ATO Interpretative Decision

ATO ID 2004/232

Goods and Services Tax

• With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it recommends another company's products, for which it receives a commission in the form of a rebate?

Decision

Yes, the entity is making a taxable supply under section 9-5 of the GST Act, when it recommends another company's products, for which it receives a commission in the form of a rebate.

Facts

The entity is a company. The entity has entered into a written agreement with another company, whereby the entity has agreed to recommend the other company's products to its customers. The entity also purchases products from the other company.

In return for providing recommendations, the entity receives a commission in the form of a rebate on products that it purchases from the other company. Under the terms of the agreement the rebate is calculated based on the amount of sales that the other company makes to the entity's customers.

The entity makes the recommendations of the other company's products in the course of carrying on its enterprise in Australia and is registered for goods and services tax (GST).

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•

it makes a supply for consideration

•

the supply is made in the course or furtherance of an enterprise that it carries on

•

the supply is connected with Australia, and

•

the entity is registered or required to be registered for GST.

However, a supply is not taxable to the extent that it is GST-free or input taxed.

Section 9-10 of the GST Act defines 'supply' to mean any form of supply whatsoever. Paragraph 9-10(2)(b) of the GST Act states that a supply of services is a supply. Under the agreement the entity recommends the other company's products to its customers. When the entity makes these recommendations, the entity is providing a service. The supply is the entity's entry into and fulfilment of the obligation to participate in the promotion and recommendation of another company's products. The entity is making a supply as defined in subparagraph 9-10(2)(b) of the GST Act.

'Consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance, in connection with, in response to, or for the inducement of a supply of anything. Under the agreement the entity receives a commission in the form of a rebate on products that it purchases from the other company. The rebate is calculated based on the amount of sales the other company makes as a result of the entity's recommendations. This is to be distinguished from a rebate that changes the consideration for a previous supply and results in an adjustment event as explained in paragraph 24 of Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events which provided:

Under their terms of trade, suppliers may pay rebates to customers who reach certain levels of purchases. The rebates are typically expressed as a percentage of the purchases made in a particular period. A payment of this type is regarded as a reduction in the consideration for the relevant purchases and so is an adjustment event.

The rebate the entity receives is consideration for the supply of services the entity makes when it recommends the other company's products. It is not a reduction in consideration for the products that the entity buys from the other company, these are separate and distinct supplies.

The rebate is given in connection with the entity's supply of the recommendation services and as such, is consideration for the entity's supply. The entity is making a supply for consideration and the first requirement in section 9-5 of the GST Act is satisfied.

The entity makes the supply in the course of carrying on its enterprise in Australia and is registered for GST satisfying the other positive requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it recommends the use of another company's products, for which it receives a commission in the form of a rebate.

Amendment History

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-10
   section 9-10(2)(b)
   subsection 9-15(1)
   Division 38
   Division 40

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2000/19

Keywords
Goods and services tax
GST supplies & acquisitions
GST consideration
GST supply
Taxable supply

Siebel/TDMS Reference Number:  3113438

Business Line:  Indirect Tax

Date of publication:  19 March 2004

ISSN: 1445-2782