Providers have assumed all care services are GST-free, however, recent consultation papers issued by the ATO indicate that some services could attract GST depending on the situation.
The Australian Taxation Office (“ATO”) has released two consultation papers:
Both consultation papers are welcomed by the industry, as there has been little provided by the ATO in the way of guidance to this industry, and in particular in relation to self-directed care.
While both papers have cleared up some of the uncertainty and ambiguity surrounding the GST treatment of care services to individuals and have certainly clarified matters; some unanswered questions still remain. For example, the consultation paper does not consider the GST treatment of administration fees and/or case management/care plan fees levied under self-directed care arrangements.
There are various forms which self-directed care arrangements can take. We have considered some of the various forms below:
- Government funding is paid to the care provider. The care provider provides the necessary services directly to the individual.
This is the more straightforward scenario, where the care provider is providing care services to the individual and is receiving funding from the government to do so. In this instance the ATO considers that the supply of care is generally GST-free as it relates to the provision of care services supplied direct to the recipient.
- Government funding is paid to a care provider but this entity then subcontracts with a third party provider which provides the care services to the individual.
In this scenario the care is not being supplied to the individual by the care provider which receives the funding. Instead the individual receives the care from the third party provider who contracts with the care provider. It is the ATO’s view that in these circumstances there is a supply by the third party to the care provider and not to the individual. As a result this supply would not be GST-free but would instead be a taxable supply which attracts GST.
- Government funding is paid to a ‘broker’, to hold on the individual’s behalf. The individual enters into a care plan with the broker to arrange the services they require and to choose the supplier of said services. The broker instructs a care provider to provide the relevant services directly to the individual and pays the care provider on behalf of the individual, through the care package.
The third model above is not addressed specifically by the ATO in the consultation paper. In this instance the recipient of the care service supplied by the care provider would likely be the individual, as the individual is making payment for the supply. Therefore, the supply made by the care provider would likely be GST-free. Any charges made by the ‘broker’ for its services would potentially be taxable.
- Franchise / franchisor structures will also be impacted. The GST treatment of supplies under these arrangements will be dependent on the contractual agreements in place. Thus, it is important that care providers within these structures review their current agreements to determine the correct GST treatment of their supplies. We will prepare a separate paper addressing typical franchise arrangements.
A further question arises from all four scenarios above as to the GST treatment of care planning services, or more commonly known in the industry as case management services. Is any fee collected for these services GST-free as a supply connected to the care of the individual or are they more akin to administration services and therefore taxable and subject to GST?
Our concern is that if the case management fee charged to care recipients is taxable for GST purposes then the care recipient, which would bear GST on the fee, might have less money to spend on the care services than would otherwise be the case.
This area has not been addressed in the consultation paper but we believe as a fundamental part of self-directed care arrangements going forward it should be addressed. We will therefore seek to raise this matter in our reply to the consultation papers.
The consultation period ends on Friday 17 February 2017 at 5 pm, therefore we would urge you to provide any comments or thoughts directly to the ATO.
Please contact your usual Grant Thornton contact or a member of the not for profit team to discuss any questions you may have.
