GST can be surprisingly complicated for health contractors. While many health services are GST-free, that treatment does not automatically apply whenever a registered health professional treats a patient.
The outcome depends on the nature of the service, the contractor’s professional status, the purpose of the service and – crucially – who receives the supply.
This last question becomes particularly important when a contractor works through a clinic. If the contractor supplies services to the clinic rather than directly to the patient, GST will often apply to the contractor’s invoice.
“GST-free”, not GST exempt
Australian GST legislation describes qualifying health services as GST-free.
When a service is GST-free, the contractor does not charge GST. A contractor registered for GST can generally still claim GST credits for GST paid on business expenses associated with providing that service.
However, being a doctor, nurse or allied health professional does not make every service GST-free. Each supply must satisfy the relevant requirements in the GST legislation.
When are health services GST-free?
A medical service is generally GST-free if a Medicare benefit is payable for it.
A service may also qualify where it is supplied by, or on behalf of, a medical practitioner or approved pathology practitioner and is generally accepted in the medical profession as necessary for the appropriate treatment of the recipient.
For other health professions, a service is generally GST-free where:
- It is one of the health services listed in s38-10 of the GST Act;
- The supplier is a “recognised professional” for that service; and
- The profession generally accepts the service as necessary for the appropriate treatment of the recipient.
Listed services include nursing, psychology, physiotherapy, occupational therapy, social work, speech pathology, podiatry, chiropractic, dental, dietary, optometry and several other specified professions.
Appropriate treatment normally involves assessing someone’s health and providing a process intended to preserve, restore or improve their physical or psychological wellbeing. Preventative care can qualify, but commercial, administrative and third-party assessment services generally do not.
Who is receiving the service?
The person receiving clinical care is not necessarily the recipient of the supply for GST purposes.
The recipient is generally the person or organisation that engaged the contractor and to whom the contractor is contractually required to provide the service. In many private-practice arrangements, that will be the patient. In other arrangements, it will be the clinic.
The fact that a contractor physically treats a patient does not necessarily mean the contractor is supplying the service to that patient.
When the contractor invoices the clinic
Suppose a clinic engages a physiotherapist to see patients booked through that clinic. The clinic determines what the physiotherapist must provide, is responsible for paying the physiotherapist and supplies the overall health service to its patients.
In that situation, the physiotherapist is ordinarily making a supply to the clinic. If the physiotherapist is registered for GST, their invoice to the clinic will generally be taxable.
For example, if the agreed contractor fee is $100 plus GST for each consultation, the physiotherapist would invoice the clinic for $110, including $10 GST.
The clinic’s separate supply to the patient may qualify as GST-free, but that does not automatically make the contractor’s supply to the clinic GST-free. Each supply must be considered separately.
Indicators that the clinic may be the recipient include:
- The contractor agreement says the clinic is purchasing the services;
- The clinic is liable to pay the contractor regardless of whether the patient pays;
- The contractor invoices the clinic for hours, shifts or completed appointments;
- The clinic supplies the patient service in its own name; and
- The clinic controls fees, billing, refunds or patient engagement.
When the clinic is only a billing agent
Not every clinic arrangement produces a taxable supply from the practitioner to the clinic.
A practitioner may operate their own practice from the clinic while the clinic provides rooms, reception, appointment management and billing services. The patient engages the practitioner, and the clinic collects the practitioner’s fees as a billing agent.
In this arrangement, the practitioner’s supply is made directly to the patient and may be GST-free. The clinic’s administrative or practice-management service to the practitioner will generally be taxable.
Similarly, sending an invoice to a clinic does not, by itself, determine the outcome. A clinic may simply be processing payment on the patient’s behalf. What matters is whether the clinic has its own liability to purchase the service or is only facilitating payment for a service supplied to the patient.
The contracts, patient forms, invoices and actual conduct of the parties should all support the intended arrangement.
Other situations where GST may apply
Health contractors may also need to charge GST for:
- Medico-legal and insurance assessments that are not part of treatment;
- Pre-employment and fitness-for-work examinations procured by an employer;
- Reports prepared for litigation or another third party;
- Cosmetic services for which no Medicare benefit is payable;
- Professional supervision, training and consulting;
- Administration and practice-management services; and
- Services outside the health categories specified in the GST legislation.
A report can still be GST-free where it forms an integral part of appropriate treatment. The purpose of the report and the identity of the recipient are therefore important.
Special rules can preserve GST-free treatment where an underlying GST-free health service is procured by an insurer settling a claim, a statutory compensation scheme, a compulsory third-party scheme or an Australian government agency.
Certain NDIS supplies may also be GST-free. However, when an NDIS provider engages a subcontractor to fulfil the provider’s obligations, the subcontractor’s supply to the provider will generally be taxable. Payment through a plan manager is different where the participant remains the recipient.
Remember the registration threshold
A contractor only charges GST if registered for GST.
Registration is generally compulsory when annual turnover reaches $75,000. Importantly, GST-free health income generally counts towards this threshold. A contractor may therefore need to register even if most of their patient services remain GST-free.
Once registered, the contractor must identify and report any taxable supplies correctly.
Review the arrangement before invoicing
Before issuing an invoice, contractors should ask:
- Who engaged me?
- Who is legally responsible for paying me?
- Am I supplying the patient, or helping the clinic fulfil its own obligations?
- Is the clinic purchasing my services or acting as a billing agent?
- Is the work appropriate treatment or a service for a third party?
- Does a special insurer, government or NDIS rule apply?
The phrase “health services are GST-free” is only the beginning of the analysis. For contractors working through clinics, understanding who receives each supply is often the difference between a GST-free invoice and one that must include 10% GST.
Looking for a quick reference? Download our GST for Health Contractors fact sheet for a practical summary of when health services may be GST-free, when GST may apply and the key questions to check before issuing an invoice.
This article and fact sheet provides general information only and does not take into account your individual circumstances. Contact us to discuss your contracting arrangements and receive tailored advice on when you need to register for GST, charge GST or issue GST-free invoices.
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