ACN GOODS AND SERVICES TAX (GST) BUSINESS SKILLS FOR PSYCHOLOGISTS JULY Information for Psychologists

Transcription

1 ACN GOODS AND SERVICES TAX (GST) BUSINESS SKILLS FOR PSYCHOLOGISTS JULY 2000 Information for Psychologists

2 2 CONTENTS 1 PREFACE Important information concerning this material 3 2 GENERIC ISSUES FOR HEALTH PROFESSIONALS Goods sold in the course of Appropriate treatment and generally accepted The meaning of appropriate treatment The meaning of generally accepted New grouping rules Costs shared in an associate arrangement 5 3 ISSUES FOR ALLIED HEALTH PROFESSIONALS 3.1 GST-free services by allied health professionals Test 1: The concept of a service of a kind specified in the table Test 2: The meaning of a recognised professional Test 3: The meaning of appropriate treatment Test 4: The meaning of generally accepted 8 4 ISSUES FOR PSYCHOLOGISTS Department of Veterans' Affairs Statement 10 5 PRICING OF SERVICES Help with pricing 11 APPENDIX A: Tabulation of some GST-free and taxable services related to Health and Psychology 12 Funding for this booklet was provided by the GST Start-Up Assistance Office. Information related to Health and the GST including the ATO Rulings can be found on the following website Alternatively, this is accessible via the front screen on the APS website (GST Information) Once in, on the lower right side, click on Tax Practitioners, then on the left hand side, click on Industry Partners, scroll down the available subjects until you find Health to click on. On the left hand side, click on Issues Register and the Health Issues Log will appear on your screen.

3 3 1 PREFACE This GST update contains the latest information available as at the time of printing in regard to the interpretation of the Goods and Services Tax (GST) legislation: It should be read in conjunction with the GST Business Skills Guides issued in February and June 2000 ( Goods and Services Tax: Business Skills for Health Professionals ). In seeking to convey the essence of ATO rulings that have been released or that are expected to be released in coming weeks, it substantially updates the material in Section 5 of that guide (Charging GST). In seeking to alert health professionals to revised price exploitation guidelines issued by the Australian Competition and Consumer Commission (ACCC), it substantially updates the material in Section 11 of that guide (Pricing of Services). 1.1 Important information concerning this material This material is provided under the Commonwealth s GST Start-up Assistance Programme, and is designed to provide general information on the GST and on business skills, practices and processes necessary to operate with the GST, focussed on small and medium enterprises and the community and education sectors. Because business circumstances can vary greatly, the material is not designed to provide specific GST or business advice for particular circumstances. Also, because aspects of the GST are complex and detailed, the material is not designed to cover comprehensively all aspects of the GST as it applies to small and medium enterprises and the community and education sectors. Further, the laws implementing the GST, and rulings and decisions under those laws, may change. Before you use this material for any important matter for your business, you should: make you own inquiries about whether the material is relevant and still current, and whether it deals accurately and completely with the particular matter; and as appropriate, seek your own professional advice relevant to that particular matter. This material is provided on the understanding that neither the Commonwealth nor its personnel, the Australian Psychological Society Limited (APS), its personnel or contractors, nor any other organisation or person involved in the developing or delivering the GST Start-up Assistance Programme, is thereby engaged in providing professional advice for a particular purpose. 2 GENERIC ISSUES FOR HEALTH PROFESSIONALS Aside from professional health services, health goods may be GST-free. Some goods may become GST-free if sold in the course of a GST-free professional service (GST legislation 1 S.38-7(3), S.38-10(3) & S (4). In addition, there is a general power for the Minister to determine other GST-free health goods (S.38-47). A health good only needs to get through one of these gates to be GST-free. Section 2.1 addresses issues regarding the GST status of goods. 1 A New Tax System (Goods and Services Tax) Act 1999 (No. 55 of 1999)

