The Australian Orthotic Prosthetic Association

Interpretation of the GST Ruling for Orthotist/Prosthetists: Ensuring you’re compliant

2 InterpretatIon of the GSt rulInG for orthotISt/proSthetIStS: enSurInG you’re complIant

Contents 1. BaCkground 3

1.1 GST legislation for health services 3

1.2 Medical aids or appliances 3

1.3 Clinical services 3

2. gST and orThoTiST/ProSTheTiST CliniCal ServiCeS 4

2.1 GST-free clinical services 4

2.2 GST-applicable clinical services 5

2.3 Mixed supply clinical services 5

2.4 Follow-up services, including spare parts, consumables, repairs & modifications 6

3. FrequenTly aSked queSTionS 8

4. FurTher reSourCeS: 9

5. aPPendiCeS 10

5.1 Summary table of GST application examples 10

5.2 Summary of Schedule 3 of the GST Act- Items relating to Orthotics and Prosthetics 11

InterpretatIon of the GSt rulInG for orthotISt/proSthetIStS: enSurInG you’re complIant 3

1. Background The applicability of the Australian Government’s Goods and Services Tax (GST) on orthotic and prosthetic clinical services is a complex issue. The GST Act titled “A New Tax System (Goods and Services Tax) Act 1999” lists 21 allied health professions who are able to provide GST-free health services (see section 38-10 Other health services). Orthotist/Prosthetists are not included in this list.

Confusion arises because Schedule 3 of the GST Act outlines that the supply of medical aids or appliances, including orthoses and prostheses, are GST-free. This has resulted in conflicting practices with a variety of approaches being taken to GST application by orthotic and prosthetic services around Australia.

This has also led to situations where practitioners have been unsure of their GST obligation in more complex service deliveries which are not linked to the supply of a device, such as review appointments, repairs, and the provision of spare parts. Finally, this uncertainty has a significant impact on the recognition of the profession, with practitioners reluctant to itemise clinical services on invoices due to concerns with the GST implications.

On 20th March 2015 the Australian Orthotic Prosthetic Association (AOPA) submitted a request for a GST ruling to the Australian Taxation Office (ATO) in relation to the clinical services of orthotist/prosthetists in Australia. Specifically AOPA sought a ruling on the application of GST to clinical services in the absence of orthosis/prosthesis supply and services which may not be seen as directly linked to supply, such as review and repair appointments.

AOPA asked the ATO for clarification on the following questions:

• Are the clinical services provided by an orthotist/prosthetist GST-free when not linked to the supply of a medical device? For example, clinical assessments, multidisciplinary service provision and report writing/funding application development

• Is the labour associated with the design and production of GST-free medical aids and appliances also GST-free?

• How is the GST applied to follow up services, including clinical reviews, the provision of repairs, modifications, and spare parts of a GST-free medical aid or appliance?

AOPA received a response from the ATO on the 19th of May 2015.

This document provides an interpretation of the response from the ATO and also outlines how AOPA Members should apply the GST to their services including; which services are GST-free, which attract the GST and which services partly attract the GST. This document will initially focus on health services and medical devices, followed by spare parts, repairs and consumables. GST within the larger supply chain will also be explained.

This advice is based directly on information supplied by the ATO and has been reviewed by the ATO for accuracy. Readers should not that the language used within this document reflects the language and terminology used by the ATO and in some instances may be inconsistent with language used by the profession.

1.1 GST legislation for health servicesThe principal legislation to refer to in relation to the GST is A New Tax System (Goods and Services Tax) Act 1999. Essentially this legislation outlines the requirement to pay a 10% GST on most goods and services sales. GST is levied on most transactions in the production process, but is refunded to all parties in the chain of production other than the final consumer. Some items and services are exempt from the GST, including the supply of medical aids or appliances.

1.2 Medical aids or appliancesThe supply of a medical aid or appliance is ruled by section 38-45 of the GST Act. Additionally subsection 38-45(1) clearly outlines that a medical aid or appliance is GST-free where it meets the following 3 elements:

1. covered by Schedule 3 or a subsequent regulation; and

2. specifically designed for people with an illness or disability; and

3. not widely used by people without an illness or disability.

