Private ruling: GST and referrals
Date of advice: 16 April 2019
Published: June 2019
Ruling period: From the date of issue

Ruling: Q1: Does the existing customer (referrer) make any supply to you when it invites a family member or friend (referee) to join you? | A1: Yes, the existing customer does make a supply to you. | Q2: Should the goods and services tax (GST) liability on supplies by you be calculated by reference to 1/11 th of the amount owed by the customer after the $ has been deducted from the customer’s account? | A2: No, the GST liability on the supplies by you is calculated by reference to 1/11 th of the amount owed by the customer before the $ has been deducted from the customer’s account.

Relevant facts and circumstances: ● You are a retailer registered for GST ● You primarily make supplies to consumers who are not registered for GST, although you do have some business customers that are registered for GST ● You currently run a customer referral arrangement (arrangement) ● Under the arrangement, existing customers (referrer) can choose to invite friends and family to join you through a referral link that is provided to them by the existing customer. If the friend or family (referee) signs up with you through the referral link, the existing customer has $ credited to their account. The $ is applied against the customer’s account, and cannot be redeemed for cash. If the customer leaves you without fully utilising the $, the amount is forfeited as it cannot be redeemed for cash. If the family or friend does not sign up to you, the existing customer will not receive the $. ● If the family or friend (referee) joins you, the friend or family member is also entitled to receive $ which is applied against their account in three instalments ● You have provided in your submission the terms and conditions and marketing material for the arrangement ● Under the Referrer terms and conditions: - For each friend and family member the referrer invites to join you via the link who is not already a customer and who signs up using the link, the referrer will get a discount to use off their account. - The discount cannot be refunded or redeemed for cash. - The referrer acknowledges and agrees to participate responsibly. - You may ban participation if you consider the referrer is not complying with the terms and conditions. ● You have provided a sample tax invoice

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

Reasons for decision: Summary: Detailed reasoning Section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines the meaning of supply very broadly and states that a supply is ‘any form of supply whatsoever’. The definition of supply in section 9-10 of the GST Act is so broad that customers referring a family member or friend could be a supply in regards to their referral services. Section 9-10(2) of the GST Act includes what is a supply without limiting the definition as being ‘any form of supply whatsoever’. Goods and Services Tax Ruling: Goods and services tax: supplies (GSTR 2006/9), examines the concept of supplies and the meaning of ‘supply’ in section 9-10 of the GST ACT. Paragraph 33 of GSTR 2006/9, explains that: 33. The words 'A supply is any form of supply whatsoever' in subsection 9-10(1) cover all supplies regardless of whether they concern goods or services. This obvious breadth of the concept of supply is confirmed by the EM, which states (in reference to subsection 9-10(1)): This is defined broadly and is intended to encompass supplies as widely as possible. The list in subsection 9-10(2) does not limit the possible breadth of the definition of supply in 9-10(1); it provides a list that is not exhaustive. Something that is not listed in subsection 9-10(2) but falls within subsection 9-10(1) will be a supply (paragraph 35 of GSTR 2006/9). Therefore, for GST purposes the meaning of supply is broad and it is intended to encompass supplies as widely as possible. As a result, the referral service that your customer provides is a supply under section 9-10(1) of the GST Act. Further Proposition 9 in GSTR 2006/9 at paragraph 108 states, among other things, that for GST purposes you may still make a supply in the absence of enforceable obligations, provided there is something else, such as goods, services or some other thing passing from the supplier to the recipient. In your situation, even though there is no enforceable obligation between you and the existing customer for the customer to provide the referral service to you, when the customer decides to provide their referral to their friends and family they are making a supply to you of referral services. For the existing customer there are no GST implications in relation to this supply unless the customer meets the requirements of section 9-5 of the GST Act. Consideration for a supply means any consideration in connection with the supply and includes any payment, act or forbearance in connection with a supply of anything. Paragraph 12 of GSTR 2001/6 states that a payment is not limited to a payment of money; it includes a payment in a non-monetary form, or an in kind form, such as goods, granting of rights, entering into obligations and refraining from doing something. For a successful referral, you pay your existing customer $ which for GST purposes is consideration for their supply of the referral service to you. In regards to supplies for no consideration, paragraph 55 of GSTR 2006/9 states among other things that a supply can be made for no consideration. In your situation, when one of your customers makes a supply of referral services and the process does not lead to a new customer there is still a supply of the referral services although it is made for no consideration. Paragraphs 35 to 37 of Goods and services tax: making adjustments under Division 19 for adjustment events (GSTR 2000/19) discusses promotional, co-operative or advertising allowances. Essentially these allowances do not reduce the consideration for a supply. Allowances of this nature are made in return for promotional activities, and are a way of maximising sales of the supplier’s services and are not directed towards a reduction in the consideration. The consideration for the supplies can be paid in cash, cheque or may be a credit that the customer can use against future purchases. In your situation, when your customer (referrer) supplies successful referral services to you, a credit is applied against their next account. The credit is consideration for their supply of the referral services to you. This is separate from your supply to the customer, and it is not changing the consideration of your supply to the customer. Where a supply is made from one party to another party and another supply going back to the original party, the supplies are accounted for separately. There is nothing in the GST Act that allows for setting off prices of supplies against each other. This concept is covered in Goods and Services Tax Ruling: non-monetary consideration (GSTR 2001/6) and Goods and Services Tax Ruling: recipient created tax invoices (GSTR 2000/10). GSTR 2001/6 discusses ‘No setting off of prices’ starting at paragraph 125: 125. Where parties make supplies to each other, depending on the actual transaction, the supply made by each party may be for: ● Monetary consideration; or ● Non-monetary consideration, being the supply by the other party; or ● Both monetary and non-monetary consideration; or ● No consideration. Where there are mutual supplies for consideration, the GST law does not allow the price for one supply to be reduced by the p rice of another. This view is also covered in (GSTR 2000/10) starting at paragraph 50 ‘Set-off’ in regards to RCTI’s. In your situation, you have made a supply to a customer and in your sample tax invoice the value of that supply is $. The sample tax invoice also shows the customer has made a supply to you of a successful referral service for consideration of $. Where there are mutual supplies for consideration, the GST law does not allow the price for one supply to be reduced by the price of another supply. Therefore, the GST payable on the sample tax invoice for the supply is 1/11 th of $ before the $ for the referral service has been deducted from the customer’s account.