Private ruling: GST and supply of facilitation services and management services.
Published: July 2012

Ruling: Q1: Do you make a taxable supply to the featured businesses who are Australian residents? If yes, what is the consideration for your supply in Scenario A and B? | A1: Yes, you make a taxable supply of scenarios A and B to the businesses. Please see the reasons for the decisions on the consideration for your supply in each case. | Q2: Do you make a taxable supply to the end users when you give out cash prizes in both scenarios A and B? Answer: No, you do not make a taxable supply to the end users when you give out cash prizes in both scenarios A and B.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an Australian resident company which is registered for GST. You have a website, which is an advertising and sale platform. It enables your clients (the businesses who are suppliers of goods) to showcase their advertisements and sell their products to users of your website. The businesses are mostly Australian companies. You are a facilitator of the transactions between the businesses and the users of your website. Any dispute with the product is the responsibility between the businesses and the users/purchasers. The end users/purchasers are individuals who are not registered for GST and not running a business. You have provided us copies of the "Business Services Agreement" and "Terms of Use (Player)". Business Services Agreement The businesses advertise their goods on your website. The end users are rewarded by you for watching the most experiences as an individual or a group. The businesses do not have any control over the scoring system and the winners. The businesses do not have access to the end users' data, unless the end users choose to provide the data to the businesses. You charge the businesses a fee for your facilitation service. Your fee is equal to the agreed minimum sale level (target). If the sales exceed the target, you will pay any excess sale proceeds to the business less your agreed management fee. However, if the sales do not reach the target, you retain any sales amount generated and will not charge the business a fee. If the end users decide to purchase the goods from the businesses, you provide the end users' address for delivery to the business and ensure that the businesses deliver their goods on schedule, otherwise you reserve the right to withhold money owed by you to the businesses and will use the money at your discretion to refund an end user if delivery conditions are not met. You do not take any title to the goods nor are you responsible for any disputes between the business and the end users in relation to the business' supply of products. Terms of Use for end users of your website: Users select a square from the interactive cube, then a box from the grid. This will open up an advertisement, brochure, survey or other marketing services. The users will then be granted a discount that is linked to one or many products. The product will be showcased to the users by the business, and the users can choose to make a purchase. The users will then be asked a question pertaining to the advertisement they have just witnessed or one of the products they have been offered. The users must answer this question correctly to score a Point. The "cash prizes" is an indication of the amount of prize money on offer for that particular experience. The cash prizes paid out in some experience are dependant on sales to match the minimum sales target. If the target is not met, then all prize money levels are paid to match the exact percentage of purchases compared to the Minimum Sales Target. If sales exceed the 100% Minimum Sales target, then the payouts remain at the 100% level regardless of the excess sales that result. After viewing a featured business advertisement, a player may receive a Discount. This will be for a specific amount of money that can be taken from the stated retail price of specific products that will then be showcased to the end user. Featured businesses can change the discount of any item at any time. From time to time a selected "box" may contain a cash prize. The player must have answered the question correctly (user is asked at the end of every experience about the advertisement they have just witnessed) to qualify for this prize. This is a test of knowledge of the showcased advertisement. You give us examples of the two types of scenarios you provide to the businesses Scenario A The fee or minimum sales level is funded from the sale of the products. A business agrees to sell their products. If the total sale of the products through your website reaches $X you will retain the first $Y. Some of this $Y is returned to the consumers by way of rewards or prizes in cash. The balance is retained by you as profit. The balance of $X - $Y in sales price would be forwarded to the featured businesses after you deduct your management fee. If the total sale of the products through your website does not reach the minimum target of $Y, you will not forward any money to the businesses and will not charge them any facilitation or management fee. Scenario B The businesses pay an upfront fee to you, depending on the level of facilitation service they require. Assume the business agrees to a $Y experience. They will pay you $Y upfront. You will give away some of this $Y in rewards or prizes to the end users and keep the balance. All sales generated by your website will be forwarded to the businesses after deducting your management fee.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(a). | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(b). | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(c). | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d). | A New Tax System (Goods and Services Tax) Act 1999 Section 9-25 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-10 | 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 38-190(3).

