Private ruling: GST and consideration for a taxable supply
Published: October 2013

Ruling: Q1: Is the one-off payment that the Australian entity will receive from its parent entity overseas consideration for a taxable supply? | A1: No, the one-off payment that the Australian entity will receive from its parent entity overseas is not consideration for a taxable supply.

Relevant facts and circumstances: The Australian entity is registered for goods and services tax (GST). The Australian entity is wholly owned by an entity based overseas (the parent entity). The parent entity is a manufacturer of goods. The Australian entity is marketing and importing the goods into Australia. The Australian entity buys the goods from the parent entity and sells them in Australia in its own right. The Australian entity does not have any agreement with the parent entity under which the Australian entity will provide services to the parent entity in relation to the goods. The Australian has made significant sales in Australia in the past several years of operation. The parent entity is proposing to make a one-off payment to the Australian entity in recognition of its achievement. There is no prior agreement between the Australian entity and the parent entity that provides for such payment to be made if the sales made by the Australian entity exceed a specified amount. The payment is not a rebate or a discount on the goods imported by the Australian entity and is not a payment for a separate supply of service. There are no conditions attached to the payment; as such, the Australian entity can use it in any way at its discretion. It is unlikely that the payment will be made again in a foreseeable future, even if the sales made by the Australian entity will exceed a particular amount.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5, | A New Tax System (Goods and Services Tax) Act 1999 section 9-10 and | A New Tax System (Goods and Services Tax) Act 1999 section 9-15.

Reasons for decision: Summary: GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (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 Australia; and (d) you are registered or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. For the requirement in paragraph 9-5 (a) of the GST Act to be satisfied, there must be a supply and consideration, and there must be a sufficient nexus between them. 'Supply' is defined under section 9-10 of the GST Act as any form of supply whatsoever. On the other hand, section 9-15 of the GST Act defines 'consideration' to include any payment, or any act or forbearance in connection with, or in response to or for the inducement of a supply of anything. According to subsection 9-10(2) of the GST Act, a supply can be any of the following: (a) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender of real property; (e) a creation, grant, transfer, assignment or surrender of any right; (f) a financial supply; (g) an entry into, or release from, an obligation: · to do anything; or · to refrain from an act; or · to tolerate an act or situation; (h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g). In adopting the ordinary and natural meaning of the term 'supply', that is, 'to furnish or provide', it follows that an entity must take some action to make a supply. This notion is consistent with the use of active phrases throughout the examples of supplies in section 9-10 of the GST Act, such as the normalised verbs: 'a provision', 'a grant', 'a creation', 'a transfer', 'an entry into', and 'an assignment'. The Australian entity does not have an agreement with the parent entity under which the Australian entity will make a supply of services to the parent entity in relation to the importation and sale of the goods. It was submitted that the payment is not a rebate on the goods purchased by the Australian entity from the parent entity. A supplier pay rebates to customers who reach certain levels of purchases. The rebates are generally expressed as a percentage of the purchases made in a particular period. A rebate is regarded as a reduction in the consideration for the relevant purchases and so is an adjustment event. The Australian entity and the parent entity do not have an agreement that provides for the payment to be made to the Australian entity if its sales exceed a particular amount. As such, we do not consider the payment to the Australian entity to be in the form of a rebate. A supplier can also make an unconditional payment to an entity to induce the entity to make, or to continue to make purchases from the supplier. Where the payment is truly unconditional, the payment is neither an adjustment event nor consideration for a separate supply. It was submitted that there are no conditions attached to the payment; that is, the Australian entity can use the payment in any way at its discretion. Thus, the payment to the Australian entity is not consideration for a separate supply. Based on the information provided, the Australian entity is not making a supply to the parent entity for which it will receive the payment. The Australian entity is not making a supply of goods or services. The Australian entity does not have an obligation to do, or refrain from doing, anything when it receives the payment. As such, the payment is not consideration for a supply which the Australian entity makes. As there is no supply made by the Australian entity that has sufficient nexus to the payment, section 9-5 of the GST Act is not satisfied. The payment that the Australian entity will receive from the parent entity is not consideration for a taxable supply.