Private ruling: GST and income received as royalty will be included in the GST turnover calculation
Date of advice: 12 April 2024
Published: 27 May 2024
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Is the income received as royalty included in the calculation of GST registration turnover threshold? | A1: Yes. The income received as royalty is included in the calculation of the GST turnover threshold. Income from GST-free supplies is not disregarded in the calculation of the GST turnover threshold.

Relevant facts and circumstances: You are a sole trader and self-published author and registered for goods and services tax (GST). You do not sell your books directly to the public, but through a website called XYZ. You never collected any GST on the sale of your books. You determine the sale price of your books and XYZ sells them on your behalf and you receive royalty from XYZ. You can set the price of a book in various different markets using the dashboard. You can set the retail (tax-inclusive) price, and based on that, XYZ calculates the tax-exclusive price, the delivery cost and the royalty amount. If any of your books are sold in Australia, the GST on the sale of those books will be reported by XYZ Australia. XYZ is solely responsible for and will have full discretion with respect to the terms, features, and operation of the Program and related marketing, but their use of the Books will be subject to the terms of the Agreement.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 sections 9-5, 9-20 and 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection s188-15(3) and 188-20(3)

Reasons for decision: Summary: Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold of $75,000 or above. Section 9-20 of the GST Act provides, amongst other things, that an enterprise is an activity or series of activities done in the form of a business; or in the form of an adventure or concern in the nature of trade; or on a regular or continuous basis in the form of a lease, licence or other grant of an interest in property. You sell books through XYZ by supplying a right to XYZ to sell your books under an Agreement. Based on the facts, you are carrying on an enterprise of selling your books through XYZ by granting them the right to sell your books, and you receive income in the form of royalties. Your annual turnover from the sale of your books exceeded the GST turnover threshold of $75,000. Therefore, you are required to be registered for GST as per section 23-5 of the GST Act. | Detailed Reasoning - GST turnover calculation: In calculating the GST turnover, you are required to include the sum of the values of all the supplies that you have made or likely to make during a 12-month period. Subsections 188-15(3) and 188-20(3) of the GST Act provide that certain supplies are disregarded when calculating your current and projected GST turnover. Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover : GSTR 2001/7 explains, amongst other things, the supplies that are disregarded in calculating the current and projected GST turnover. Paragraph 14 of GSTR 2001/7 states: 14. The following supplies are excluded from the calculation of current GST turnover and projected GST turnover: o supplies that are input taxed; o supplies that are not for consideration (and are not taxable supplies under section 72-5); o supplies not made in connection with an enterprise that you carry on; o supplies that are not connected with Australia; o supplies of rights or options that are connected with Australia because of paragraph 9- 25(5)(c) (unless the right or option is supplied to an Australian consumer, is not GST-free and relates to the acquisition of an intangible); o supplies (other than those mentioned in the immediately preceding two dot points) of a right or option to use commercial accommodation in Australia where the supplies are not made in Australia and are made through an enterprise that the supplier does not carry on in Australia; o supplies made from one member of a GST group to another member of that GST group; and o GST free supplies made by a non-resident supplier that are not made through an enterprise they carry on in Australia. As explained above, supplies that are GST-free are not disregarded when calculating your current and projected GST turnover. This means GST-free supplies are included in the calculation of current and projected GST turnover. | Detailed Reasoning - Supply of right: According to the agreement with XYZ, two supplies have been made. The first supply is the supply of rights by you to XYZ to sell your books. The second supply is the supply of your books by XYZ to the purchasers from Australia and outside Australia. Subsection 38-190(1) of the GST Act provides that supplies of things other than goods or real property for consumption outside Australia will be GST-free. Table item 4 of subsection 38-190(1) of the GST Act provides that a supply that is made in relation to rights will be GST-free if: (a) the rights are for use outside of Australia; or (b) the supply is to an entity that is not an Australian resident and is outside of Australia when the thing supplied is done. Under the Agreement with XYZ, you have granted each XYZ party a nonexclusive, irrevocable right and licence to print and distribute your books directly and through third-party distributors. XYZ party includes XYZ Australia and other XYZ affiliates. When a XYZ party uses the rights granted to them by you, to sell your books outside of Australia, table item 4(a) of subsection 38-190(1) of the GST Act is satisfied, and the supply of rights is GST-free. However, when XYZ Australia uses the rights granted to them to sell your books in Australia, the supply of that rights will not satisfy item 4(a) because the supply of rights was used in Australia. Therefore, the supply of rights in relation to books sold by XYZ Australia will be taxable supply and you are liable to remit GST on the royalty amount received from XYZ Australia. According to the Agreement, XYZ parties or their affiliates are responsible for collecting and remitting the relevant taxes imposed on their respective sales of books to the customers. When XYZ Australia sells a book to customers in Australia they will be liable to pay the GST on the sale of the book to the Australia Taxation Office (ATO). You will be liable to pay the GST on the royalty amount received from XYZ Australia in relation to the sale of those books. | Detailed Reasoning - Taxable supply to XYZ Australia: Section 9-40 of the GST Act provides that you must pay GST on any taxable supply that you make. Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone (Australia); and (d) you are registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The royalty amount you receive from XYZ Australia is the consideration for the supply of rights provided to them under the Agreement. You have made the supply of rights in the course of carrying on an enterprise of selling your books. The supply is connected with Australia as you have made the supply through the enterprise that you carry on in Australia, and you are registered for GST. As explained above, the supply of rights to XYZ Australia is not GST-free as the supply does not satisfy table item 4(a) of subsection 38-190(1) of the GST Act. The supply of rights to XYZ Australia also not an input taxed. Therefore, the supply of rights to XYZ Australia will satisfy all of the requirements of section 9-5 of the GST and you are liable to pay GST on the supply. | Detailed Reasoning - Electronic Distribution Platform (EDP) operator: Law Companion Ruling LCR 2018/2: GST on supplies made through electronic distribution platforms provides the ATO view on when supplies are made through an electronic distribution platform (EDP). Paragraph 21 of LCR 2018/2 states: 21. A service will be an EDP where it satisfies all of the following: a) the service allows entities to make supplies available to end-users (see paragraphs 24 to 31 of this Ruling), and b) the service is delivered by means of electronic communication (see paragraphs 32 to 39 of this Ruling), and c) if the relevant supplies are inbound intangible consumer supplies (that is, not offshore supplies of low value goods), the supplies are made by means of electronic communication (see paragraphs 40 to 41 and 51 to 59 of this Ruling). Paragraphs 24 to 26 of LCR 2018/2 state: 24. The first requirement is that the service allows entities to make supplies available to end-users. An EDP service which allows buyers to make an offer for an item, and/or which allows merchants to accept orders by buyers, will satisfy this requirement. 25. This includes situations where an end-user can click a button to make an offer to buy goods at a particular price, where this is converted into a message to the merchant. 26. This requirement will not be satisfied by services that merely create awareness of possible supplies, for example, advertising on a business directory or a click through advertisement which redirects you to a merchant's or EDP operator's website. Under the Agreement with XYZ party, you are not selling your books through the platform operated by XYZ. In this case, you are not a merchant who will be selling your books to the purchasers and XYZ party is the merchant who is selling the books under the rights granted to them by you. As explained in paragraph 21 of LCR 2018/2, all of the three requirements must be satisfied for an entity to operate as an EDP. Since the first requirement is not satisfied, XYZ party is not operating as an EDP in relation to the sale of your books. Therefore, XYZ party is not deemed as the supplier of your books under the EDP rules.