Kate Law and Sam Mohammad discuss the law relating to how GST applies to home care services, which has failed to keep pace with the industry.
The Australian aged care landscape is rapidly changing and the way care services are funded and delivered has undergone transformative changes targeted at improved quality outcomes for consumers and increased funding viability for our expanding aged population.
Since 1 July 2015, all home care packages (HCPs) are delivered on a Consumer Directed Care (CDC) basis, providing consumers with more choice and control over what services are provided and how they are delivered. Under the CDC model, the consumer does not receive the funding amount directly but, instead, the funding is paid to the home care provider, who then acts as an agent to consult with the client and arrange and/or deliver agreed various home care services and goods funded by the HCP government subsidies and client contributions.
While the shift to this model is empowering from a consumer perspective as it provides consumers with greater flexibility and visibility around service delivery and funding, questions have been raised around what services and goods can be procured using the funds as providers and consumers test the boundaries on how the funds can best support wellbeing and independence. Other trends such as a growth in consumer contributions, consumer reimbursement models and consumer self-management systems have collectively highlighted that the law relating to how GST applies to home care services has failed to keep pace with how the industry now operates.
Many essential services, such as child care and education, are treated as GST-free. For the same reason, home care services can also be treated as GST-free. However, there are limits to the exemption and home care providers need to be cognisant of this when structuring HCPs with consumers, as finding out that some or all of their services are unexpectedly subject to GST can leave them exposed to reputational impacts, pricing risks and a significant hit to their bottom line.
The Australian Taxation Office (ATO) has recognised the difficulty that providers face when determining whether their home care services are GST-free, taxable or a mix of both by issuing a fact sheet which provides high-level guidance. However, the ATO is not legally bound to follow the GST treatment set out in the fact sheet and it does not cover some of the more difficult scenarios. Given the rapid evolution of care packages and how home care services are delivered, providers should regularly review their service offerings and ensure they are meeting their GST obligations without unnecessarily overpaying GST when a supply may be structured as GST-free.
At its simplest, a supply of approved home care services which is wholly government funded (usually, under the Aged Care Act 1997 or the Home and Community Care Act 1985) should be GST-free. Generally, this would cover most, if not all, services a provider may provide to a consumer as part of a HCP. The ATO also accepts that a supply of approved home care services should be GST-free where the services form part of a government-funded HCP and the consumer is required to pay an income-tested care fee to the provider.
Where services are not at least partly government funded through an HCP, then the starting point is that the services are taxable unless a specific (and much narrower) exemption applies to make the supply fully or partly GST-free.
As providers would be no doubt aware, not all home care services fit neatly and fully within the framework of a HCP and this is where the complexity from a GST perspective lies. Consumers can, and are often encouraged to, add top-up services beyond the budget of their HCP on a user-pays basis.
Where the top-up services form part of an updated HCP care plan and budget, the top-up services will be GST-free. But, where the top-up services do not form part of the HCP care plan in the home care agreement, these top-up services will be taxable unless the services fall within the narrow list of non-government funded services that can be provided GST-free (see table below).
Where the care services are not covered by government funding, the services must fall within the list set out in Item 2.1 of Part 2 of Schedule 1 to the Quality of Care Principles (QCP list) to be GST-free. The QCP list is an exhaustive list and very narrow in that they are focused on personal assistance services and do not include commonly provided services such as home maintenance, social activities or meal preparation.
Therefore, there is significantly less flexibility with services delivered that are funded by the client rather than government subsidies, in terms of having these supplied GST-free. The table below includes an extract from the QCP list and examples of common services that could be subject to GST:
|Examples of GST-free services||Examples of services that are not GST-free|
|Bathing, showering, personal hygiene and grooming||Hairdressing|
|Maintaining continence or managing incontinence||Assistance with housework and gardening|
|Eating and eating aids, and using eating utensils and eating aids||Meal preparation services and grocery shopping for individuals|
|Dressing, undressing, and using dressing aids||Monitoring medication and driving individuals to and from appointments|
|Moving, walking, wheelchair use, and using devices and appliances designed to aid mobility||Rehabilitation services and driving individuals to and from appointments|
|Communication, including to address difficulties arising from impaired hearing, sight or speech||Advocacy services and assistance with writing cheques, letters, etc|
By definition, a home care service for GST purposes is intended to mean a service, or a bundle of services, provided or arranged by a provider to a consumer. However, increasingly, providers of HCPs are being requested by consumers to include (or contribute to) brown or white goods such as microwaves within the HCP care plan and package or provide (or contribute to) the preparation and delivery of meals. Further, though not recommended, we are seeing some providers providing vouchers for consumers to spend on goods and services and reimbursing consumers for purchases made directly by consumers.
These trends raise issues as to whether the inclusion of goods, or vouchers that may be used to acquire goods, within a HCP taints the GST-free treatment of the package.
Potentially, this gives rise to issues such as:
While at a simplistic level the concept that top-up services are GST-free or taxable depending on whether they are included or not within a HCP care plan seems straight-forward enough, the practical application of this methodology needs to be further considered. For instance, if some top-up services are included in the HCP care plan and other services are not, how should a single user payment be apportioned between those which are GST-free and those which are not? In this regard, there may be an incentive to include services which are not on the QCP list in the HCP care plan and leave other services which are otherwise GST-free outside of the HCP care plan.
In cases where a provider is entirely non-government funded and makes a mix of supplies, some of which are on the QCP list and some which are not, there is also the issue of apportionment, particularly where the consumer only pays a single price and does not have any visibility as to how the fee is broken down across the list of services provided.
Finally, outside of the specific provisions dealing with home care services, there are a number of related or complementary provisions within the GST Act that may apply to make some or all of the items supplied by a provider to a consumer GST-free. For instance, many medical and health-related services, medical aids and appliances and disability support under the NDIS are GST-free. Providers should have regard to these separate provisions of the GST law before concluding on the GST treatment of their supplies.
While the ATO’s attempt at clarifying the difficult GST issues relating to home care services is appreciated, providers should be aware of the continuing uncertainty relating to these services.
Providers should be regularly reviewing the GST treatment of their packages, particularly where the HCP requires the provision of goods or where there are any non-government funded elements. Ultimate certainty around the GST position can be obtained through a private binding ruling from the ATO, but such rulings are fact-specific and can require significant time and effort to obtain.