Edited version of private advice

Authorisation Number: 1012628861647

Ruling

Subject: GST and online sale of software and conference tickets

Question 1

Is goods and services tax (GST) applicable to the supply of online software when you market and sell these products online to potential customers?

Answer

Based on the information received, you make a supply of software to Australian residents and non-resident individuals when you receive payments from the individuals for the sale of these products.

Your supply of software to Australian individuals is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The payments (including the profits you retain for the sale of the software) are therefore consideration for taxable supplies that you have made. In this instance you are liable for GST on the payments you receive from the Australian individuals for these supplies.

Your supply of software to non-resident individuals is GST-free under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act. The payments which include the profits you retain for the sale of the software are therefore consideration for GST-free supplies that you have made. In this instance, you are not liable for GST on the payments you receive from the non-resident customers for these supplies.

Question 2

Is GST applicable to the supply of conference tickets when you market and sell these products online to potential customers?

Answer

Based on the information received, your supply of conference tickets to individuals who are residents and non-residents of Australia is GST-free under item 4 in the table in subsection 38-190(1) of the GST Act when you sell the conference tickets to attend conferences outside Australia.

The payments which include the profits you retain for the sale of the conference tickets are therefore consideration for GST-free supplies that you have made. In this instance, you are not liable for GST on the payments you receive from the Australian residents and non-resident individuals for these supplies.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian company who is registered for GST.

You advised you have an agreement with a non-resident entity. You act as a distributor for the products that the non-resident entity produces and you market and attract customers. The customer then places an order online and enters into an agreement with the non-resident entity. The customers pay you directly for their purchase. You pay the wholesale price to the non-resident entity and retain part of the funds as your profit. The non-resident entity, then distributes the product directly to the customers.

You have given us a copy of the agreement you have with the non-resident entity and are now seeking a GST private ruling on whether the GST is applicable on the products you are selling and on the profit you receive from the sale.

You provided the following information for the GST ruling:

• You supply online software products for the non-resident entity at a set price. You also supply conference tickets, for conferences which are held outside Australia.

• You sell and collect the monies. In turn you send your payment to the non-resident entity for the wholesale amount. The non-resident entity supplies (fulfils) the purchase orders. You are a reseller of the products. The profit you make (commission) is the wholesale profit.

• The customers purchasing these products from you are individuals. The products are sold to people residing both in Australia and overseas.

• You do not bear any commercial risk as credit is not extended in the sale/resale of these products. The products must be paid in full prior to fulfilment of the order.

• The entire marketing and selling process is done electronically. The non-resident entity issues the invoice listing you (the distributor) as the seller.

• Once a customer has purchased a product you become their distributor (seller). Repeat/additional product purchases are made through you. Supply/fulfilment of product orders and customer support is handled by the non-resident entity.

• Any contact or involvement with a customer on your part after purchase would be for the purpose of soliciting additional sales, unless the customer also enrolled as a distributor at the time of purchase to take advantage of commission incentives.

• In the event that a customer also becomes a distributor, you would have continued contact with them as they would become a member of your sales organisation. All continued involvement with the customer would be for the purpose of business management or soliciting repeat sales.

• The conferences are held outside Australia.

• The term 'ticket' for the conferences is a pseudonym. No tangible ticket is supplied. The purchase of a conference ticket is simply payment to attend a conference event held annually. The purchase of an event ticket grants the purchaser admission to the seminar/conference. All travel and accommodation are purchased by the attendee at their expense and discretion.

• Customers purchase the tickets via the non-resident entity's website or your replicated website. Payment of the order is the same as purchasing the other products. Customers pay you and you forward the wholesale amount to the non-resident entity. The non-resident entity provides access to the event and handles all registration and other details.

• The supply of the software products includes online support. The online support is provided via the non-resident entity from outside Australia.

• Customers are required to contact the non-resident entity with all enquiries regarding support, feedback, product quality, or any other product related question. However, as the seller you are responsible for supplying any refund in the event of cancellation as per the terms of sale. In the event of a refund, the non-resident entity would refund you the wholesale portion and you would supply the refund including the commission portion to the customer.

