part. Relevantly, the ATO ID considers the requirement for the thing to be 'specifically designed':
To satisfy the second requirement in subsection 38-45(2) of the GST Act, the battery must be specifically designed as a spare part for a GST-free medical aid or appliance. The entity supplies the battery for use in motorised wheelchairs and scooters that are GST-free under subsection 38-45(1) of the GST Act. However, the battery is not specifically designed for this purpose. The battery is a multi-purpose battery that can be used in many applications. As such, the second requirement in subsection 38-45(2) of the GST Act is not satisfied and the supply of the battery is not GST-free under subsection 38-45(2) of the GST Act. ATO ID Interpretative Decision 2001/216 Goods and Services Tax: GST and spare parts for medical aids and appliances also concludes that a generic component designed for various uses is not a supply of a GST-free spare part:
In this case, the part is supplied to replace a worn component of a medical aid. As such, the part is considered to be a 'spare part' for the purposes of the GST Act. Furthermore, as the part is supplied as a spare part for a medical aid that is GST-free under subsection 38-45(1) of the GST Act; the supply satisfies the first requirement in subsection 38-45(2) of the GST Act. However, as the spare part is a generic component that can be used as a spare part for many appliances, it is considered that it is not specifically designed as a spare part for the GST-free medical aid in question. Therefore, as the supply does not meet the second requirement in subsection 38-45(2) of the GST Act, the entity is not making a GST-free supply of a spare part. Based on the principles discussed above and information provided, your products are capable and specifically designed to replace a faulty, broken or worn part of a GST-free medical aid and appliance.
Therefore, your products are a spare part for, and are specifically designed as a spare part for, another thing the supply of which would be GST-free under subsection 38-45(1) of the GST Act. Hence, your products are GST-free under subsection 38-45(2) of the GST Act.