Edited version of your written advice

Authorisation Number: 1012764623530

Ruling

Subject: GST and supplies made by a party consultant.

Question

Are you liable for the goods and services tax (GST) on the commission you receive or on the sale you make when taking orders for products at parties you attend and delivering the ordered products to the customers?

Advice

Based on the information received, you are liable for GST on the sale you make when taking orders for products at parties you attend and delivering the ordered products to the customers as you are supplying the products as part as your business activity.

Relevant fact

You are registered for GST and party consultant is your only source of income. You have agreed to become a party consultant (consultant) with Company X under a Consultant Agreement. We have received a copy of this agreement.

You advised you go out to do parties for the products owns by Company X. You do not carry stock. You simply take orders from customers along with their payment details. You then lodge orders online along with their preferred payment method. The products are sent to you to distribute to the customers.

You further stated that your sales are over $75,000 per annum. You do not collect GST from any customer. The only GST you collect is what is paid to you on your commission by Company X.

You are of the view that, as a direct seller the sales you made are not your sales and you are merely an agent that facilitates Company X's sales. Company X pays you a commission for the service you are providing to it.

Consultant Agreement

The Consultant Agreement is the agreement which a new consultant will have with Company X in order to become a party consultant. In the agreement Company X is referred as the 'Company' and the new consultant as 'consultant'.

The Consultant Agreement provides the following amongst other things:

• The consultant is an independent contractor in business on their own account and is not and will not hold out to be otherwise and the consultant is not authorised to bind the Company in any way.

• The consultant will bear all costs and expenses incurred in connection with the activities and indemnifies and keeps the Company indemnified against all actions, proceedings, liabilities, claims, damages, losses, costs and expenses arising out or in any way relating to the activities, except such as related to the inherent quality and fitness of the company's products (the products) for which the Company is responsible.

• The consultant may at their own expense engage or employ others to conduct or assist in conducting the activities as she may from time to time think fit, provided that any such persons are of a character and appearance which will not cause the reputation of the Company to suffer. Any appointment of this nature shall not detract the consultant's requirement to comply with her obligations under this agreement.

• The consultant agrees to sell the products in such manner as they deem fit, although the Company has found that success is best assured by following the suggestions made on the …..

• The Company will sell the products to the consultant at wholesale prices set by the Company which include GST and any volume discounts. The consultant may sell the products at prices determined solely by the consultant although the Company may produce merchandising and other materials specifying a recommended retail price. Acceptance by the Company of an order is always subject to availability.

• When sending an order for products to the Company, the consultant will also send payment in a form acceptable to the Company covering the wholesale price or other agreed price of the products ordered within five days of receiving the order from a customer for resale.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 153

Reasons for decision

From the Consultant Agreement you agree you are an independent contractor in business on your own account.

However, you are of the view you are acting on behalf Company X when direct selling Company X's products to customers and consider you should be liable for GST on the commission received from Company X and not on the direct sales you make to the customers.

Before we consider on what consideration you are liable for GST, we need to determine whether you are acting as an agent of Company X or you are acting in your own right when selling the products to customers.

Are you acting as an agent for Company X?

Goods and Services Tax Ruling GSTR 2000/37 (available from the legal database of www.ato.gov.au) provides guidance on the application of agency to GST law.

Paragraph 11 of GSTR 2000/37 states that for commercial law purposes, an agent is a person who is authorised, either expressly or implied, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties. In this instance the principal is bound by the acts of an agent as a result of the authority given to the agent.

Paragraph 28 of GSTR 2000/37 provides the following factors that may show that an entity is an agent under an agency relationship, although no single factor by itself is determinative:

• Any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party.

• Any exercise of the authority that you are given to enter into legal relations with a third party;

• Whether you bear any significant commercial risk;

• Whether you act in your own name;

• Whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

• Whether you decide the price of things that you might sell to third parties.

Based on the information received and after considering the above factors, we determine there is no agency relationship between you and Company X for the following reasons:

• Under the Consultant Agreement you agree to be an independent contractor in business on your own account and are authorised to resell Company X's products. Further, you are not authorised to bind Company X in any way and cannot bind Company X to any obligation.

• You are free to conduct your business according to your own methods and will bear all costs and expenses incurred in the direct selling activities.

• Company X will sell the products to you at wholesale prices set by them which include GST and any volume discounts. You may sell the products at prices solely determined by you though Company X may produce merchandising and other materials specifying a recommended retail price.

Accordingly, you are not acting as an agent of Company X when you take orders from customers and deliver the ordered products to them. You are reselling Company X's products as part of your business activity.

You, therefore should account GST on the total amount received from the customers when taking their orders since your supply of the products to the customers is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Further you can claim the GST paid on the purchases you made and related to your business activity provided you hold valid tax invoices.

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