Edited version of your written advice

Authorisation Number: 1051384913778

Date of advice: 13 June 2018

Ruling

Subject: Goods and services tax (GST) and sale of points that are redeemable for credit

Question

Is GST payable by you on the sale of points?

Answer

No.

Relevant facts and circumstances

You are registered for Australian GST.

You are a resident of Australia.

X is a non-resident company based overseas. X is not registered for Australian GST.

X sells points as principal to Australian customers (end users). Points are redeemable for credit with any one of a large range of digital product creators (both Australian and overseas). Credit is redeemable for a large range of digital products.

The end users pay money for the points. An end user goes though the X website, which is an overseas website, to purchase points. X generates codes (unique pin numbers, which you refer to verbally as PINs A) that link to given points. The points can be redeemed through the X website or the digital product creator’s website.

End users receive a receipt when they buy points. The receipt states a PIN number (which you refer to verbally as PIN A). The PIN number corresponds to the value of the points purchased. The receipt states the monetary value of the points. The end user can obtain credit worth up to the stated monetary value on the receipt. The end user enters the PIN number into a digital product creator’s or X’s website in order to redeem the points for credit. The receipt has no further use. The points cannot be reloaded with value.

X contracted you to perform the service of working with retailers such as Y, with which you have agreements, so that the retailer distributes points on behalf of X, to end users. You receive a commission from X for your service, which is a set percentage of the value of points that have been redeemed.

A retailer’s IT team has to integrate with X’s IT system so that all of the PINs are directly sent out and converted into points through a backend automated system.

You collect the points revenue on behalf of X and you forward it to X after the points have been redeemed, less your commission.

You pay a commission to the retailers for their service of distributing points.

You do not have permanent staff located in Australia. Your staff are based in an overseas country. You do not have a customer service team or IT team. You do not have a website or electronic distribution platform through which you sell points.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 57-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-55(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-65

A New Tax System (Goods and Services Tax) Act 1999 subsection 84-70

A New Tax System (Goods and Services Tax) Act 1999 Division 100

Reasons for decision

Summary

GST is not payable by you on the sale of points, as the associated receipt would be a face value voucher under subsection 100-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

Under section 57-5 of the GST Act, the GST payable on a taxable supply made by a non-resident through a resident agent is generally payable by the resident agent. However, there are a number of exceptions.

Section 57-5 of the GST Act states:

(1) GST payable on a *taxable supply or *taxable importation made by a *non-resident through a *resident agent:

(a) is payable by the agent; and

(b) is not payable by the non-resident.

(2) This section has effect despite sections 9-40 and 13-15 (which are about liability for GST).

(3) However, this section does not apply to a *taxable supply if:

(a) apart from this section, the *non-resident would not be liable to pay GST on the supply; or

(b) the non-resident makes the supply through an *enterprise that the non-resident *carries on in the indirect tax zone.

(*Denotes a term defined in section 195-1 of the GST Act)

X is a non-resident. It makes sales of points through you – a resident agent. Therefore, we need to consider whether taxable sales are made by X through you as agent to determine whether there are GST implications for you.

Generally if the requirements of section 9-5 of the GST Act are met, a supply is a taxable supply. However, there a number of overriding rules. One of these overriding rules is section 100-5 of the GST Act. Under section 100-5 of the GST Act, a sale of a face value voucher is not a taxable supply.

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 the indirect tax zone; 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 ‘indirect tax zone’ means Australia.

Special rules can result in an electronic distribution platform (EDP) operator being treated for GST purposes as a supplier of things made by merchants through its EDP.

Subsection 84-55(1) of the GST Act states:

If an *inbound intangible consumer supply is made through an *electronic distribution platform, the operator of the platform, instead of the supplier, is treated, for the purposes or the *GST law:

(a) as being the supplier of, and as making, the supply; and

(b) as having made the supply for the consideration for which it was made; and

(c) as having made the supply in the course or furtherance of an *enterprise that the operator *carries on.

Section 84-65 of the GST Act defines inbound intangible consumer supply. It states:

A supply of anything other than goods or *real property is an inbound intangible consumer supply if the *recipient is an Australian consumer, unless:

(a) the thing is done wholly in the indirect tax zone; or

(b) the supplier makes the supply wholly through an *enterprise that the supplier carries on in the indirect tax zone.

