For years we operated under the impression that cancelations should incur GST and because we didn't want to penalise clients we absorbed the GST within the fee. Our thinking was logical but completely wrong. We knew that delivering a medical service like psychology was GST free but things like books which weren't medical did incur GST... surely cancellations aren't medical... it's a fee... how can fees be medical? We were wrong and it cost us thousands!
Likewise, if you charge a booking fee to secure a service, then that income is "consideration" for setting aside that time exclusively for the client. Whether that service or "supply" ends up falling under the "medical service" or "facilitation service" categories is irrelevant as both service categories are GST free for psychologists.
See this ruling by the ATO where the commissioner has determined in part that:
Appointments and associated cancellation fees for no shows are appropriate and both are considered as supply of services:
107. Appointments are commonly made to enable the provision of services of a personal nature, for example, the provision of medical services, hairdressing, dental services and massages. A failure to attend an appointment (a no show) or a late cancellation may result in a cancellation fee being charged to the customer.
108. In the Commissioner's view, the fixing of a time for the provision of services results in a supply being made. The making of an appointment itself may involve any one or more of the following:
- the entry by the supplier into obligations;
- the allocation of resources by the supplier; and
- the supplier refraining from entering into an arrangement with another customer for the same or a similar intended supply at the same or a similar time.
These services or undertakings, which are regarded as normal and necessary incidents of the enterprise carried on by the supplier, amount to a supply made to the customer.
... and when that supply would be GST free such as for medical services, then the equivalent supply under the cancellation fee is also GST free.
111. If the appointment is cancelled or there is a no show, the supplier is unable to make the intended supply. This is because the customer's attendance is integral to the making of that supply. The availability of the supplier to provide the services and of the customer to receive the services is a reciprocal arrangement. Although the intended supply is not made, a facilitation supply is still made by the supplier. The Commissioner considers that any cancellation fee charged is consideration for the facilitation supply. The GST status of this supply is to be determined independently of the GST status of the intended supply.
112. However, where the facilitation supply includes a right to receive a GST-free supply under Division 38 or another provision of another Act and the appointment is subsequently cancelled, the cancellation fee will be consideration for the right to receive a GST-free supply, which itself is a GST-free supply under paragraph 9-30(1)(b). An example is where at the time of making an appointment a patient and a medical practitioner make a contract giving the patient a right to medical services that would be GST-free under section 38-7.
113. If a medical practitioner is able to recover a cancellation fee, there must be consideration provided by the practitioner for the patient's promise to pay the fee if cancellation occurs. The consideration is an undertaking to set aside time to see the patient, whether for a consultation or in respect of a specific procedure or other service. This involves the medical practitioner undertaking to provide a consultation or other medical service. The undertaking may be contingent upon certain factors, such as the practitioner not being required to attend to an emergency and the precise time of the consultation may depend upon factors such as other demands of the practice. The Commissioner accepts that in these circumstances a medical practitioner makes a GST-free supply of a right (albeit contingent) to a medical service under a contract made with the patient.
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