ATO ID 2003/957: GST and supply connected with direct selling enterprise
Date of decision: 18 April 2002
Business line: Indirect Tax

Issue
Is the entity, a distributor for a direct selling organisation, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it introduces a new member to the direct selling organisation, and receives a voucher from the direct selling organisation which it can redeem for products for its personal use?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it introduces a new member to the direct selling organisation, and receives a voucher from the direct selling enterprise which it can redeem for products for its personal use.

Facts
The entity is a distributor for a direct selling organisation. The entity introduces a prospective member to the direct selling organisation and, in return for this, the direct selling organisation provides the entity with a voucher. The entity can redeem the voucher for products from the direct selling organisation. The products are supplied only for the entity's personal use. The entity is registered for goods and services tax (GST). The entity introduces the new member to the organisation in the course of its own enterprise that is carried on in Australia.

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 input taxed or GST-free. To satisfy the first requirement in section 9-5 of the GST Act, an entity must make a 'supply' for 'consideration'. Paragraph 9-10(2)(b) of the GST Act provides that for GST purposes, the term 'supply' includes a supply of services. In introducing a prospective member to the direct selling organisation, the entity is providing a service to the direct selling organisation. Therefore, the entity is making a supply as per paragraph 9-10(2)(b) of the GST Act. Subsection 9-15(1) of the GST Act provides that for GST purposes, the term 'consideration' includes any payment, act or forbearance, in connection with, in response to, or for the inducement of a supply of anything. The voucher is provided in recognition of the entity introducing a prospective member to the direct selling enterprise. If the introduction had not occurred, a voucher would not have been provided to the entity. Therefore, the voucher amounts to consideration as defined in subsection 9-15(1) of the GST Act. Accordingly, the entity is making a supply for consideration as per the first requirement in section 9-5 of the GST Act. Furthermore, the entity is registered for GST, the supply is made in the course of the entity's enterprise, and is connected with Australia. In addition, 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 introduces a new member to the direct selling organisation, and receives a voucher from the direct selling organisation which it can redeem for products for its personal use.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 paragraph 9-10(2)(b) subsection 9-15(1) Division 38 Division 40
Subject references: Goods and services tax GST supplies & acquisitions GST consideration GST supply Taxable supply