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Edited version of your written advice
Authorisation Number: 1012773054647
Ruling
Subject: GST and commission for overseas sales
Question 1
Does X make a creditable acquisition when it pays commission for the agent's GST-free sales of X's software?
Answer
Yes.
Relevant facts and circumstances
X is a manufacturer of software. The software is sold by agent/s to overseas customers. The sales do not attract GST. The customer pays the agent; the agent passes the proceeds of the sale, less commission to X.
The agent is based in Australia and registered for GST.
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 9-25
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
Reasons for decision
Summary
X does make a creditable acquisition when it pays commission for the agent's GST-free sales of X's software.
Detailed reasoning
X is entitled to input tax credits on its creditable acquisitions, a term defined in section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable to provide, *consideration for the supply; and
(d) you are *registered, or *required to be registered.
Pertinent to X's situation is paragraph (b) of the definition; the agent's supply to X must be a taxable supply.
Under the arrangements outlined, two distinct supplies occur; X makes a supply of software to its customer and the agent makes a supply of services to X. X is aware of and accepts that the sale of software to the overseas customer is a GST-free supply. The agent's supply to X will be a taxable supply as it meets the requirements of section 9-5 of the GST Act:
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.
The agent's supply to X is:
• made in return for commission;
• made in the furtherance of the agent's enterprise; and
• connected with Australia as the agent is based in Australia.
Further, the agent is registered for GST. There is no GST-free or input taxed provision in the GST Act that would make the agent's supply to X a GST-free supply. The travel agent's GST-free commission example cited in X's application is based on a specific GST-free provision for travel agents, section 38-360 of the GST Act.
Other agents acting for Australian principals in making overseas sales are governed by the general GST principles; this is best illustrated in the opening paragraph of example 11A in the Goods and Services Tax Ruling GSTR 2000/37 which deals with agency:
Example 11A
83C. Adam's Health Products (AHP) uses an intermediary, Lauren's of Korinda (LK), to sell its health equipment. LK, on behalf of AHP, supplies Helen with a wheelchair for $1,300, which is a GST-free supply. LK receives a GST inclusive commission of $143 for its intermediary services. This GST inclusive amount represents the amount AHP pays or is liable to pay LK for its intermediary services.
The rest of example 11A has been omitted here as it deals with agreements made under Subdivision 153-B of the GST Act which is not applicable in X's case, however the preamble illustrates that agent's commissions can be taxable under section 9-5 of the GST Act despite the underlying sale being a GST-free supply.
Alternatively where an agent for X is based overseas with no Australian connection and is not registered or required to be registered for GST, it would not charge X GST for its services in securing overseas sales of software.
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