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Help Sheet

Disability services and the GST

How will the provision of disability services be affected by GST?

All services funded under the Disability Services Act 1986, or under a complementary State or Territory law, will be GST-free.

Specific Questions and Answers

  1. Many disability services are specifically funded under a "business model", where the Government funds extra support staff to assist people with disabilities, but the organisation is responsible for running a business. How will this be treated?

    If the disability service business produces commercial supplies then those supplies will be subject to GST and the entity will be able to claim input tax credits on any creditable acquisitions acquired to make the supply.

  2. What will be the treatment of organisations with both "commercial" and "non-commercial" roles? The products produced from sheltered workshops will attract GST yet the employment assistance component will be GST-free. How will this be done?

    Grants are consideration for supply and they will be subject to GST. The entity receiving the grant will need to remit 1/11 of the amount to the ATO. The entity that provides the grant will pay the GST inclusive price and will be entitled to an input tax credit.

  3. Will disability organisations which produce goods for which there is not a traditional market be considered commercial and therefore be subject to GST? Braille books are a good example of this.

    The grant from the Government to the disability service business will be subject to GST, whereas the salary and wages paid by the disability service to its employees is not subject to GST. The Government will be able to claim an input tax credit for 1/11 of the grant paid to the disability service business. Business enterprises that are registered for GST will be able to claim full input tax credits for creditable acquisitions that relate to taxable and GST-free supplies.

    The ATO, in consultation with representatives of the Charities Consultative Committee, is developing guidelines to assist entities determine the market value of supplies where the market is not clearly defined. This market value will then be used to determine whether a supply is commercial or non-commercial and therefore taxable or GST-free.

    Braille books are a GST-free medical aid.

  4. Is the treatment with respect to GST different for disability services that have different funding arrangements such as HACC or variations between the states?

    Grants to the disability services will be subject to GST. The reason is that the Government is purchasing a service from the organisation (see the response to 4a). The Government will be able to claim an input tax credit for 1/11 of the grant paid to the disability service. Disability services that are registered for GST will be able to claim full input tax credits for creditable acquisitions that relate to taxable and GST-free supplies.

  5. A supported service organisation undertakes two retail types of operations of which one is funded by a Commonwealth grant? Is there any difference in the GST treatment of these operations since one is supported by government funding?

    Both types of retail operations will be considered commercial and therefore subject to GST where the normal rules apply.

  6. How will cars for disabled people be treated during the transitional period for GST implementation?

    The following table summarises the treatment of cars supplied to disabled persons and assumes that the person receiving the car meets the requirements in sections 38-505 and 38-510.

    Purchase of car on or after 1 July 2000 (includes purchase under a hire purchase agreement)

    GST-free if person intends to use car during all of the Subdivision 38-P period.

    Lease of car on or after 1 July 2000

    All lease payments GST-free if person intends to use car during all of the Subdivision 38-P period, ie the lease must be at least as long as the Subdivision 38-P period.

    Lessor can claim input tax credit for purchase of car, as paragraph (4)(c) of section 20 of the A New Tax System (Goods and Services Transition) Act 1999 (the Transition Act) applies.

    Payment of residual

    GST-free if lease was GST-free

    Lease of car before 1 July 2000

    Lease payments on or after 1 July 2000 GST-free if lease was exempt from sales tax.

    Payment of residual

    GST-free if lease was exempt from sales tax

    It is accepted that the supply of a car by means of a lease is the "supply of a car" for the purposes of sections 38-505 and 38-510.

    A lease is a single supply, notwithstanding the fact that Division 156 treats a lease as a progressive or periodic supply for the purposes of the attribution rules.

    It is the intention of the provisions that the supply of a car be GST-free if it is intended that the car be used during all of the Subdivision 38-P period, counting from the first supply. Therefore, at the time of the payment of the residual there is no requirement that the car be intended to be used during all of the Subdivision 38-P period, starting from the payment of the residual.

    Other Matters

    It is likely that a Bill will be presented to Parliament that will amend section 20 of the Transition Act to ensure that an acquisition by way of a lease will not be treated as an acquisition to which section 20 applies, ie the phase-in of input tax credits will not apply to an acquisition by way of a lease. This is the current interpretation and the amendment will confirm that interpretation by putting the matter beyond doubt.

    The fact that Subdivision 38-P only applies to cars whereas the equivalent sales tax exemptions apply to motor vehicles (and accordingly covers such vehicles as motor cycles and trucks) has been raised with Government. In its present form, Subdivision 38-P only covers cars, and cannot be extended to other types of vehicles.

    A document detailing the procedures to be followed when purchasing or leasing a car to which Subdivision 38-P applies is currently being developed by the Motor Vehicle Industry team.

  7. Cars for the disabled - will they be GST-free on purchase or will a refund be granted?

    The legislation provides that a supply of a vehicle to certain disabled persons will be GST free. On this basis GST should not be charged and then refunded. It is suggested that persons complying with the requirements submit documentation to the ATO supporting their claim. A ruling/certificate could then be issued to these persons which they can present to the car dealer and thereby purchase the vehicle GST free.

  8. What happens where a charity (disability service) gives a family money to purchase care from a provider of their choice? How do they account for this and what can the family spend their money on?

    The charity is not providing the care directly and is therefore not making a supply to the recipient of the care. When providing the money directly to the family they are in effect providing a grant of assistance to the family. The family would generally not be registered for GST and therefore the supply would not be subject to GST. When the family uses the funds to acquire care services those services will be GST-free if they fall within sections;

    38-7 (medical services),

    38-10 (other health services),

    38-15 other government funded health services),

    38-20 (hospital treatment), or

    38-25 (residential care etc).

    If the care does not fall within these sections the recipient will be charged GST on the provision of the service. The charity can choose to pay the family the full amount (inclusive of GST) but they will not be entitled to an input tax credit for any GST

    amounts because the supply of the assistance to the family is not a taxable supply.

  9. Will computers used by disabled people be GST-free?
  10. A supply of a medical aid or appliance is GST-free if it is specified in Schedule 3 of the GST Act or is specified in the Regulations. Further, to be GST-free, the specified item must also be specifically designed for people with an illness or a disability, and is not widely used by people without an illness or disability.

    Therefore, ordinary computers will not be GST-free as they are widely used by people without an illness or disability.

    However, certain hardware and software that is specifically designed for people with disabilities is GST free, including:

    • Printers and scanners specifically designed for the disabled;
    • Alternative keyboards;
    • Computer modifications required for the disabled;
    • Enlarged text computer monitors for the visually impaired.

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