Edited version of private ruling

Authorisation Number: 1011725564040

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Ruling

Subject: GST AND VOUCHER

Question

Can the supply of services by Y to W be treated as if it was not a taxable supply under subsection 100-18(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The supply of services by Y to W cannot be treated as if it was a taxable supply under subsection 100-18(2) of the GST Act.

Relevant facts and circumstances

X is the representative member of Y GST group.

Y is a member of the GST group.

X had applied for a private ruling in its capacity as representative member of Y group in relations to the supply of services made to W by the GST group member Y.

Y has entered into the Agreement with W to sell/distribute a range of third party gift cards.

W offers certain distribution, management and advertising services through the Program.

W acts as an intermediary between retailers who issue gift cards (Originators) and retailers who are alliance partners (Distributors).

The Originators of the gift cards are several entities (Other Entities).

Your letter states that the gift cards are Division 100 vouchers for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The gift card is defined in the Agreement between W and Y.

The gift cards are not valid until they have been activated at the point of sale. Each card has the value stated; it is not re-loadable and can be redeemed for an extensive range of merchandise at the store that has issued them i.e. the originating store.

Y sells the gift cards on behalf of W and receives a commission based on a percentage of the value of the vouchers sold.

Y then pays W for the face value of the gift cards less the agreed commission.

Y charges W its commission at the end of each month and applies GST to that commission. The GST is remitted to the ATO in the monthly BAS.

Y does not issue a tax invoice for the commission. Rather W issues a recipient created tax invoice (RCTI) for the commission charged by Y in accordance with the agreement between Y and W.

As advised, Y does not have a copy of the agreement between W and Other Entities as Y is not privy to the agreement.

However, Y advised that W is the intermediary/distributor of the Other Entities to distribute the card partners gift cards.

Y advised that Y is not liable to pay GST on the supply of the voucher when the voucher is redeemed.

It is Y understanding that Other Entities are ultimately responsible if any problem arises on the redemption of the gift cards. For example, when a person purchases a gift card through Y, that person can only redeem that gift card at the stores across Australia. Accordingly, the Other Entity is ultimately responsible for the redemption and not Y. This is supported by the back of the gift card:

· How to use this card

Present this gift card at any store in Australia. You can select any number of the gifts up to the value of the card, or above the value- in which case you need to make up the difference with an alternate form of payment. The store will then validate the card and process your purchase…

· Terms and Conditions of Use

Treat this card like cash. Defaced, mutilated, altered or stolen cards will not be replaced, refunded or redeemed. This card is: Redeemable for merchandise or services at certain stores in Australia only; Not redeemable for cash and cannot be used for payment of credit or retailer accounts; This card expires 12 months from the date of issue; Will be void and may not be redeemed after expiry date; Cannot be reloaded; is partially redeemable. The store is not obliged to accept the use of this card on a sale of under $X. It is up to you to use the full value before expiry date. Cash will not be given for any unused balance. Unused balance on expiry of this card will not be refunded or credited. If purchase exceeds available card balance, you must make up difference with another payment method. You are liable for all transactions on your card except to the extent to which there has been fraud or negligence by us or any of our employees

In order to simplify the accounting for the commission by way of making the service provided by Y not a taxable supply, Y approached W to enter into an arrangement for the purposes of section 100-18 of the GST Act.

Y has a contractual relationship with W only and does not have any contractual relationship with the originator of the gift cards.

W has advised that it cannot enter into a section 100-18 arrangement with Y as it is not the originator of the gift cards.

W maintains that a section 100-18 arrangement can only apply when the originator of the gift card instigates the process to enter into such an arrangement.

Reasons for decision

Summary

W is not the supplier but only an intermediary/distributor in the distribution chain for the supply of the gift cards. As such, W cannot enter into a section 100-18 GST arrangement with Y. Accordingly, the supply of services by Y to W cannot be treated as if it was a taxable supply under subsection 100-18(2) of the GST Act.

Detailed reasoning

The gift cards in question are treated as face value vouchers under Division 100 of the GST Act. While the supply of such gift cards is not a taxable supply, where a retailer provides services to a distributor in selling the gift cards, the retailer's services to the distributor may be taxable.

Section 9-5 of the 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 it is *GST-free or *input taxed.

(* denotes a defined term under section 195-1 of the GST Act)

In this case, the specimen gift cards from W show that Y supplies the gift cards for a commission. Under such an arrangement, the commission represents consideration for the services Y provides to W in supplying the gift cards to consumers.

In this situation, the supply of service is made for consideration (the commission); it is made in the course of an enterprise that Y caries on; it is done in Australia and therefore is connected with Australia and Y is registered for GST.

There is no provision in the GST Act that the supply is GST-free or input taxed.

Therefore, the supply of services by Y is a taxable supply.

Section 100-18 of the GST Act allows suppliers of Division 100 vouchers and their distributors or retailers to voluntarily enter into an arrangement to simplify the accounting for GST on commissions and similar payments on a supply of a voucher through a distribution chain.

Section 100-18 of the GST Act states:

(1). An entity (the supplier) may, in writing enter into an arrangement with another entity under which the other entity supplies (whether or not as an agent on the supplier's behalf) a *voucher to a third party.

(2). If, under the arrangement, the supplier pays, or is liable to pay, an amount, as a commission or similar payment, to the other entity for the other entity's supply, the supply by the other entity to the supplier, to which the supplier's payment or liability relates, is treated as if it were not a *taxable supply.

(3). This section has effect despite section 9-5 (which is about what are taxable supplies).

Section 100-18 GST arrangement will apply so that where a supplier of a voucher enters into an arrangement with a distributor of the voucher, the supply of commission services is not a taxable supply. That is, any commission or similar payment made or payable to the retailer or distributor will not be for a taxable supply.

This arrangement is only available where a voucher is supplied through a distribution chain and the supplier of the voucher is liable to pay a commission or similar payment for on-supplying the voucher.

Goods and Services Tax Ruling GSTR 2003/5: Vouchers explains section 100-18 arrangement in paragraphs 157 to 158E.

Paragraphs 158C to 158E of GSTR 2003/5 state:

Example 30: Section 100-18 arrangements

158C. Ian and Claire enter into a written arrangement where Ian engages Claire to sell his FVVs to third parties for a commission.

158D. Under this arrangement, Ian makes a supply of the FVV, which is not a taxable supply, to Claire. Claire does not make a creditable acquisition of the FVV from IAN. Claire later makes a supply of the FVV, which is not a taxable supply, to a third party.

158E. Because Ian and Claire have entered into an arrangement that meets the requirements of section 100-18, the supply of services from Claire to Ian, for which the commission is consideration, is treated as if it were not a taxable supply.

The example provided above applies to Ian where Ian, the supplier, engages Claire to sell his FVVs. Claire is directly selling Ian's vouchers to third parties for a commission.

In this case, W is not the supplier of the gift cards. As advised, W is the intermediary between the Originators and the Distributors of the gift cards. Within the distribution chain, W is also a distributor. In turn, Y is also a distributor in the distribution chain. Therefore, a section 100-18 GST arrangement cannot be made between a distributor and another distributor. As such, W cannot enter into a section 100-18 GST arrangement with Y. Accordingly, the supply of services by Y to W cannot be treated as if it was not a taxable supply under subsection 100-18(2) of the GST Act.

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