ATO ID 2004/186: GST and adult entertainment services
Date of decision: 12 February 2004
Business line: Indirect Tax

Issue
Is the entity, 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, engaged by the entity, performs a lap dance or striptease for one or more of the entity's customers?

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

Facts
The entity operates an establishment in Australia, which supplies adult dancing services as part of its total entertainment package. The entity is registered or required to be registered for goods and services tax (GST). The entity engages dancers to perform in its establishment. The entity enters into an agreement with each dancer for the dancer to provide its services to the entity. This agreement sets out the terms and conditions under which the parties will operate and enables the entity to control the dancer's behaviour in regard to issues such as their compliance with drug and prostitution laws. The entity has control over which dancers are allowed to perform at the establishment. The entity's customers can watch the dancers on stage or they can approach an employee of the entity directly and request for one of the dancers to provide a private lap dance or striptease for a price. The entity's employees assist with the selection of a dancer who will then provide private dances for the customers. The entity provides the venue for the private performance. The entity also collects and processes the payments for private performances. The entity sets the price of the lap dances or stripteases that are provided to customers. The entity establishes a price with each dancer for the supply of their dancing services. This is either an agreed percentage of the price paid by each customer or an agreed fixed dollar amount per dance performance. Payments by the customers using credit card or EFTPOS go directly into the entity's account and a receipt is issued under the entity's trading or business name. The entity retains its percentage of the dance fee and then distributes the dancer's percentage to the dancer (generally by way of cash). Subject always to the entity's ability to control who performs at the club, the dancers choose where and when they perform and they may perform lap dances or stripteases at a number of clubs on any one night.

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. The first requirement in section 9-5 of the GST Act is that an entity must make a supply for consideration. When a customer requests a lap dance or striptease, they approach the entity. The entity organises the lap dance or striptease and receives payment from the customer. The entity provides the venue and the dancers and arranges the private dances. The entity is supplying the customer with a service. However, it needs to be determined whether the entire amount paid by the customer is consideration for the entity's service, or if any of the consideration is paid to the entity acting as an agent on behalf of the dancer who is making a separate supply of their services. Goods and services tax ruling, GSTR 2000/37, outlines a number of factors that are taken into account in determining whether an entity is an agent under an agency relationship. However, no single factor (by itself) is determinative. These factors include: Full payments are being made to the entity directly. The entity acts in its own name and is not holding itself out to its customers as acting on behalf of the dancer. The entity sets the prices for the lap dances and stripteases. It is also providing the means for collecting and processing the payments from the customer. Payments using credit card or EFTPOS go directly into the entity's account and a receipt is issued under the entity's trading or business name. The agreement between the parties is for the provision of the dancer's services to the entity, in return for payment for the lap dance or striptease. The agreement does not provide for a separate supply of services by the dancer to the customers. The agreement does not provide for the entity as having authority to act on behalf of the dancer, nor does it entitle the entity to enter legal relations with a third party on behalf of the dancer. The entity is not bearing any commercial risk by entering into the agreement with the dancer. Taking into account these factors, the entity is not acting as an agent for the dancer in respect to the supply of the lap dances or stripteases to the customers. Therefore, the entire payment by the customer is for the supply of services by the entity. The entity is registered, or required to be registered for GST, its 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, engaged by the entity, performs a lap dance or striptease for one or more of the entity'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 9-70 Division 38 Division 40
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2000/37
Related ATO interpretative decisions: ATO ID 2004/187 | ATO ID 2004/188
Subject references: Goods and services tax GST supplies & acquisitions Taxable supply