Section 84-70 of the GST Act contains the meaning of electronic distribution platform. It states:

(1) A service (including a website, internet portal, gateway, store or

marketplace) is an electronic distribution platform if:

(a) the service allows entities to make supplies available to an end -users; and

(b) the service is delivered by means of *electronic communication; and

(c) the supplies are to be made by means of electronic communication,.

(2) However, a service is not an electronic distribution platform solely because it is:

(a) a carriage service (within the meaning of the Telecommunications Act 1997); or

(b) a service consist of one of more of the following:

(i) providing access to a payment system;

(ii) processing payments; and

(iii) providing *vouchers the supply of which are not

*taxable supplies because of section 100-5.

Paragraphs 53 and 54 of Law Companion Ruling LCR 2018/2 provide guidance on some of the requirements for a supply to be subject to the EDP rules. They state:

53. The EDP rules for inbound intangible consumer supplies apply only to digital supplies. If a customer purchases something which entitles the customer to a specific supply in the future, then that future supply must be a digital service or digital product for the EDP rules to apply. For example, if the operator of a theme park in Australia issues digital confirmation of a booking, this will not be a supply made by electronic communication as the access to the theme park is not a supply made by electronic communication. By contrast, a supply of an online streaming subscription is a supply made by electronic communication, as the online streaming is a supply by electronic communication.

54. The EDP rules will not apply to supplies of rights, even if issued as a digital voucher, if those rights entitle the customer to receive a non-digital product or service in Australia (for example, a sky diving experience). In this scenario, the merchant with whom the recipient redeems the rights or voucher would be responsible for GST.

The points are a right to receive credit, which is a further right, rather than a digital product or service.

Furthermore, if the requirements of section 9-5 of the GST Act were met, the points receipts would be face value vouchers (as explained below), and supplies of face value vouchers are excluded from being subject to the EDP rules.

Therefore, the EDP rules do not result in the retailers in X’s case being treated as the suppliers of the points, for GST purposes.

X meets the requirements of paragraphs 9-5(a) and 9-5(b) of the GST Act, that is:

● X supplies points, which are a right to receive supplies of credit; and

● X supplies the points for consideration (the price for the points)(paragraph 9-5(a) of the GST Act): and

● X supplies the points in the course or furtherance of an enterprise that it carries on (paragraph 9-5(b)).

There are no provisions of the GST Act under which the sale of the points is GST-free or input taxed.

Connected with Australia

A supply of anything other than goods or real property is connected with the indirect tax zone if the requirements of subsection 9-25(5) of the GST Act, which states:

A supply of anything other than goods or *real property is connected with indirect tax zone if:

(a) the thing is done in the indirect tax zone; or

(b) the supplier makes the supply through an *enterprise that the supplier

*carries on in the indirect tax zone; or

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing;

(ii) the thing is a right or option to acquire another thing;

(iii) the supply of the other thing would be connected with the

indirect tax zone; or

(d) the *recipient of the supply is an *Australian consumer

Subsection 9-25(7) of the GST Act states:

An entity is an Australian consumer of a supply made to the entity if:

(a) the entity an *Australian resident (other than an entity that is an Australian resident solely because the definition of Australia in the *ITAA 1997 includes the external Territories; and

(b) the entity:

(i) is not *registered; or

(ii) if the entity is registered – the entity does not acquire the thing supplied

(iii) for the purpose of an *enterprise that the entity *carries on .

X’s sales of points to Australian customers would be connected with Australia under paragraph 9-25(5)(d) of the GST Act as the customers would be Australian consumers. Therefore, the requirement of paragraph 9-5(c) of the GST Act is met.

Required to be registered for GST

Section 23-5 of the GST Act sets out when an entity is required to be registered for GST. It states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

The registration turnover threshold is $75,000.

Only supplies connected with Australia are included in GST turnover.

If X’s makes sales of $75,000 or more a year to Australian customers, its GST turnover would be over $75,000, and therefore it would be required to be registered for GST

If X was required to be registered for GST, the requirements of section 9-5 of the GST Act would be met.

However, we need to consider whether the overriding rule in section 100-5 of the GST Act, dealing with face value vouchers, applies.