All three of these elements are applicable to the supply of many orthoses, prostheses and associated supplements, and therefore the majority of aids provided by an orthotist/prosthetist are GST-free. The medical aids and appliances which are GST-free and listed in Schedule 3 items relevant to orthotist/prosthetists are numbered 41-42, 68-74, 83, 102, 103 & 139.

1.3 Clinical servicesThe application of GST to health services is covered under the ‘Other health services’ heading defined in section 38-10 of the GST Act 1999. There are 21 health services specifically listed in section 38-10 of the GST Act which are therefore exempt from the GST, including physiotherapy, speech pathology, dietetics and occupational therapy as examples (appendix 5.4). The ATO does not dispute that orthotist/prosthetists provide a health service, but clarify that only the 21 professions listed are able to provide GST exempt health services. Not being included in 38-10 of the GST Act 1999 results in three possible situations for the application of the GST to orthotist/prosthetist clinical services:

1. GST-free services;

2. GST-applicable;

3. Mixed and/or composite supply.

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AOPA’s GST Ruling request specifically sought clarity regarding the application of GST to the clinical services provided by an Orthotist/Prosthetist when not linked to the supply of a GST-free medical aid or appliance. This may include for example, clinical assessments, multidisciplinary service provision and report writing/funding application development

Firstly, it is important to clarify the term ‘supply’ of a medical device in the manner in which the ATO uses. The ATO has provided the following definition of ‘supply’ in relation to orthoses and prostheses:

‘It is considered that the supply of an orthotic or artificial limb and associated supplements and aids includes measuring and fitting a custom made orthotic or artificial limb’ (page 6, ATO 2015).

2.1 GST-free clinical servicesDue to the exclusion of orthotic and prosthetic services from the GST Act 1999 the only clinical service provided by orthotist/prosthetists which are GST exempt, are those directly linked to the supply of a medical aid or appliance as defined above. The interpretation of this ruling is that all labour, parts and consumables involved in the provision of a GST-free medical device are GST-free, including the following:

• Clinical and biomechanical assessment

• Casting and/or measuring

• Labour in designing and producing the medical aid or appliance

• Fitting appointments

• Review and follow up appointment directly linked to supply

• All components, parts and consumables

Clinical services other than those listed above can be more complex to categorise, however where the clinical service is not directly linked to supply it is GST-applicable (ie. repair assessment). The ATO does allow for circumstances whereby a service may include elements which are GST-free and elements which are GST-applicable, which is called a mixed supply. This situation may arise when services involve more than one distinct element or more than one profession and is further explored in Section 2.3.

Outside of “supply” there is one discrete section of the GST Act that indicates that the modification of an orthosis/prosthesis is GST-free.

Schedule 3, in the category Mobility of people with Disabilities-physical: walking aids (item number 103) lists the provision of “specialised ambulatory orthoses modification” as a GST-free service (Appendix 5.2). Therefore, the provision of any modification/adjustment to an orthosis that meets the description of an “ambulatory orthoses” is GST-free. The interpretation also indicates the associated clinical service relating to the modification is GST-free, such as the assessment required to determine the modifications necessary.

Review appointments that involve the provision of spare parts and repairs are further explained in Section 2.4.

Example 1: An ankle foot orthoses (AFO) needs adjusting as it is causing pressure on the medial malleolus. The AFO is modified by being heated and stretched. No spare part or consumables were used during this review.

The labour involved in this modification is GST-free, as this meets the description of a specialised ambulatory orthosis modification (Schedule 3, item number 103).

Example 2: A wrist hand orthosis needs a modification to the proximal trimline. It is trimmed and the edges buffed. No spare part or consumables were used in this review.

The labour involved in this modification is subject to the GST as it does not meet the description of a “specialised ambulatory orthosis”.