• The non-resident entity is not registered for GST and is not required to be registered for GST. They do not carry on any business in Australia aside from the contracted independent resellers who may reside or sell in Australia.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 38-190 and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decisions

Characterisation of supply

Before considering the GST status of the payments you receive from the sale of your software that are delivered online to the customers by the non-resident entity, we need to determine the character of the supply you are making in return for these payments and to whom the supply is made.

A supply of software can be characterised as a supply of a right, a supply of software (as intangible property), a supply of a service or a supply of goods.

In regard to software being supplied in an intangible form, for example by downloading it from the Internet, our view is the supply of the software in this form is not a supply of goods as there is no tangible property supplied.

Further, we consider that where the software downloaded is standard or 'off-the-shelf' software, what is supplied is the computer program, subject to restrictions on its use. If the essential nature of the transaction is the supply of the computer program, subject to restrictions on its use, the fact that a 'licence' relating to the supply of the software is couched in terms of a licence 'to use' the software will not in itself mean that the substance of the supply is a supply of a right to use the software.

For more information on the characterisation of software please refer to Goods and Services Tax Ruling GSTR 2003/8 which is available at www.ato.gov.au

From the facts given, your supply of software is not developed for a specific customer where the customer owns the copyright. In this instance, we consider when you sell these courses you are making a supply of software (as intangible property) and not a supply of a right to the customers.

Where a supply contains a dominant part and the supply also includes something that is integral, ancillary or incidental, the supply is a composite supply. The composite supply is treated as a single supply (for more information on composite supply refer to paragraphs 17, 40-44 and 58-59A of Goods and Services Tax Ruling GSTR 2001/8 available at www.ato.gov.au)

Based on the information received, we consider you are making a supply of software in your own right to individuals who are located worldwide and the consideration for these supplies is the retail price of the products which you collect from them.

The advertising and marketing of the software are merely integral or incidental to the supplies of the software to the individuals as the advertising and marketing are necessary and contribute to your sale of the software to individuals worldwide.

The next step is to determine the GST status of your supplies of software to the individuals worldwide.

GST status of software sold worldwide

GST is payable on a taxable supply. To be a taxable supply, the supply must meet the conditions under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This section provides that 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 for GST.

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

Supply to Australian individuals

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you sell the software and conference tickets as:

(a) you make the supply for consideration; and

(b) the supply is made in the course of an enterprise (business) that you carry on;

(c) the supply of the software is connected with Australia as you are making the supply through a business that you carry on in Australia since you act under your name when selling the software and issuing the invoice to the customers; and

(d) you are registered for GST.

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

Your supply of software to the Australian individuals is neither input taxed nor GST-free under any provision in the GST Act. Accordingly, based on the information received, your supply of software to Australian resident individuals is a taxable supply under section 9-5 of the GST Act and you are liable to pay GST on the payments you received from the individuals.

Supply to non-resident individuals

Your supply to the non-resident individuals satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as you receive consideration for the supply and the supply is made through a business that you carry on. Further the supply is connected with Australia as it is made through a business that you carry on in Australia and you are registered for GST.

However your supply of software is not a taxable supply to the extent that it is GST-free or input taxed.

Your supply of software is not input taxed under any provision in the GST Act. The next step is to consider whether the supply is GST-free.

GST-free

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free.

Of particular relevance to the supply of software is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2). Item 2 appears as follows:

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

For a supply to be within the scope of Item 2, the supply must be made to a non-resident who is not in Australia when the thing supplied is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply.

Not in Australia in relation to the supply

In the case of supplies made to an individual, we consider the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done.

An individual is in Australia if that individual is physically in Australia. An individual is in Australia in relation to the supply if the individual is involved with the supply while in Australia.

A non-resident individual is in Australia in relation to the supply if the non-resident individual is involved with the supply while in Australia. A non-resident individual is involved with the supply where the non-resident is in contact with the supplier while in Australia and that contact is not minor (for example courtesy call or checking on the progress of the supply).

