• Chapter 10: Internet advertising

    Nature

    Advertising on the internet is conducted via a number of different types of business models. The most common models are discussed below. In the following discussion, the actual model used does not have an impact on whether the advertising supply is subject to GST or not. The key factor is the relationship between the parties. The scenario's section, below, discusses a number of common relationships between parties involved in internet advertising supplies.

    For each scenario, any of the following business models can be used. The decision section indicates the GST treatment for the common internet advertising scenarios discussed in this advice.

    Business models

    Cents per click

    Every time a person clicks on an advert and proceeds to the advertised site a set fee is paid. There are a number of variations on this model regarding the depth that a customer must go within the site before the payment event is triggered.

    Percentage of successful sales

    When the customer clicks on the banner ad and is referred to the site a set percentage of the value of any successful sale is paid to the advert host. Settlement can take a period of time. There is a variation where a percentage is paid only after repeat business.

    Barter

    Banner ads are exchanged between sites.

    Page per view model

    Payment is made to display the advert on a set number of page views, there is no requirement for click through. This is the equivalent of adverts for display (for example, billboards, newspapers, magazine).

    Scenarios

    It is assumed all Australian businesses are registered or required to be registered for GST.

    1. An advert is placed on a website owned by a resident Australian business, by an Australian resident advertiser advertising goods and services.
    2. An advert is placed on a website owned by a resident Australian business, by a non-resident advertiser advertising goods and services.
    3. An advert is placed on a website owned by a non-resident business, by an Australian resident advertiser advertising goods and services.

    Issue

    The GST implications of internet advertising.

    Decisions

    Scenario 1 - subject to GST

    Non-interpretative - straight application of the law

    An advert is placed on a website owned by a resident Australian business for Australian resident advertiser advertising goods and services.

    Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

    • you make the supply for consideration
    • the supply is made in the course or furtherance of an enterprise that you carry on
    • the supply is connected with Australia, and
    • 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.

    In this scenario the advertising supply is a taxable supply as:

    • it has been made for consideration
    • it is made in the course of an enterprise that the Australian resident carries on
    • the supply is connected with Australia as the Australian resident is carrying on its enterprise in Australia
    • the business is registered or required to be registered, and
    • the supply of advertising by an Australian entity to a recipient that is in Australia at the time of the supply is neither GST-free nor input taxed under the GST Act.

    As the provisions of section 9-5 of the GST Act have been satisfied, GST is payable on this supply.

    Scenario 2 - GST-free

    Non-interpretative - straight application of the law

    An advert is placed on a website owned by a resident Australian business, by a non-resident advertiser advertising goods and services.

    The supply of advertising by the Australian business meets the positive limbs of section 9-5 of the GST Act and will be a taxable supply to the extent that it is not GST-free or input taxed.

    The supply of advertising space is not input taxed under any of the provisions in the GST Act. However, section 38-190 of the GST Act provides that in certain circumstances, the supply of things, other than goods or real property, for consumption outside of Australia, are GST-free.

    Item 2 in the table in subsection 38-190(1) of the GST Act states:

    Item

    Topic

    These supplies are GST-free (except to the extent that they are supplies of goods or *real property)

    2

    Supply to *non-resident outside Australia

    a supply that is made to a *non-resident who is not in Australia when the thing supplied is done, and

    • the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with *real property situated in Australia, or
    • the *non-resident acquires the thing in *carrying on the non-resident’s *enterprise, but is not *registered or *required to be registered.

     

    (* is a defined term in section 195-1 of the GST Act)

    In this situation, the supply is therefore GST free under item 2 in the table in subsection 38-190(1) of the GST Act as both paragraphs (a) and (b) of item 2 are satisfied since:

    • the non-resident is not in Australia when the supply is done
    • the supply is not work physically performed on goods in Australia or a supply directly connected with real property in Australia, and
    • the non-resident is not registered or required to be registered for GST.
    Attention

    Only paragraph (a) or (b) needs to be satisfied in order to meet the requirements of item 2.

    End of attention

    For information on the operation of section 38-190 of the GST Act, refer to:

    • GSTR 2003/7 - Goods and services tax: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999
    • GSTR 2003/8 - Goods and services tax: supply of rights for use outside Australia - subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2)
    • GSTR 2004/7 - Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999: when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'? when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'?
    • GSTR 2005/2 - Goods and services tax: supplies of goods and services in the repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia (this replaces GSTR 2003/2)
    • GSTR 2005/6 - Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999
    • GSTR 2007/2 - Goods and services tax: In the application of paragraph (b) of item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 to a supply, when does ‘effective use or enjoyment’ of the supply ‘take place outside Australia’?

    Scenario 3 - Not subject to GST

    For source of ATO view, refer to paragraph 65 of GSTR 2000/31 - Goods and services tax: supplies connected with Australia

    An advert is placed on a website owned by a non-resident business for an Australian resident advertiser advertising goods and services.

    In this scenario the supply (the advertising) is being done by a non-resident enterprise. The provisions of section 9-5 of the GST Act need to be considered to determine if the supply of advertising is a taxable supply.

    You make a taxable supply if:

    • you make the supply for consideration
    • the supply is made in the course or furtherance of an enterprise that you carry on
    • the supply is connected with Australia, and
    • 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 supply is made for consideration and made in the course of the non-resident’s enterprise. Therefore, the supply will be a taxable supply where:

    • the supply is connected with Australia
    • the non-resident enterprise is registered or required to be registered, and
    • the supply is neither GST-free nor input taxed.

    In respect of whether a supply of advertising is connected with Australia, subsection 9-25(5) of the GST Act provides:

    • (5) A supply of anything other than goods or real property is connected with Australia if  
      • the thing is done in Australia
      • the supplier makes the supply through an enterprise that the supplier carries on in Australia, or
      • all of the following apply
       

    neither paragraph (a) or (b) applies in respect of the thing

    the thing is a right or option to acquire another thing

    the supply of the other thing would be connected with Australia.

    Paragraph 65 in goods and services tax ruling 'GSTR 2000/31 – Goods and services tax: supplies connected with Australia' states that if the thing being supplied is a service, the supply of that service is typically 'done' where the service is performed. In this instance the advertising service is not done in Australia. Furthermore, the non-resident does not make the supply through an enterprise that it carries on in Australia, and the supply is not of a right to acquire something that would be connected with Australia. Therefore, the provisions in subsection 9-25(5) of the GST Act are not satisfied and the supply is not connected with Australia.

    As the supply is not connected with Australia, the supply is not a taxable supply for the purposes of section 9-5 of the GST Act. However, Division 84 of the GST Act needs to be considered to determine if the Australian recipient must reverse charge. This has been considered in chapter 4 of the resolved issues, and provided the advertising was for a wholly creditable purpose in this instance it will not be a taxable supply.

    Further information

    For more information, refer to:

    • GSTR 2000/31 – Goods and services tax: supplies connected with Australia
    • A New Tax System (Goods and Services Tax) Act 1999, in particular  
      • Section 9-5
      • Section 9-25
      • Section 38-190
      • Division 84
       
    • Section 8 of A New Tax System (Australian Business Number) Act 1999.
    End of further information
      Last modified: 12 Jun 2012QC 16385