Implication for practitioners:

All clinical and technical labour associated with the supply of a medical aid or appliance, including measuring and fitting, are GST-free clinical services

Practitioners are encouraged to invoice as one supply item only and highlight the clinical services included within this supply. There are no GST implications for itemising and highlighting on an invoice the clinical services involved in the supply of an orthosis and/or prosthesis

Modifications to ambulatory orthoses are GST-free including the clinical assessment of the modification requirement. This does not extend to non-ambulatory orthoses, such as spinal and upper limb orthoses or prostheses.

2. gST and orthotist/Prosthetist clinical services

InterpretatIon of the GSt rulInG for orthotISt/proSthetIStS: enSurInG you’re complIant 5

2.2 GST-applicable clinical servicesAll orthotic and prosthetic services which are not related to the supply of a GST-free medical aid or appliance and are not covered under Schedule 3, are subject to GST.

This includes: • Patient assessment appointments which do not link directly to the supply of a GST-free medical aid or appliance • Review appointments which are not integral to the initial supply of a GST-free medical aid or appliance • Review appointments which do not involve the supply of any specifically designed spare part/repair • Administration tasks involved with providing a GST-free medical aid or appliance. For example, the time involved in preparing

funding documentation for the supply of a GST-free medical aid or appliance, • Telephone calls/consultations, • The orthotic/prosthetic contribution to a multidisciplinary appointment which does not involve the supply of a GST-free medical aid

or appliance, • The supply of generic spare parts (as further outlined below).

Implication for practitioners:

Any clinical service which is not part of a GST-free medical device or a specialised ambulatory orthosis modification (Schedule 3, item number 103) must have GST applied

2.3 Mixed supply clinical servicesMixed supply is complex, but simply put, it describes the situation where the service provided has a GST-free and GST applicable component. These two or more identifiable components need to be separated on an invoice due to having different GST requirements.

A supply may be characterised as mixed due to the presence of GST-applicable and GST-exempt elements provided by a single professional, or because it was a multidisciplinary supply where one health professional’s labour is taxable and the other’s is not. Further details regarding mixed supply in relation to clinical services and spare parts/modifications are provided in Section 2.4.

A simple example is the provision of a multidisciplinary assessment with an orthotist and physiotherapist. The entire service may attract one fee, however the ATO ruling clearly states that the hours in the invoice should be separated by profession and the GST applied to the appropriate orthotist/prosthetist hours. The ruling goes on to say that common sense (any reasonable basis for a decision) should be used when dividing up the hours in a mixed supply service and records must be kept.

Mixed supply services are bound by paragraphs 120-122 of the Goods and services tax ruling 2001/8

Example 1. A two hour combined assessment appointment with an orthotist and a physiotherapist, where no direct link is made to the supply of a GST-free medical aid or appliance. The service may be divided as follows:

Service- Multidisciplinary assessment GST Cost Total

Assessment by orthotist $11 $110 $121

Assessment by physiotherapist 0 $110 $110

Total GST $11

Total $231

Example 2: A patient has a series of appointments for the provision of a new transtibial prosthesis. During these appointments a right shoe modification that was previously supplied is adjusted.

In this case, all clinical services associated with the new prosthesis is considered part of the supply of a GST-free medical aid or appliance. However, the adjustment of the shoe modification is subject to GST and therefore a mixed supply is provided. This should be separated on an invoice as follows:

Service GST Cost Total

TT prosthesis • Assessment • Casting • Design & production • Fitting • Gait training and education • Associated reviews

0 $5000 $5000

Adjustment of shoe modification $8 $80 $88

Total GST $8

Total $5088

6 InterpretatIon of the GSt rulInG for orthotISt/proSthetIStS: enSurInG you’re complIant

2.4 Follow-up services, including spare parts, consumables, repairs & modificationsIn relation to the GST, it is possible that a follow up services are treated differently depending on what takes place in the appointment. This may seem complex, but it is made clear when the service is correctly classified. Follow up services (which are not themselves a ‘supply’ of a medical aid or appliance) can be classified as Mixed or Composite Supply. In most cases the services of orthotist/prosthetists will be Mixed supply or Composite Supply A or B (Table 1).