If a non-resident individual is in Australia for a purpose that is not related to the supply, for example the individual is on holiday in Australia and has no contact with the supplier or only has minor contact, the non-resident individual is not considered to be involved with the supply and is therefore not in Australia in relation to the supply.

Application of facts to item 2

From the facts given, you supply the software to non-resident individuals who are not in Australia at the time of supply. In this instance your supply of software is GST-free under paragraph (a) of Item 2 as:

• the individual is a non-resident and is not in Australia in relation to the supply when the supply is made; and

• the supply is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, your supply of software may also be GST-free under paragraph (b) of Item 2 if the individuals acquire your software for their business purposes and are not registered or required to be registered for GST.

Subsection 38-190(3) of the GST Act

However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:

• it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and

• the supply is provided or the agreement requires it to be provided, to another entity in Australia.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable as the non-resident individuals are not requesting you to provide your supply of software to another entity in Australia.

Accordingly, your supply of software to the non-resident individuals is GST-free under paragraph (a) of item 2.

For more information on Item 2 and subsection 38-190(3) of the GST Act please refer to the Goods and Services Tax Rulings GSTR 2003/7, 2004/7 and 2005/6 which are available at www.ato.gov.au

Summary

Based on the information received, your supply of software to Australian individuals is a taxable supply under section 9-5 of the GST Act. You are liable for GST on the payments you receive from the Australian individuals for these supplies.

Further based on the information received, your supply of software to non-resident individuals is GST-free under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act. You are not liable for GST on the payments you receive from the non-resident individuals for these supplies.

Question 2

Detailed reasoning

Characterisation of supply

A supply of a conference ticket can be characterised either as a supply of a right or a supply of a service for GST purposes.

From the information received, when you sell conference tickets to individuals worldwide, you are supplying the individuals with a right to attend the conference as the individuals will have to register online for the upcoming event. In this instance you are making a supply of a right to attend the conference when selling the conference tickets to the individuals and receive payments from them.

The advertising and marketing of the conference tickets are merely integral or incidental to your supply of the right to attend the conference which you make to the individuals as the advertising and marketing are necessary and contribute to your sale of the conference tickets to the individuals worldwide.

The next step is to determine the GST status of your supply of the right to attend the conference when selling the conference tickets to the individuals worldwide.

GST status of supply of right to attend a conference

GST is payable on a taxable supply. To be a taxable supply, the supply must meet the conditions under section 9-5 of the GST Act (refer to question 1 for more information on section 9-5).

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply the right to attend a conference to individuals worldwide as:

(a) you make the supply for consideration; and

(b) the supply is made in the course of an enterprise (business) that you carry on;

(c) the supply of the right to attend a conference is connected with Australia as you are making the supply through a business that you carry on in Australia since you act under your name when selling the conference tickets and issuing the invoice to the individuals; and

(d) you are registered for GST.

However, the supply of the right to attend a conference is not a taxable supply to the extent that it is GST-free or input taxed.

Your supply of the right to attend a conference is not input taxed under any provision in the GST Act. The next step is to consider whether the supply is GST-free.

GST-free

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free.

Of particular relevance to the supply of a right to attend a conference is item 4 in the table in subsection 38-190(1) of the GST Act (Item 4).

Item 4 appears as follows:

Applying of facts to item 4

When you supply the right to attend a conference to Australian individuals by selling the conference tickets to them, your supply of the right to attend the conference satisfies paragraph (a) of item 4 as the rights to attend the conference are for use outside Australia since the conference is held outside Australia.

When you supply the right to attend a conference to non-resident individuals by selling the conference tickets to them, your supply of the right to attend the conference satisfies paragraphs (a) and (b) of item 4 as:

• the rights to attend the conference are for use outside Australia;

• the individuals are not Australian residents and they are outside Australia when the supply is done.

Summary

Based on the information received, your supply of the right to attend a conference to individuals who are residents and non-residents of Australia is GST-free under item 4 in the table in subsection 38-190(1) of the GST Act. You are not liable for GST on the payments you receive from the resident and non-resident individuals when you sell the conference tickets to them.

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