Edited version of private ruling

Authorisation Number: 1011717041109

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Ruling

Subject: GST and supply of a bonus product

Question 1:

Is the supply of a bonus product a taxable supply?

Advice/Answer:

No. As there is no additional consideration received the supply is not a taxable supply.

Relevant facts and circumstances:

· You are registered for goods and services tax (GST).

· You run promotional campaigns throughout the year as a means of increasing sales and moving stock.

· One promotional campaign used is to provide a free bonus product (Bonus Product) following the purchase of a specified product (Specified Good).

· You sell Specified Goods to a retailer and provide the marketing material advertising the promotion, i.e. a customer will receive a Bonus Product free of charge following the purchase of the Specified Good.

· You are responsible for the promotional activities and the offer to the customer.

· To enter into the promotion the customer (eligible entrant) must:

· purchase the Specified Good from a participating retailer during the designated promotional period; and

· retain the participating retailers receipt of the Specified Good; and

· register their purchase and complete the online form on the your website in full in the manner required. This involves the eligible entrant entering their title, first name, surname, current residential address, serial number, current valid e-mail address, date of purchase and model number, name and location of the Australian participating retailer and credit card information; and

· confirm that they have read and understood the terms and conditions (Terms).

· By providing their credit card details upon registration eligible entrants are authorising you or your agent to deduct an amount for postage and handling from their credit card.

· Following registration, eligible entrants must provide a copy of the purchase receipt or tax invoice indicating their name, address, date of purchase and model number of the Specified Good and details of the participating retailer. This can be provided through the website or by post to the address provided by you.

· The Terms specify that if the advertised Bonus Product is not available a similar product of equal or greater value will be awarded in lieu.

· The Bonus Product is not transferable or exchangeable and cannot be taken as cash.

· You have an agreement with a third party (Service Provider) to validate the customer's eligibility for the Bonus Product and a fee is paid to the service provider for the provision of their services.

· Once the customer has been validated the Service Provider will send an order to you for the Bonus Product and upon receipt of the goods from you the Service Provider sends the Bonus Product to the customer.

· Ownership of the Bonus Product at all times is with you.

· Employees of the promoter, their immediate families, related companies, directors, management and agencies associated with the promotion are ineligible to claim.

Summary:

The supply of the bonus product is not a taxable supply as not all conditions to make the supply taxable have been met.

Detailed reasoning:

Section 9-5 of the A New Tax System (Goods & Services Tax) Act 1999 (GST Act) states:

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

* To find definitions of asterisked terms see the dictionary at section 195-1 of the GST Act

Subsection 9-10(1) of the GST Act states:

Meaning of supply

(1) A supply is any form of supply whatsoever.

Paragraph 33 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9), provides that the term whatsoever, covers all supplies regardless of whether they concern goods or services.

You have submitted that the Promotional Product supplied to a customer is a gift for GST purposes and as such is a supply made by you for no consideration or no additional consideration. Alternatively you are of the view that the initial consideration received by you for the purchase of the Specified Good is consideration for both the Specified Good and Promotional Gift as a packaged deal.

In this case, you will make a supply of the specified Bonus Product to a customer where the customer redeems the offer under the Terms.

In your submission you have stated that you give away a free product "Promotional Gift" to your customers following the purchase of a specified product ("Specified Goods"). Paragraph 119 of Goods and Services Tax Ruling GSTR 2001/6 Goods and Services Tax: non-monetary consideration (GSTR 2001/6) provides that for a supply to be a gift, it must be transferred to the recipient voluntarily. It must not be subject to any contractual obligation and the donor cannot receive an advantage of a material character for the giving of the gift.

You state that you run a number of promotional campaigns throughout the year as means of increasing sales and moving old stock. As a condition of receiving the Bonus Product in this promotional campaign, eligible entrants must purchase a participating product form an Australian participating retailer during the promotional period.

Therefore, the supply of the Bonus Product is not made voluntarily; it is conditional on the purchase of a participating product. Also, as you receive an advantage of a material character, during the promotional period, in that sales are increased and old stock is moved. The supply of the Bonus Product is not considered to be a gift.

Paragraph 107 of GSTR 2006/9 explains the meaning of supply for consideration. It states that under Section 195-1 of the GST Act consideration for supply or acquisition means any consideration within meaning given by section 9-15 of the GST Act, in connection with the supply or acquisition.

Subsection 9-15 (1) of the GST Act States;

(1) Consideration includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Paragraph 108 of GSTR 2006/9 provides that for the supply to be taxable there must be consideration and a sufficient nexus between the supply and consideration.

Paragraph 64 of GSTR 2001/6 further provides that a supply is not subject to GST in Australia unless it is made for consideration. In order for a supply to be considered taxable, there needs to be a nexus between the supply and payment made.

Paragraph 180 of GSTR 2006/9 provides that in order to determine whether payment is consideration and if there is supply for consideration, the nexus between the supply and payment, the true character of the transaction and transactions between the parties needs to be considered.

Paragraph 80 of GSTR 2006/1 provides that for a thing to be treated as payment for a supply, it must have economic value and independent identity as compensation for the making of the supply.

Paragraphs 222 to 246 of GSTR 2006/9 provide that the facts as a whole will determine the nature of the transaction, the entity that makes a supply and the recipient of the supply. An arrangement between parties will be characterised not merely by the description the parties give to the arrangement but by looking at the transactions entered into and the circumstances in which the transactions are made.

In Customs and Excise Commissioners v. Reed Personnel Services Ltd [1995] BVC 222 Laws J said at 229:

There may be cases, generally (perhaps always) where three or more parties are concerned, in which the contract's definition (however exhaustive) of the parties' private law obligations nevertheless neither caters for nor concludes the statutory question, what supplies are made by whom to whom. ...the nature of a VAT supply is to be ascertained from the whole facts of the case.

Consistent with the above approach there is a need to look at the whole facts of the case.

The reason for you conducting this type of promotional campaign is to increase sales and move old stock. You offer a Bonus Product to a customer when they purchase a Specified Good. For both of these products (apart from postage and handling for the Bonus Product) the customer is only required to make consideration once, to the retailer. Both the manufacturer and retailer benefit from this arrangement. The intention is to supply two products to the customer for the price of one. However, in this arrangement each product is supplied by a different supplier.

In this arrangement a number of supplies are made. The first supply occurs when you provide a Specified Good to the retailer. Another occurs when the retailer supplies the same good to the customer. On purchasing the good the customer becomes entitled (subject to the terms and conditions) to another supply between them and you of the Bonus Product. Although part of the same marketing promotion, these are separate supplies

The supply of the Bonus Product is provided by you to the customer through a service provider. Neither the retailer nor the service provider has title or ownership of the Bonus Product; this rests with you.

When the customer registers for the Bonus product, they provide amongst other information credit card information. By entering their credit card details they are authorising the promoter or its agent to deduct an amount for postage and handling. If the credit card details are rejected the claim will not be valid. Based on the facts, this payment is considered to be for a supply of postage and handling not the Bonus Product.

When the customer registers for the Bonus Product no additional consideration, either monetary or non-monetary is made for that product. To establish consideration there must be a nexus between the supply and payment. Considering the arrangement as a whole, consideration was made by the customer when the Specified Good was purchased from the retailer. The intention of the arrangement is that the customer receives the Bonus Product free of charge.

As there is no additional payment, the nexus between the supply and payment cannot be made to establish consideration. As such the supply of the Bonus Product has been made without consideration and consequently not all the conditions are met for the supply to be taxable.

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