Composite supply is where two separate components of supply are part of one type of service. For example, a prosthetic service which involves the provision of one grub screw as part of the service. There are two types of Composite Supply which are determined according to the dominance of the spare part in relationship to the labour as well as the cost (as shown in table 1). When the dominant part of the service is labour, with the spare part costing significantly less, this constitutes a Composite Supply B (table 1), and the whole service is GST applicable. The replacement on the other hand of a prosthetic knee joint would result in the specifically designed spare part costing significantly more than the labour involved to supply it, and as such it is considered Composite Supply A (table 1), and the whole service (labour & part) is GST free. When deciding what part of the service is dominant, the ATO advises that a ‘common sense approach’ be taken.

Mixed supply on the other hand would be where the spare part and the labour have no relationship to each other ie. new liner for a prosthesis is supplied and the socket is modified.

Table 1: Composite supply

Type Dominant component of service GST outcome Example

A Specifically designed spare parts GST-free part & labourThe supply of a replacement prosthetic knee

B Labour GST applicable part & labour The replacement of a grub screw

Reviews may involve only labour or may involve the supply of a spare part/repair. Parts that are used in the initial supply of a device that is GST-free, including screws, buckles and other items, are considered as part of the single GST-free initial supply but they may not be GST-free when being replaced as part of a Composite Supply (38-45(2) GST Act).

The key to applying the GST to follow up services is to establish whether the service involves the supply one of, or a combination of:

• A medical aid or appliance

• A specifically designed spare part

• A generic item

• Only labour/dominantly labour

Parts that meet the definition of a medical aid or appliance in their own right are supplied; parts and labour, GST-free, where the part(s) are the dominant component of the service (Composite Supply A). An example would be a prosthetic knee unit or a prosthetic socket replacement.

The supply of generic parts/repairs/consumables occurring at follow up occasions of service attract the GST along with the labour to supply them even in cases when they are supplied to something that was a GST-free medical aid or appliance when first supplied.

Modifications are services which are comprised of clinical time, spent with the patient and adjusting the medical aid or appliance without the provision of a spare part, repair or consumable. Modifications are subject to the GST in all cases except when the modification is those which meet the definition of item 103 Schedule 3 GST Act, “specialised ambulatory orthoses modification”.

InterpretatIon of the GSt rulInG for orthotISt/proSthetIStS: enSurInG you’re complIant 7

Figure 2: Summary table

Supply table of spare parts, repairs & consumables

Supply GST

Spare parts- things which can be used to replace a faulty, worn or broken part of another thing

Specifically designed spare part

For example: The supply of a replacement pin for a silicon liner

GST-free part & labour

A spare part meeting the definition of a GST-free medical aid or appliance in section 38-45 (1) GST Act, may be GST-free in its own right.

For example: The supply of spare stump socks

GST-free part & labour

Generic spare part

For example: The supply of a spare buckle

GST applicable to parts and labour

Repairs- the remedying or making good of defects in, damage to, or deterioration of, property to be repaired (being defects, damage or deterioration in a mechanical and physical sense) and contemplates the continued existence of the property

Repair utilising a specifically designed spare part

For example: The supply of a new (replacement) cosmetic cover.

GST-free part & labour

Repair involving generic spare parts

For example: A custom-made spinal orthosis requires a rivet to be replaced due to rust.

GST applicable to parts and labour

Consumables- things that are acquired with the intention that they will be destroyed, consumed or expended

Things made and consumed in the process of constructing and supplying a GST-free medical aid or device as part of the overall supply.

For example; glue, resin, plaster

GST-free consumable & labour

Some consumables may meet the requirements of being GST-free. As per item 83 of Schedule 3 which lists ‘artificial limbs and associated supplements and aids’.

For example; Donning spray

GST-free consumable & labour

Generic consumables such as oil or glue used in maintenance of a medical aid (even if that medical aid was supplied as GST-free).

GST applicable to consumable and labour

Generic consumables which are not specifically designed and are supplied in isolation to the supply of a GST-free medical aid or appliance.