4 4 2.1 Goods sold in the course of supplying The GST legislation provides that goods sold in the course of supplying a GST-free professional service may be GST-free (S.38-7(3), S.38-10(3) & S (4)). The goods must be sold to the individual in the course of supplying a GST-free service to that same person, and the supply must occur at the premises where the professional service is made. Premises is not limited to the surgery or rooms. The ATO interprets premises to cover the premises where the professional service is rendered (the consulting room, the nursing home, the patient s own home). Preliminary advice from the ATO indicates that they will take a narrow approach to the interpretation of in the course of supplying. The goods must be supplied at the same point in time as the supply of the GST-free service and either be: customised or manipulated for the exclusive treatment of the illness or disability of the particular patient who is the recipient of the GST-free service; or necessarily utilised as an integral part of the patient s treatment required immediately during that specific consultation. The intent of the ruling is to allow certain goods provided as part of a GST-free service to be GST-free and to prevent health professionals selling generic items GST-free in competition with other sources of supply who must charge GST. For example: A tape recording of a session by the psychologist and supplied to the patient will be GST-free. A self help book bought at a bookshop would be taxable. 2.2 Appropriate treatment and generally accepted To be GST-free, a treatment must be generally accepted in the psychology profession as being necessary for the appropriate treatment of the patient. Without losing sight of the need to consider this phrase as a whole, the following sub-sections consider the particular elements of the phrase The meaning of appropriate treatment For a medical or allied health service to be GST-free, it must be a treatment. The law itself does not define appropriate treatment. In the ATO rulings, appropriate treatment is interpreted as assessment of the patient s state of health and a process to pursue an attempt to preserve, restore or improve the patient s physical or psychological wellbeing. Thus, appropriate treatment encompasses preventative services, ongoing management and cure. Services which are not regarded as treatments include medico-legal services, services which involve the preparation of reports for third parties, provision of training to other health professionals, services of an administrative nature and autopsies. The tabulation at Appendix A cites examples of taxable and GST-free services. The GST law does not require the recipient of a service also to pay for that service. Treatments funded by the patient out of pocket and by compensation insurers can both be GST-free. Health professionals need to make a clear distinction between treatments of patients funded by insurance companies (GST-free) and reports undertaken for insurance companies (taxable).

5 5 In some cases, contracts are construed by the ATO to be contracts to provide services to a third party (as opposed to a third party payer situation). The ATO has ruled that only patients can be treated, therefore any contract to provide services to a third party cannot be a treatment and the service will be taxable. Taxable contracts are understood to include contracts with the Australian Defence Forces, the Police, Corrective Services and, in some cases, Visiting Medical Officers. Some contracts between allied health professionals and say, hospitals and nursing homes, may be deemed to be the same as VMO contracts and therefore taxable. Local Medical Officer services and many (but not all) allied health services funded by the Department of Veterans Affairs are not taxable. Given that the ATO s position depends upon the interpretation of particular contracts, some health professionals may need to seek private rulings. If in doubt or awaiting a ruling, it is recommended that GST be charged The meaning of generally accepted To be GST-free, a treatment must be generally accepted in the relevant allied health profession as being necessary for the appropriate treatment of the patient. Ultimately, therefore, the professions themselves will determine what is generally accepted. Much of the onus will fall on the relevant professional association which will have a role in determining whether or not a particular treatment or procedure is proven. Even an experimental procedure can, on occasions, be deemed to be appropriate treatment given the prognosis and circumstances of a particular patient. 2.3 New grouping rules Closely related entities may apply to be grouped for GST purposes. Grouping removes the requirement for GST to be charged, and input tax credits claimed, in relation to intra-group transactions (such as a service entity charging a professional practice for services supplied). Grouping can simplify GST administration and reduce GST compliance costs. Regulations have been made, setting down the ground rules for grouping of entities for GST purposes, and legislation has been introduced into the Parliament to give sole proprietors who own closely related entities access to grouping. A partnership or a trust with at least a 90% stake in a company can be grouped with that company, and similarly a partnership can be grouped with a closely associated trust. This complements the 90% rule for inter-company groups. The provisions relating to trusts are complex but flexible, with permitted beneficiaries including family members and ownership through interposed trusts. All applications for GST grouping must be made jointly by all entities in the proposed group. Your tax adviser may be able to assist you to determine whether grouping is beneficial in your business, and assist you with the application to the Commissioner of Taxation. 2.4 Costs shared in an associateship arrangement The ATO has expressed a preliminary view about costs shared in an associateship

