ATO ID 2004/188: GST and adult entertainment services: dancer contracted to a third party
Date of decision: 19 February 2004
Business line: Indirect Tax

Issue
Is entity A, a supplier of adult entertainment services, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when a dancer, provided by and contracted to another entity, entity B, performs a lap dance or striptease for one or more of entity A's customers?

Decision
Yes, entity A is making a taxable supply under section 9-5 of the GST Act when a dancer, provided by and contracted to entity B, performs a lap dance or striptease for one or more of entity A's customers.

Facts
Entity A operates an establishment in Australia, which supplies adult dancing services as part of its total entertainment package. Entity A is registered or required to be registered for goods and services tax (GST). Entity B contracts the services of dancers and provides the dancers' services to establishments that offer adult entertainment. Entity A enters into an agreement with entity B, whereby entity B supplies dancers to entity A for the purpose of providing dancing and striptease services for entity A's customers. This agreement sets out the percentage of the fees that entity B will receive for the dances. The agreement also establishes the percentage of the fees to be distributed to the dancer. In accordance with the terms of the agreement, entity A distributes the agreed fee (either at a rate per dance or at a percentage of the consideration received) to the dancer at the end of their shift. The agreement also sets out the terms and conditions, under which the parties will operate and enables entity A to control the dancer's behaviour in regard to issues such as their compliance with drug and prostitution laws. Entity A is also able to choose which dancers, supplied by entity B, will be allowed to perform in its establishment. Entity A's customers can either watch the dancers on stage or approach an employee of entity A directly and request for one of the dancers to provide a private lap dance or striptease. Entity A sets the prices for the lap dances and stripteases. Entity A's employees can assist with selecting a dancer to provide private dances for customers. Entity A provides the venue for private performances and has a cashier who collects and processes the payments for these private performances. Payments by way of cash are paid directly to entity A and deposited into its cash register. Payments by way of EFTPOS or credit card are processed on an EFTPOS machine owned by entity B and go directly into entity B's bank account. At the end of the night entity A reconciles all the money taken for the dances. Any amount owed to entity B is transferred directly into entity B's bank account and if entity B owes entity A any money, entity A deposits the amount owing into their own account.

Reasons for decision
Summary: Section 9-5 of the GST Act provides that an entity is making a taxable supply where: However, a supply is not taxable if it is GST-free or input taxed. Before examining the elements of section 9-5 of the GST Act, it is necessary to identify who is actually making the supply of dancing services to the customers. Entity B contracts the services of dancers. Entity A enters into an agreement with entity B, whereby entity B supplies the dancers to entity A for the purpose of providing dancing and striptease services for entity A's customers. In this situation two separate supplies exist. The first supply is the supply of contracted services by the dancers to entity B. The second supply is the agreement between entity A and entity B, whereby entity B supplies the services of the dancers to entity A. The dancers are only supplying their services to entity A in accordance with this agreement. The dancers are contracted to entity B and while entity A distributes an agreed fee to the dancers at the end of their shift, it does this only in accordance with the terms of the agreement it has with entity B. As such, it is entity A that is making the supply of dancing services to the customer. However, it needs to be determined whether the amount paid by the customer is consideration for entity A's service. Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is 'in connection with' a supply and 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular supply and a particular payment, provided for that supply, for there to be a supply for consideration. Entity A sets the price for the lap dances and stripteases and provides the means for collecting and processing the payments from the customer. The payment by the customer, regardless of which entity this payment initially goes to, is made in return for the supply of dancing services provided by entity A and is consideration for that supply. As such, entity A is making the supply for consideration. The entity is registered or required to be registered for GST and the supply is made in the course of its enterprise and is connected with Australia. In addition, the supply is not input taxed under any of the provisions in Division 40 of the GST Act nor is it GST-free under Division 38 of the GST Act. Accordingly, all the requirements in section 9-5 of the GST Act are satisfied. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when a dancer, provided by and contracted to entity B, performs a lap dance or striptease for one or more of entity A's customers Note: As the lap dance/striptease fee is consideration for the entity's supply of services, the entity has a GST liability equal to 1/11th of the total fee received (section 9-70 of the GST Act).

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-15 section 9-70 Division 38 Division 40
Related ATO interpretative decisions: ATO ID 2004/186 | ATO ID 2004/187
Subject references: Goods and services tax GST consideration GST supplies & acquisitions GST supply Taxable supply