For example. The provision of sorbolene cream

GST applicable to consumable and labour

Modifications- adjustment to a medical aid or appliance where the dominant component is labour without the supply of any spare parts

Modifications meeting the description “Specialised ambulatory orthoses modifications”.

For example: Heating and adjusting an AFO as part of a follow up service (review)

GST-free labour

Modifications to medical aids or appliances that are NOT “specialised ambulatory orthoses”.

For example: The adjustment to the trimlines of a humeral fracture orthoses at a follow up service (review)

GST applicable to labour

Implications for practitioners:

Practitioners must consider what occurs in a follow up service to determine whether GST is applicable to the whole service, part of the service, or if the service is GST-free.

As a general rule, any follow up service involving the supply of a repair/spare part/consumable that meets the definition of a medical aid or appliance or can be classified as “artificial limbs and associated supplements and aids” is supplied GST free, including the labour component

As a general rule, the supply of generic parts that are not specifically designed such as buckles or screws attract the GST, including the labour to supply them.

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3. Frequently asked questions The following points summarise the advice provided by the ATO in relation to the specific questions lodged by AOPA.

• Are the clinical services provided by an orthotist/prosthetist GST-free when not linked to the supply of a medical device?

Standalone clinical services that are not linked to the supply of a medical aid or appliance are subject to the GST. The one exception to this is when the service involves the “specialised ambulatory orthoses modification” as this is listed in Schedule 3 of the GST act and is therefore GST free.

• How is the GST applied to the provision of spare parts and repairs of a GST-free medical aid or appliance?

Specifically designed spare parts and the associated labour are GST-free.

Generic spare parts and associated labour attract the GST.

• How is the GST applied to the use of consumables, both in design and production and repair of a GST-free medical aid or appliance?

Consumables used to make a GST-free medical aid or appliance are considered as part of that supply and are GST free. Consumables used at subsequent occasions may or may not be GST-free depending on their classification.

• How is the GST applied to multidisciplinary services, when one service is listed in the legislation as a GST-free health service provider and one is not? For example: a combined assessment between an orthotist/prosthetist and a physiotherapist.

When NOT linked to the supply of a medical aid or appliance, the hours of the orthotists/prosthetist attract GST and need to be separated from the hours of the physiotherapist on an invoice.

• Is the production of a funding application document subject to GST?

Yes, administration activities attract GST.

• Are the services of any individuals employed to assist with the design and production of GST-free medical aids and appliances also GST-free?

As part of the larger supply chain involved in the supply of a medical aid or appliance, their time is also GST-free.

• How does GST work in the supply chain?

Each individual in the supply chain is responsible for their own GST obligations. The supply of a medical aid or appliance is GST free at all points in the supply chain unless other arrangements are made and agreed upon.

• Can I be confident in this interpretation of the ATO ruling?

AOPA encourages all practitioners to seek independent, expert advice when seeking to make changes to their GST practices. However this interpretation document has been reviewed by the ATO and confirmed as technically correct on the 27th August 2015.

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4. Further resources:Links to GST legislation referred to in this document

1. GST Act section 38-10

http://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/s38.10

2. Schedule 3 to the GST Act. Table: Medical aids and appliances

https://www.ato.gov.au/Business/Bus/GST-and-medical-aids-and-appliances/?page=2#Schedule_3_to_the_GST_Act

3. Goods and services Tax Ruling GSTR 2001/8: Apportioning the consideration for a supply that includes taxable and non-taxable parts

http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR20018/NAT/ATO/00001

Link to previous case ruling (dentistry)

http://law.ato.gov.au/atolaw/view.htm?docid=CLR/CR201314/NAT/ATO/00001

Link to Psychotherapy and Counselling Federation response

http://www.pacfa.org.au/news-advocacy/advocacy/gst-exemption/

Australian Taxation Office website

https://www.ato.gov.au/

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5. appendices5.1 Summary table of GST application examples

Service example GST status Comment

1. The provision of a pair of bilateral custom made leaf spring AFO’s for bilateral foot drop.

GST-freeLabour & parts are GST free, as part of the supply of a medical aid or appliance.