Reasons for decision: Summary: 1. Your supply of services to the Australian resident businesses A supply will be a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied. Section 9-5 of the GST Act states: 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 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 (* denotes a defined term under section 195-1 of the GST Act) We characterise your supply of facilitation and management on your website to the businesses as a supply of services. In both Scenarios A and B, you will retain some of the sales generated from the users for the products, therefore you satisfy the requirements under paragraph 9-5(a). As your supply of services on your website to the businesses is done in Australia in the course of an enterprise that you carry on in Australia, you satisfy paragraphs 9-5(b) and 9-5(c) of the GST Act. You are registered for GST in Australia, therefore you satisfy paragraph 9-5(d) of the GST Act. Hence your supply of services to the Australian resident businesses is taxable to the extent that they are not GST-free or input taxed. Your supply of facilitation and management services are not input-taxed under the GST Act or any other Act. However, the GST-free provisions should also be taken into consideration. | Detailed Reasoning - GST-free: Section 38-190 of the GST Act lists supplies of things other than goods or real property, for consumption outside Australia that are GST-free. The supply of your facilitation and management services to the Australian resident businesses in Australia is neither goods nor real property and therefore comes within the scope of section 38-190 of the GST Act. In particular, item 3 in the table in subsection 38-190(1) of the GST Act (Item 3) is relevant in this circumstance. Item 3 is extracted below: Supplies of things, other than goods or real property, for consumption outside Australia Item Topic These supplies are GST-free (except to the extent that they are supplies of goods or * real property)... 3 Supplies used or enjoyed outside Australia a supply: (a) that is made to a * recipient who is not in Australia when the thing supplied is done; and (b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with * real property situated in Australia. Item 3 is applicable irrespective of the residency of the recipient. Furthermore, subsection 38-190(4) of the GST Act provides that a supply is considered to be made to a recipient who is not in Australia if: (a) it is a supply under an agreement entered into, whether directly or indirectly, with an Australian resident; and (b) the supply is provided, or the agreement requires it to be provided, to another entity outside Australia. Therefore, one of the requirements for the supply of your services to be GST-free is that it is made to a recipient who is not in Australia when the thing supplied is done. The term 'recipient' in relation to a supply is defined in section 195-1 of the GST Act and means the entity to which the supply was made. Further, the requirement that the recipient of a supply is 'not in Australia' when the thing supplied is done, requires that the recipient is not 'in Australia in relation to the supply' when the thing supplied is done. Goods and Services Tax Ruling GSTR 2004/7 provides guidance on how to determine if the presence of a company in Australia is in relation to the supply of services. Even though a company incorporated in Australia is always 'in Australia' by virtue of its incorporation, it may not be in Australia 'in relation to the supply'. In your case, you state that your supply of services is for the purposes of the Australian companies/businesses, therefore the businesses are in Australia 'in relation to the supply'. Since the businesses are Australian resident companies carrying on business in Australia, and the effective use of your services takes place in Australia, neither paragraph (a) nor (b) of Item 3 is satisfied. Your supply of facilitation and management services is not considered a supply of work physically performed on goods in Australia when the work is done, nor a supply directly connected with real property in Australia. You entered into contracts with the Australian resident companies/businesses and your supply is not provided to another entity outside Australia; hence subsection 38-190(4) of the GST Act does not apply. Your supply to the businesses is not a GST-free supply under section 38-190 of the GST Act. As all the requirements under section 9-5 of the GST Act are satisfied, your supply of services to the Australian businesses is a taxable supply. | Detailed Reasoning - Consideration in Scenario A:: The consideration for your supply when the total sale of a product through your website reaches $X is $Y (for facilitation service) plus your management fee. In case the total sales of the product did not reach the minimum sales target of $Y, you are not going to charge the businesses any management fee, and you retain whatever sales amount generated through your website. In this scenario, your consideration is the amount which you retain from the generated sales (before you give away the prizes in cash). | Detailed Reasoning - Consideration in Scenario B:: The consideration for your supply is $Y (for facilitation service) and your management services. | Detailed Reasoning - 2. Award of cash prizes: You state that after a product is showcased to the users by the businesses, the users will then be asked a question pertaining to the advertisement they have just witnessed or one of the products they have been offered. If the user answers correctly, he receives a discount to a product, or from time to time, a cash prize. Subsection 9-10(4) of the GST Act provides that a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money. Therefore you do not make a supply to the end users by giving them a cash prize.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.