6 6 arrangement, which is outlined below. Associates commonly share practice costs. If common costs are met through an entity such as a company or trust, the supply of facilities and services by that entity will be taxable. The GST-registered entity will issue tax invoices and the individual associates will claim the input tax credits. It makes no difference in this regard whether the entity is jointly owned by all associates, or owned by one or more. In some cases, there will be an unincorporated entity that is ongoing (will continue even if one of the associates leaves). Such an entity will require its own ABN and for GST will operate in the same way as the incorporated entity. In some circumstances, one of the entities will be legally liable for costs (e.g., Psychologist A may lease the premises and/or employ the staff). If other associates share in such costs (that is, reimburse Psychologist A), Psychologist A is deemed to be making a taxable supply to others. He will issue tax invoices and they will claim input tax credits. A common arrangement is that there is no separate service entity but merely an agreement to share costs. In these cases, the individual businesses are jointly liable for the costs. Each business will take a proportionate share of the input tax credits on joint purchases. The ATO requires that each business participating in the cost-sharing agreement be shown in contracts and on tax invoices from suppliers. 3 ISSUES FOR ALLIED HEALTH PROFESSIONALS Given the structure of the GST legislation and the ATO rulings that relate to them, allied health professionals are advised to read this section in its entirety. The various elements of the rulings cannot be read in isolation from each other but should be read as part of a whole. The GST law sets common rules for allied health professions in most areas, so the issues that arise in the law are the same for all professional groups, including psychologists. In addition, any allied health professional who: sells goods to a patient in the course of rendering a professional service should read section 2.1; has a business structure involving two or more entities should read section 2.3 to see if there is scope to benefit from the grouping rules. 3.1 GST-free services by allied health professionals The GST legislation establishes four tests for other health services (including health services rendered by some 20 groups of allied health professionals). A professional service will be GST-free if it passes all four Tests: 1) The service must be one of the kind specified in the table in S (which includes psychology ) or by regulation. 2) The supplier must be a recognised professional for that kind of service e.g., a registered psychologist can supply psychology services. 3) The service must be appropriate treatment (therefore, it must be a treatment). 4) The treatment must be generally accepted by the relevant profession as necessary for the appropriate treatment of the recipient (the patient).

7 7 The ATO has issued rulings which clarify aspects of those tests. The various rulings should be seen as part of a whole and not read in isolation Test 1: The concept of a service of a kind specified in the table To be GST-free, the service must be the provision of one of the allied health services listed in the table in the GST legislation (S.38-10) (e.g., psychology) and not just something similar to one of the services. On some occasions, a particular sub-specialty will be seen as a branch of one of the listed services (thus, clinical psychology is deemed by the ATO to be a branch of psychology). On other occasions, it is necessary to make a distinction between a service of a kind and a technique. For example, psychotherapy and psychoanalysis are techniques which may be used by medical practitioners (psychiatrists) or allied health professionals (psychologists). Similarly, hypnotherapy is a technique used by allied health professionals (psychologists), rather than a service of a kind in its own right. However, hypnotherapy carried out by a registered hypnotherapist will not be GST-free unless the registered person is a recognised professional in one of the tabulated areas (e.g., psychologist) Test 2: The meaning of a recognised professional Recognised professionals include: Persons who are registered under State or Territory law to supply services of a kind specified in the Table in S this includes Psychologists. While the GST law provides for a medical service to be GST-free if rendered on behalf of a medical practitioner or approved pathology practitioner, there is no corresponding clause applying to allied health professionals. The work done by an assistant will be regarded as embodied in the service provided by the allied health professional if performed under the direct supervision of the health professional. Thus, a suitably trained assistant may administer a psychological test, or might prepare materials for use in treatment. However, if an assistant provides a component of the supply independently of the recognised health professional (e.g., a counsellor seeing patients independently of a psychologist), those services will be taxable. It makes no difference whether a recognised health professional has recommended or referred the patient to the other (non-listed) provider. The ATO has ruled that a person will be considered to be directly supervised by a recognised health professional if the recognised health professional: attends the patient at the commencement of each treatment session; and is readily available for the whole time the assistant is working with the patient; and is available to take appropriate action in the case of an emergency; and determines all the appropriate treatment to be provided by the assistant, and can satisfactorily prove that he or she monitors the services of the assistants. As noted above, the various elements of the rulings must be read together as all tests must be passed for a service to be GST-free. For example, hypnosis will not be GST-free when administered at a party by an entertainer, or counselling will not be GST-free when provided to a student by a school teacher.