2. An AFO needs adjusting as it is causing pressure on the medial malleolus. The AFO is modified by being heated and stretched. No spare part or consumables were used in this review

GST-freeThis service meets the description of Schedule 3 item 103 “specialised ambulatory orthoses modification”.

3. A wrist hand orthosis needs a modification to the proximal trim line. It is trimmed and the edges buffed. No spare part or consumables were used in this review.

GST applicable

Does not meet the definition of supply of a GST-free medical aid or appliance.

4. A two hour combined assessment appointment with an orthotist and a physiotherapist, where no direct link is made to the supply of a GST-free medical aid or appliance

Mixed service

GST is applicable to orthotist labour only. Orthotist time should be identifiable on the invoice.

5. A patient has a series of appointments for the provision of a new left transtibial prosthesis. During these appointments a right shoe modification that was previously supplied is adjusted.

Mixed & Composite service

All clinical services associated with the new prosthesis is considered part of the supply of a GST-free medical aid or appliance. However, the adjustment of the shoe modification is subject to GST and a mixed supply is provided. This should be separated on an invoice.

6. The supply of bilateral hinged AFOs GST-free Supply of a GST-free medical aid or appliance.

7. An invoice for a review appointment for a single Functional Electronic Stimulation system. The patient requires 2 new generic batteries for the units.

GST applicable

Labour and generic spare part is subject to GST.

8. An appointment to review and adjust a shoulder range of motion (ROM) orthosis, supply tubigrip, modify an existing AFO & cast for a new AFO.

Mixed service

Taxable elements:

The appointment required an adjustment to the left shoulder ROM orthosis- this is a taxable adjustment as the dominant component is labour.

Tubigrip was supplied, this is a generic spare part and is taxable.

Tax-free elements:

Modification of the existing AFO- as this meets the description of “specialised ambulatory orthoses” item 103 in Schedule 3.

Casting for a left AFO is tax-free as it is part of the supply of a GST-free medical aid or appliance

The taxable and non-taxable components should be separate on an invoice

9. A transtibial prosthesis requires a new cosmetic cover GST-free

Part and labour are GST-free as part of the supply of a specifically designed spare part.

10. A silicone liner needs a replacement pin. GST-free

The original supply of the liner was GST-free, and replacement of the pin is a specifically designed spare part.

The labour and pin are GST-free. 11. A custom-made spinal orthosis requires a rivet to be

replaced due to rust. GST applicable

The rivet is a generic part. Supply of this rivet and the associated labour is subject to GST.

12. A humeral fracture orthosis needs to be repaired as the Velcro has lost its grip and is no longer working effectively to hold the orthosis in place. It is replaced with new Velcro.

GST applicable

The Velcro is a generic part.

This repair service, including the generic parts and labour is subject to GST

13. The provision of prosthetic donning spray. GST free

Donning spray meets the requirements of being GST-free. As per item 83 of Schedule 3 lists ‘artificial limbs and associated supplements and aids’. The provision of donning spray would be GST-free at all times.

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5.2 Summary of Schedule 3 of the GST Act- Items relating to Orthotics and Prosthetics

List of relevant GST-free Medical aids and appliances relating to orthotist/prosthetists

(a) https://www.ato.gov.au/Business/Bus/GST-and-medical-aids-and-appliances/?page=2#Schedule_3_to_the_GST_Act

Po Box 1219, greythorn vic 3104P - 03 9816 4620F - 03 9816 4305TF (aus only) - 1300 668 194e - admin@aopa.org.auW - www.aopa.org.auaBn / aCn 516161-735-584

disclaimer: AOPA strives to make the information in this article as accurate as possible, however AOPA makes no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information in this document, and expressly disclaims liability or errors and omissions in the information in this document. This document contains information of a general nature only, and is not intended to constitute the provision of legal or financial advice.

© The Australian Orthotic Prosthetic Association 2015