GST on Medicines at Wholesale in Australia

In Australia, a wholesaler selling medicines to a pharmacy, hospital or clinic is usually making a taxable supply and charges 10% GST. Most medicines become GST-free only at the last step, when they are supplied to an individual for private or domestic use. The main exceptions at wholesale are listed medical aids and appliances and exports. This guide explains the rule, how to code invoice lines, and what lands on the BAS.

When is a medicine GST-free in Australia?

Section 38-50 of the A New Tax System (Goods and Services Tax) Act 1999 makes certain drugs and medicinal preparations GST-free. The covered goods include prescription-only medicines, pharmacist-supplied medicines, PBS and RPBS supplies, and medicines named in the Minister's determination. Every case is subject to one condition in subsection 38-50(7): the drug must be for human use, and the supply must be to an individual for private or domestic use or consumption.

That condition is what makes most wholesale sales taxable. A pharmacy buying stock for resale is not an individual buying for private use, so the supply to it does not qualify.

Why do wholesale sales to pharmacies carry 10% GST?

The ATO settled this in ATO ID 2002/254. A supplier of paracetamol products asked whether its sales to pharmacies and supermarkets were GST-free under section 38-50. The ATO said no, because the supplies were not made to individuals for private or domestic use. The same reasoning appears in the ATO's GST industry issues paper on drugs and medicinal preparations: supplies from a manufacturer to a wholesaler, and from a wholesaler to a pharmacist, are taxable.

In practice the tax cancels out along the chain. The wholesaler charges 10% GST, the pharmacy claims it back as an input tax credit, and the pharmacy's sale of a qualifying medicine to a patient is GST-free. GST is still payable on the wholesale invoice, and getting it wrong creates a debt for the wholesaler, not the customer.

Which wholesale supplies can still be GST-free?

Supply	Usual GST treatment	Basis
Prescription or pharmacy medicine sold to a pharmacy	Taxable, 10%	s38-50(7) not met; ATO ID 2002/254
Medicine sold to a hospital, clinic or aged-care operator for its own stock	Generally taxable, 10%	Buyer is not an individual buying for private use
Medical aid or appliance listed in Schedule 3 of the GST Act, designed for people with an illness or disability	GST-free at every stage	s38-45 and Schedule 3
Goods exported from Australia within the required time	GST-free	Export rules in Division 38
Freight, storage or other services charged separately	Usually taxable, 10%	General GST rules

The ATO's health goods guidance covers both the medicines and the medical aids rules. Edge cases, such as a sale direct to a patient or a mixed shipment for a hospital, need advice from your tax agent or a private ruling from the ATO.

How should invoice lines be coded?

Code GST on each line, not on the whole invoice. A single order often mixes taxable medicines with GST-free appliances or freight, and the BAS needs each part reported correctly.

Set a default tax code on every product. Most medicines sold at wholesale take a taxable code (GST 10%). Schedule 3 aids take a GST-free code. Record the reason for any GST-free product in the product master.
Let the customer type change the code only where the law allows. An export customer can switch eligible lines to an export GST-free code. A pharmacy or hospital should not switch a medicine to GST-free.
Calculate GST per line and round consistently. Pick line-level or invoice-level rounding and use the same method every time.
Print a compliant tax invoice. The ATO's tax invoice rules require your identity and ABN, the date, a description, quantity and price of each item, and the GST amount or a statement that prices include GST. If an invoice mixes taxable and GST-free lines, it must show which lines are taxable. Invoices of $1,000 or more must also show the buyer's identity or ABN.
Carry the same code onto credit notes. A return or a recall credit reverses GST at the rate on the original invoice line. Issue an adjustment note so the customer can correct its input tax credit.

Where do medicine sales go on the BAS?

The ATO's BAS sales instructions set out where each type of sale goes under full reporting:

G1 Total sales: all sales, including GST, both taxable and GST-free.
G2 Export sales: GST-free exports.
G3 Other GST-free sales: for example Schedule 3 medical aids.
1A GST on sales: the GST you charged, net of adjustments.
1B GST on purchases: the input tax credits you claim on stock, freight and overheads.

Businesses eligible for simpler BAS report only G1, 1A and 1B, but still need correct line codes so that 1A is right. For a typical wholesaler of prescription and pharmacy medicines, most sales are taxable, so 1A is large and G3 is small. If G3 grows suddenly, check whether a medicine has been coded GST-free by mistake.

What records should a medicine wholesaler keep for GST?

Tax invoices and adjustment notes issued and received
The tax code on each product and the reason for any GST-free code
Export evidence, such as shipping documents, for each GST-free export
A reconciliation of the BAS figures to the sales and purchase ledgers for each period

The ATO generally expects business records to be kept for five years. Keep the product tax-code history too, so you can show which code applied on the date of each invoice.

How Asli Pharma ERP helps

Asli Pharma ERP records the product, batch and expiry on every invoice line and keeps a full audit trail of invoices, credit notes and edits. Australian GST support is on our roadmap and is not available yet. That includes per-line taxable and GST-free codes, ABN tax-invoice layouts and a BAS report. Until it ships, Australian wholesalers should run Asli Pharma ERP alongside Xero or MYOB for GST and BAS. Nothing in this guide is tax advice; confirm your position with a registered tax agent or the ATO.

Frequently asked questions

Do wholesalers charge GST on prescription medicines?

Usually yes. Section 38-50 makes qualifying drugs and medicinal preparations GST-free only when they are supplied to an individual for private or domestic use. The ATO has taken the view (ATO ID 2002/254) that supplies to pharmacies and supermarkets do not meet that condition. The wholesaler charges 10% GST and the pharmacy claims it back as an input tax credit.

Which wholesale supplies can be GST-free?

Two common cases. First, medical aids and appliances listed in Schedule 3 of the GST Act that are specifically designed for people with an illness or disability and not widely used by others; these are GST-free at every stage of the supply chain. Second, goods exported from Australia that meet the export conditions.

Is a sale to a hospital GST-free?

Not automatically. A hospital buying stock is not an individual buying for private use, so the section 38-50 condition is generally not met on the wholesale sale. The hospital's later supply to a patient may be GST-free. Confirm individual cases with your tax adviser or the ATO.

What must be on a tax invoice?

Include your identity and ABN, the issue date, a description of each item with quantity and price, and the GST amount or a statement that the price includes GST. Show clearly which items are taxable when an invoice mixes taxable and GST-free lines. Invoices of $1,000 or more must also show the buyer's identity or ABN.

Where do GST-free sales go on the BAS?

Under full reporting, total sales go at G1, export sales at G2 and other GST-free sales at G3, with GST on sales at 1A and GST on purchases at 1B. Businesses using simpler BAS report only G1, 1A and 1B. Check the ATO instructions for your reporting method.

GST on medicines at wholesale in Australia: when is it GST-free?