Edited version of private ruling

Authorisation Number: 1011603396777

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Ruling

Subject: GST and marketing services and sponsorship

Question

Is the sponsorship fee received in the form of discounts received on products or in the form of products received free of charge in return for the supply of your marketing services subject to Goods and Services Tax (GST)?

Answer

Yes, the sponsorship fee received in the form of discounts received on products or in the form of products received free of charge in return for the supply of your marketing services is subject to GST.

Relevant facts and circumstances

You are a sole trader registered for GST and operate a leasing enterprise.

You have also carried out marketing services under agreements.

You purchased products under agreements with a retailer who agreed that the products will be provided to you for a discount in return for their use by you in providing marketing and advertising services.

Each of the manufacturers supply products under an agreement managed by individual retailers.

A new agreement is established each year in order to promote new products. A process is undertaken which considers sponsorship and marketing proposals to determine sponsorships and sponsorships is offered in return for services by way of marketing and advertising.

If you are selected then you would receive a product under the agreement for a discount and other ongoing benefits in the form of discounts received on other products or in the form of other products received free of charge in return in return for your marketing and advertising services. This will involve you promoting the retailer, the product brand and other complementary products.

You have provided copies of the tax invoices which show that the products were purchased and a discount has been provided to you.

In addition to the discounts received on the products all "complementary products" are provided at cost or free of charge on an ongoing basis.

Discounts received have the feature of repetition and regularity.

Each year you will put forward a sponsorship and marketing proposal for consideration.

Reasons for decision

Summary

Sponsorship fees whether in monetary or non monetary form are usually payment for services, such as advertising or promotion, and will be subject to GST if the sponsored entity is registered for GST.

Detailed reasoning

GST is payable on taxable supplies. You make a taxable supply if all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met. Section 9-5 of the GST Act states:

You make a taxable supply if:

· you make the supply for ^*consideration; and

· the supply is made in the course or furtherance of an ^*enterprise that you ^*carry on; and

· 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.

(*denotes a term defined in the GST Act)

Under section 9-5 of the GST Act, a taxable supply occurs if, among other conditions, there is a supply, there is consideration and there is a nexus between the supply and the consideration. The consideration has to be in connection with, in response to or for the inducement of the supply.

According to section 9-10 of the GST Act, a supply is any form of supply whatsoever. A supply includes a supply of services; a creation, grant, transfer, assignment or surrender of any right; and an entry into, or release from, an obligation to do anything.

A supply is something that passes from one entity to another. The supply may be one of particular goods, services or something else that is reflected in an agreement by one party to do something for another. This view is contained in Goods and Services Tax Ruling GSTR 2006/9 titled 'supplies' which sets out a number of propositions for characterising and analysing supplies.

Consideration is defined in section 9-15 of the GST Act to include any payment, or any act or forbearance in connection with the supply of something. Therefore consideration is not limited to the payment of money. Paragraph 12 of Goods and Services Tax Ruling GSTR 2001/6 which discusses non monetary consideration supports this view and provides that it includes a payment in a non-monetary or in an 'in kind' form, such as:·

· providing goods;

· granting a right or performing a service (an act); and

· entering into an obligation, for example to refrain from selling a particular product (a forbearance).

Under section 9-75 of the GST Act, the value of a taxable supply, where the consideration is not expressed in an amount of money, is based on the GST inclusive market value of the consideration.

Where there is a supply and something is received from the recipient in return for the supply, then there is a supply for consideration. The something in return may be a monetary payment, or non monetary. There must be some outcome that flows back to the supplier.

However, whether there is a nexus between the supply and the consideration will depend on the facts of the particular circumstance.

Paragraph 71 of GSTR 2001/6 provides that:

71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Further paragraph 81 and 82 of GSTR 2001/6 provide as follows:

81. For a thing to be treated as a payment for a supply, it must have economic value and independent identity provided as compensation for the making of the supply. That is, it must be capable of being valued and be a thing that an acquirer would usually or commercially pay money to acquire. Whether this requirement is satisfied will usually be demonstrated by the parties to an arrangement assigning a specific or separate value to the thing. However, the assigning of a value by the parties is not necessary for a thing to have economic value.

82. Whether a payment is consideration for a supply depends on the true character of the transaction. Consideration for a supply is something the supplier receives for making the supply. Although a non-monetary payment (and acts or forbearances) can form consideration, the character of the transaction will determine whether it forms part of the consideration received by the supplier for making the supply.

Based on the information that you have provided, you are making a supply of services under section 9-10 of the GST Act. The services that you are to provide are to promote the retailer, the product brand and other complementary products. In exchange for this marketing and advertising service you will be given a discount on a product as well as other products will be given to you at a discount or free of charge on an ongoing basis. It is considered that this payment for your supply has economic value and independent identity which has been provided as compensation for the making of your supply of marketing and advertising services. As such paragraph 9-5(a) of the GST Act is satisfied as the supply is for consideration.

Paragraph 9-5(b) of the GST Act is also satisfied as you are considered to be carrying on an enterprise of providing marketing services as a sole trader and your supply of the advertising and marketing services under the agreements is in the course and furtherance of your marketing services enterprise that you carry on as a sole trader.

In addition, paragraphs 9-5(c) and 9-5(d) of the GST Act are satisfied as the supply is connected with Australia as you are performing your services in Australia and you are registered for GST as a sole trader. You advised that you are registered for GST for a leasing enterprise. As you are registered as a sole trader and are now carrying on additional activities as a sole trader carrying out marketing services enterprise then you are considered to be registered for GST under the same ABN for your leasing enterprise.

Furthermore, in your case there are no provisions in the GST Act which would make your supply of marketing services GST-free or input taxed. As all the requirements of section 9-5 of the GST Act have been met then you are making a taxable supply when you provide your marketing services which will be subject to GST. As such the sponsorship fee received under the agreement in the form of discounts received on products or in the form of products received free of charge in return for the supply of your marketing services is subject to GST.

GSTR 2006/9 and GSTR 2001/6 are available at from the Australian Taxation Office (ATO) website.

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