Edited version of private ruling

Authorisation Number: 1011837293469

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Ruling

Subject: GST and supply of vouchers

Question

Can the supply of services you make to B be treated as if it were a non-taxable supply under subsection 100-18(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply of services you make to B can be treated as if it were a non-taxable supply under subsection 100-18(2) of the GST Act.

Relevant facts and circumstances

You have entered into an agreement (Agreement) with B to sell/distribute a range of third party gift cards. B offers certain distribution, management and advertising services through its program (Program). B acts as an intermediary between retailers who issue gift cards (Originators) and retailers who are alliance partners (Distributors).

You state that the gift cards are Division 100 vouchers for the purposes of the GST Act. The gift card is defined in the Agreement. 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 it.

You sell the gift cards on behalf of B and receive a commission based on a percentage of the value of the vouchers sold. You then pay B for the face value of the gift cards less the agreed commission. You charge B its commission at the end of each month and apply GST to that commission. The GST is remitted to the ATO in the monthly BAS. You do not issue a tax invoice for the commission, B issues a recipient created tax invoice (RCTI) for the commission you charge in accordance with the Agreement.

You are not privy to any agreements between B and the Originators. However, you advised that B is authorized by each of the Originators to distribute the card partners' gift cards.

In order to simplify the accounting for the commission by way of making the service provided by you not a taxable supply, you approached B to enter into an agreement for the purposes of section 100-18 of the GST Act. You advise that B has advised that it cannot enter into a section 100-18 agreement with you as it is not the Originator of the gift cards. B maintains that a section 100-18 agreement can only apply when the Originator of the gift card instigates the process to enter into such an agreement

Reasons for decision

Summary

The supply made by you to B has the requisite attributes to be subject to an agreement under section 100-18 of the GST Act.

Detailed reasoning

The gift cards in question are accepted for the purpose of this advice to be vouchers that may be supplied as non-taxable supplies under section 100-5 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.

In this case, you supply the gift cards in return for a commission. Under such an arrangement, the commission represents consideration for the services you provide to B. Your supply of services is made in the course of an enterprise that you carry on; your supply is connected with Australia as it is done in Australia and you are 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 you make to B meets the requirements of 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).

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

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.

It does not matter how many intermediaries are in a voucher distribution chain, section 100-18 of the GST Act can apply at each link. The Goods and Services Tax Advice GSTA TPP 019 notes that a face value voucher may be supplied through various entities before it comes into the possession of the holder who uses it to obtain supplies. Each supply of a face value voucher between intermediate entities is a supply to which section 100-5 of the GST Act applies.

It follows that if the voucher provision of GST law that allows supplies to be treated as non-taxable supplies may be applied at various stages in a distribution chain so to can the complementary GST provision for commissions for on-selling the vouchers.

In your case, B is the supplier of the gift cards. You are the recipient of B's supply and may enter into a section 100-18 arrangement with B.

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