8 Test 3: The meaning of appropriate treatment Section sets out the general propositions in the ATO rulings which apply to allied health professionals, including psychologists. Appropriate treatment by allied health professionals can include group sessions provided by a recognised professional where the recognised health professional determines that the group session is appropriate treatment for that patient. Stop smoking classes or weight reduction classes provided by a recognised health professional will be GST-free. However, attendance at a seminar providing general information not directly targeted at the specific needs of the patient would be taxable. Some services rendered by allied health professionals will not be considered to be treatments and will not be GST-free. Examples are employer-initiated ergonomic and risk assessments of a workplace generally that may be undertaken as a consultancy by a psychologist, physiotherapist or occupational therapist (not related to a particular patient), or career planning undertaken by a psychologist. The issue of contracts is obtuse for allied health professionals. Some allied health professionals may need to seek private rulings from the ATO. That said: Any allied health professional who has a VMO style sessional contract with another health care provider (such as a hospital or nursing home) is advised to assume that their invoices to the service provider is taxable unless the ATO has ruled to the contrary; The HIC and Department of Veterans Affairs have indicated that some items and service components for dentists and other allied health professionals are taxable (a list of these items can be obtained from the HIC, but none relates to psychology). See DVA Statement at Test 4: The meaning of generally accepted This is addressed in Section The ATO rulings apply equally to medical practitioners and allied health professionals. 4 ISSUES FOR PSYCHOLOGISTS Summarising earlier points as they apply to psychologists: A psychological service to preserve, restore or improve the psychological well-being of a patient is GST-free. Where there is no supply to an individual to preserve, restore or improve his or her psychological well-being, there is no GST-free service. The profession decides what constitutes a GST-free psychological service, because a GSTfree psychological service is a procedure generally accepted and recognised by the profession which is used to preserve, restore or improve the psychological well-being of a patient. The psychologist decides what is a suitable GST-free procedure for a client; because appropriate treatment, or a generally accepted psychological service, is GST-free where

9 9 the Psychologist assesses the patient s state of health and determines a process to pursue in an attempt to preserve, restore or improve the psychological wellbeing of the patient. The determination of the GST-free nature of a service follows the treatment transactions. For example, when a psychologist assesses the need for, prescribes and delivers an acceptable service to preserve, restore or improve the psychological wellbeing of a patient the service is GST-free. But! The determination of the GST-free fee for such a service follows the financial transactions. For example, when a psychologist who provides the treatment also invoices the patient for the treatment, that invoice is GST-free. Similarly, if a hospital or clinic invoices a patient for the psychologist s treatment, then the invoice is GST-free (whether or not the psychologist is employed by or contracted to the hospital or clinic). But! When the psychologist who provides the treatment is contracted to the hospital or clinic which supplies the service to the patient, the psychologist s contract charges to the hospital or clinic are not GST-free. Examples of GST-free services include: Contractor s GST-free services supplied directly to a patient. Psychotherapy and hypnotherapy are GST-free if provided by a Psychologist and are necessary for the appropriate treatment of the patient. Supervision required for entry to the profession (Registration as required by legislation). A supply provided as part of the GST-free service delivery at the same time and place as the service delivery and which is customised for the particular patient and also used as part of the same treatment. That is, goods (such as written material and audio tapes) supplied for a particular patient as part of treatment are GST-free. By contrast, when a treatment is not supplied to a patient who needs it to preserve, restore or improve their psychological wellbeing, then a GST-free service has not been supplied. The following are examples of services which are not GST-free: Medico-legal reports Reports for third parties Contractor s services to agency which supplies GST-free patient services Fitness programs for general health Education / training in dealing with possible health conditions Professional development (such as APS College PD)

