ATO ID 2004/232: GST and payment of a commission in the form of a rebate
Date of decision: 5 September 2002
Business line: Indirect Tax

Issue
Is the entity, a company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it recommends another company's products, for which it receives a commission in the form of a rebate?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act, when it recommends another company's products, for which it receives a commission in the form of a rebate.

Facts
The entity is a company. The entity has entered into a written agreement with another company, whereby the entity has agreed to recommend the other company's products to its customers. The entity also purchases products from the other company. In return for providing recommendations, the entity receives a commission in the form of a rebate on products that it purchases from the other company. Under the terms of the agreement the rebate is calculated based on the amount of sales that the other company makes to the entity's customers. The entity makes the recommendations of the other company's products in the course of carrying on its enterprise in Australia and is registered for goods and services tax (GST).

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, a supply is not taxable to the extent that it is GST-free or input taxed. Section 9-10 of the GST Act defines 'supply' to mean any form of supply whatsoever. Paragraph 9-10(2)(b) of the GST Act states that a supply of services is a supply. Under the agreement the entity recommends the other company's products to its customers. When the entity makes these recommendations, the entity is providing a service. The supply is the entity's entry into and fulfilment of the obligation to participate in the promotion and recommendation of another company's products. The entity is making a supply as defined in subparagraph 9-10(2)(b) of the GST Act. 'Consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance, in connection with, in response to, or for the inducement of a supply of anything. Under the agreement the entity receives a commission in the form of a rebate on products that it purchases from the other company. The rebate is calculated based on the amount of sales the other company makes as a result of the entity's recommendations. This is to be distinguished from a rebate that changes the consideration for a previous supply and results in an adjustment event as explained in paragraph 24 of Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events which provided: Under their terms of trade, suppliers may pay rebates to customers who reach certain levels of purchases. The rebates are typically expressed as a percentage of the purchases made in a particular period. A payment of this type is regarded as a reduction in the consideration for the relevant purchases and so is an adjustment event. The rebate the entity receives is consideration for the supply of services the entity makes when it recommends the other company's products. It is not a reduction in consideration for the products that the entity buys from the other company, these are separate and distinct supplies. The rebate is given in connection with the entity's supply of the recommendation services and as such, is consideration for the entity's supply. The entity is making a supply for consideration and the first requirement in section 9-5 of the GST Act is satisfied. The entity makes the supply in the course of carrying on its enterprise in Australia and is registered for GST satisfying the other positive requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it recommends the use of another company's products, for which it receives a commission in the form of a rebate.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-10 section 9-10(2)(b) subsection 9-15(1) Division 38 Division 40
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2000/19
Subject references: Goods and services tax GST supplies & acquisitions GST consideration GST supply Taxable supply