ATO Interpretative Decision
ATO ID 2004/673
Goods and Services Tax
GST and 'gift' supplied to a party hostFOI status: may be released
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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 The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts.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 ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a direct marketer, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a 'gift' to a party host?
Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it supplies a 'gift' to a party host.
Facts
The entity is a direct marketer. The entity sells its products to an independent sales representative.
The representative subsequently sells these products to people through party plan arrangements or home demonstrations.
The representative attends the home of a person (the host) for the purpose of demonstrating and selling the products. It is customary for the entity to supply the host with a reward for hosting the party. The 'gift' is given to the host by the representative, on behalf of the entity.
The host does not carry on an enterprise and is not registered or required to be registered for goods and services tax (GST).
The entity is registered for GST. The supply of the 'gift' is made in the course of an enterprise carried on by the entity and is connected with Australia.
Reasons for Decision
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
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- it makes the supply for consideration
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- the supply is made in the course or furtherance of an enterprise that it carries on
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- the supply is connected with Australia, and
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- the entity is registered or required to be registered for GST.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
To satisfy the first requirement of section 9-5 of the GST Act, an entity must make a 'supply' for 'consideration'. Paragraph 9-10(2)(b) of the GST Act provides that for GST purposes, the term 'supply' includes a supply of goods. The entity supplies a 'gift' to the host and is, therefore, making a supply as per paragraph 9-10(2)(b) of the GST Act.
Subsection 9-15(1) of the GST Act provides that, for GST purposes, the term 'consideration' includes any payment, act or forbearance, in connection with, in response to or for the inducement of the supply of anything. Therefore, it is not necessary for consideration to be in a monetary form.
As the host does not make a monetary payment to the entity, it is necessary to determine whether the host provides consideration in the form of an act in connection with, in response to, or for the inducement of the entity's supply of the 'gift'.
As a result of the sales made through the party plan arrangements or home demonstrations, the representative purchases replacement products from the entity. Therefore, the entity depends on these parties or home demonstrations being held for the regular sales of its products to the representative.
The entity provides the 'gift' to reward the host for holding a party or home demonstration. This, in turn, encourages other people to hold a party or home demonstration, whereby increasing the sales of the entity's products to the representative.
The supply of the 'gift' is a reward that is conditional on the host holding the party. As such, there is a direct connection between the supply of the 'gift' and the host's act of holding the party or home demonstration. Therefore the act of holding the party or home demonstration is consideration for the purposes of subsection 9-15(1) of the GST Act.
The entity makes the supply of the 'gift' for consideration. The supply is made in the course of an enterprise carried on by the entity and is connected with Australia. In addition, the entity is registered for GST. 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 supplies a 'gift' to a host.
Note: section 9-75 of the GST Act requires that the entity's liability to GST on the supply of the 'gift' is calculated by reference to the GST inclusive market value of the consideration. Goods and Services Tax Ruling GSTR 2001/6 provides guidance on non-monetary consideration and includes examples of reasonable methods for determining market value.
Date of decision: 26 June 2003
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
paragraph 9-10(2)(b)
subsection 9-15(1)
Division 38
Division 40
Related Public Rulings (including Determinations)
GSTR 2000/11
Keywords
Goods and services tax
GST supplies & acquisitions
GST consideration
GST supply
Taxable supply
ISSN: 1445-2782