10 Department of Veterans Affairs (DVA) Statement (This Section, and the words which follow, were authorised by the DVA, and are quoted verbatim in their entirety.) GST INFORMATION FOR DVA-CONTRACTED PSYCHOLOGISTS Are psychology services GST-free? Psychology services are included in the broad category of GST-free items under the New Tax System to take effect from 1 July All item numbers (CL01 to CL15) on the current DVA Schedule of Fees for Psychologists have been determined by DVA to be GST-free. However it should be noted that items that do not appear on the DVA schedule or that are added in the future may not be GST-free. How does my Australian Business Number (ABN) relate to payments? You should be aware of the benefits to providers of having an ABN. The ABN is the key to the New Tax System and will enable businesses/organisations to simplify their dealings with DVA and the Australian Taxation Office (ATO). If your business/organisation does not have an ABN, DVA may be obliged to withhold tax from payments to you at the highest marginal tax rate (currently 48.5%). For payments made by the HIC for claims that include taxable supplies, or could in future include taxable supplies, providers should complete the HIC Notification of ABN and RCTI Agreement form and return it to the HIC by 1 July This will allow the HIC to issue a recipient-created tax invoice in respect of these claims. You can find more information on the HIC s website Do I continue using DVA claim stationery after 1 July 2000? After 1 July 2000, DVA-contracted psychologists should continue using DVA claim stationery when claiming payment, i.e. the Health Practitioner Service Voucher (D1221) and the Claim for Treatment Services (D1217). The HIC s payment system will continue to automatically pay the schedule fee for each item claimed, and issue a Statement of Benefit with each payment. There will be no changes to the current DVA claim stationery as a result of the introduction of the GST. Is the DVA kilometre allowance GST-free? The DVA kilometre allowance will be GST-free, as it is paid for the delivery of a health service at the patient s home, or other place away from the provider's usual practice address.

11 11 Further information If you require further information, please use the following contact details: For information about Contact details The New Tax System, contact the ATO Telephone: Internet: The GST and HIC processing of DVA claims, contact the HIC DVA s approach to GST implementation, contact DVA s National Office General enquiries about DVA s arrangements for psychologists, including requests for financial authorisation, contact your DVA State Office Telephone: (GST hotline) Internet: Telephone: natgstimp@dva.gov.au Mail: DVA GST Implementation Team PO Box 21 WODEN ACT 2606 Please use the DVA State Office contact number listed in your DVA Notes for Psychologists. 5 PRICING OF SERVICES After the GST comes in, some business input prices will fall. There will also be implementation costs and ongoing compliance costs directly associated with the GST. The Trade Practices Act prohibits price exploitation in relation to the New Tax System changes. Businesses need to be aware of the ACCC price guidelines which require businesses to pass through the cost savings and entitle businesses to recoup reasonably incurred net additional costs of compliance. Every health professional in business must make his or her own assessments of costs and prices specific to the business itself. 5.1 Help with pricing The AMA commissioned Access Economics to model the impact of the GST on practice cost components. The Access Economics report can be downloaded from the AMA web site,

12 12 APPENDIX A: Tabulation of some GST-free and taxable services related to Health and Psychology GST-free services Services in respect of which a Medicare rebate is payable (whether direct or patient billed and whether or not there is a gap payment required). This includes rebateable services such as an aged driving license check or a treating doctor report prepared as part of a rebateable consultation. Treatments by health professionals (generally accepted by their profession) funded by compensation insurers (predominantly workers compensation insurers and third party motor vehicle insurers) Checkups (including psychological assessments), immunisations, pap smears or cancer screening (preventative services) Services provided in Australia to a foreigner (if all other GST-free conditions are met) Investigations (pathology, diagnostic imaging, clinical neurological assessments) Infection control (e.g., treatment of needle stick injuries of a hospital employee) Health services rendered to veterans and their dependents under DVA LMO appointments and most other allied health services to veterans and their dependents HIV testing Taxable services Medico-legal services (medico-legal reports, expert witness in a court or tribunal) Services which involve the preparation of reports for third parties such as insurance medicals, pre-employment medicals, professional driving or flying license checks undertaken to meet the requirements of a regulatory authority Provision of training to other health professionals (teaching in a commercial course, etc) Services of an administrative nature (a fee for non-attendance, a fee for being on call, etc) Services rendered by medical practitioners under VMO non-salary contracts (other than voluntary agreements) and by allied health professionals under analogous contracts Contracts for services analogous to VMO (ADF, Police, Corrective Services, etc) Some non-psychological allied health services in dental, footwear, optical and physiotherapy specified by HIC Services deemed to be rendered to obtain government grants (PIP, II, RR)