12 November 2012

The General Manager
Indirect Tax Division
The Treasury
Langton Crescent
PARKES ACT 2600

Dear Sir/Madam,

Re: GST and certain supplies to health insurers

In response to the consultation paper of 7 June, requesting feedback and comments on the detailed design of a measure to retrospectively amend the GST law to ensure that certain supplies to health insurers are GST-free, please find the Australian Physiotherapy Association’s (APA) response to the focus questions below.

Q1: Are there any other circumstances involving GST-free supplies of health related goods and services that are adversely impacted by the Court’s decision in Department of Transport case?

The APA supports the view that health services should be GST free, thus support the proposed amendments. However we remain concerned that the amendments do not go far enough to ensure that this should occur equitably to all patients. 

In addition to payment for health services supplied by private health insurers, the APA is concerned that arrangements with other third party funders could be treated as a supply to a third party, and therefore attract GST. This goes against the intent that health services should not be subject to GST. To prevent this from occurring, the APA believes that the proposed changes should also apply to other payers of health services. The amendments should apply equally to workers’ compensation insurers, motor vehicle accident insurers, and services funded by other bodies such as the Department of Veterans Affairs and aged care providers.

Q2: Will the proposed amendment address the adverse implications of the Court’s decision in Department of Transport on supplies to health insurers in an efficient and effective way?

Research undertaken by the APA indicates that only 49.2% of patients in Australian private physiotherapy clinics claim under private health insurance arrangements and 13.7% of patients make direct payments to physiotherapists. Services supplied to these patients would remain free from GST under the proposed changes, but this only accounts for two thirds of the patients who access private physiotherapy services.

Workers’ compensation insurance pays for 19.8% of patient consultations, motor vehicle accident insurers fund 5% of patient consultations and 7.6% of patients are funded by the Department of Veterans Affairs. 6.3% fall under other arrangements which might include might include arrangements funded by aged care facilities, non-government agencies, or corporate health plans. 

This means that a third of patients (32.4%) have physiotherapy treatments paid for by a third party who may not fall under the safeguards proposed in the discussion paper. Data on patient types is represented in figure 1 below.

Percentage of treatments by patient funding type

Figure 1 – data taken from Physiotherapy Business Australia Benchmarking survey results 2010

Q3: Will the proposed amendment have any unintended consequences or cause implementation difficulties for taxpayers?
Should the amendments exclude such a large proportion of third party payers, the APA is concerned that the cost of compliance for private practitioners could increase significantly, impacting detrimentally on small the businesses that make up the majority of physiotherapy practices.

Compensable bodies may also face increased compliance costs if the tax free status of physiotherapy services were to change for services funded by workers’ compensation and motor vehicle accident authorities.

If such increased compliance costs were to result, this would place upward pressure on physiotherapy consultation fees for the general public.

Other arrangements contrary to the intent of the law
The APA is concerned that patients are currently receiving care subject to GST, which runs against the intent of the law, and we believe that this change in legislation is an opportunity to address this issue. 

Current GST guidance by the Australian Taxation Office says that:

Sometimes a third party (for example, a hospital, community health organisation or an insurance company) may contract a recognised health professional to provide health services to a patient.

In these situations the third party is the recipient of the health service, even though the patient receives the treatment.

A health professional makes a supply to a third party if all of the following apply:
•	the third party engages the health professional to provide something to them or to someone else 
•	the third party, by agreement with the health professional, decides what the health professional will provide 
•	the agreement creates a binding obligation between the third party and the health practitioner.
When a third party (rather than the patient) is the recipient of the health service, the service is not GST-free.

This means that if a private hospital directly employs a physiotherapist to provide services to its patients, the service will be GST free. But if the same hospital enters into a contract with a private physiotherapy practice to provide physiotherapy services to its patients, then the service will attract GST. This is an inequitable arrangement for the patient, goes against the intent of the taxation system and should be changed as a matter of urgency.

The APA recommends that changes proposed by treasury be extended to include Workers’ Compensation Insurance, Motor Vehicle Accident Insurance and services funded through the Department of Veteran’s Affairs. The amendment should also include catch-all provisions to ensure that all physiotherapy services provided to clients remain GST free, regardless of the payment arrangements in place.

If you require further information, please contact Paula Johnson, APA Senior Policy Officer on 03 9092 0803 or paula.johnson@physiotherapy.asn.au. 

Yours faithfully,

Cris Massis
Chief Executive Officer