Face value vouchers

Subsection 100-5(1) of the GST Act provides that a supply of a face value voucher is not a taxable supply. It states:

A supply of a *voucher is not a *taxable supply if:

(a) on redemption of the voucher, the holder of the voucher is entitled to supplies up to the *stated monetary value of the voucher; and

(b) the *consideration for supply of the voucher does not exceed the stated monetary value of the voucher.

Subsection 100-25 of the GST Act defines voucher for GST purposes. It states:

A voucher is any:

(a) voucher, token, stamp, coupon or similar article; or

(b) *prepaid phone card or facility.

the redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms. However, a postage stamp is not a voucher.

Characteristics of a voucher for the purposes of subsection 100-25(1) of the GST Act

Paragraph 26 of Goods and Services Tax Ruling GSTR 2003/5 sets out three essential characteristics of a subsection 100-25(1) of the GST Act voucher. It states:

26. For a voucher to fall within subsection 100-25(1):

*it must satisfy either paragraph 100-25(1)(a) or (b);

*the presentation of the voucher must be integral to supplies on redemption; and

*upon redemption, the voucher must entitle the holder to receive supplies.

Paragraphs 26C to 27 of GSTR 2003/5 provide guidance on the meaning of voucher, token and coupon in the ordinary sense of the words and what are the essential characteristics of things covered by paragraph 100-25(1)(a) of the GST Act. They state:

26C. As the GST Act does not define 'voucher', 'token', 'coupon', 'stamp' or 'article' these terms take their ordinary meaning.

26D. Some relevant dictionary definitions for voucher, token and coupon are listed in the table below:

Term	Macquarie Dictionary	The Australian Oxford Dictionary
voucher	'... 2 . a document, receipt, stamp, or the like, which proves the truth of a claimed expenditure. 3 . a ticket used as a substitute for cash, as a gift voucher, luncheon voucher, etc.'	' 1 a document which can be exchanged for goods or services as a token of payment made or promised by the holder or another. 2 a document establishing the payment of money or the truth of accounts... '
Token	'... 5 . a ticket, metal disc, etc., certified as having a particular value, for payment or exchange, as for ferry fares, at a nominal value much greater than its commodity value. 6 . anything of only nominal value similarly used, as paper currency.'	'... 3 a voucher exchangeable for goods (often of a specified kind), given as a gift. 4 anything used to represent something else, especially a metal disc etc. used instead of money in coin-operated machines etc. ...'
coupon	' 1 . a separable part of a certificate, ticket, advertisement, etc., entitling the holder to something. ...'	'... 3 a voucher given with a retail purchase, a certain number of which entitle the holder to a discount etc. 4 a a detachable ticket entitling the holder to a ration of food, clothes, etc., especially in wartime. b a similar ticket entitling the holder to payment, goods, services, etc.'

27. These ordinary meanings share a common characteristic of referring to things that are exchangeable for goods or services. When they are redeemed, the right or entitlement to receive goods or services ceases to exist. These things have no further function, such as being able to be topped up.

Paragraph 10 of GSTR 2003/5 provides that a thing must be an article to potentially be covered by section 100-25 of the GST Act.

Paragraph 32F of GSTR 2003/5 refers to the dictionary definition of article, which is ‘anything’. Additionally, paragraph 27 of GSTR 2003/5 provides that things covered by paragraph 100-25(1)(a) of the GST Act are things exchangeable for goods or services.

However, paragraph 25 of GSTR 2003/5 provides that a voucher can be in physical form or be the electronic equivalent of the physical form of a voucher. It states:

25. The fact that a voucher is issued and/or redeemed electronically does not exclude it from the meaning of voucher in section 100-25. A voucher that is the electronic equivalent of the physical form of a 'voucher' satisfies section 100-25. An example of this may be a visual graphic representation of the voucher on a computer screen.

Paragraph 33 of GSTR 2003/5 explains the second feature of a subsection 100-25(1) of the GST Act voucher. It states:

33. The words '...the redemption of which...entitles the holder to receive supplies...' in subsection 100-25(1), indicates that the act of presentation of the voucher, or any part of the voucher, for supplies is an integral requirement before an article can be considered to be a voucher for the purposes of section 100-25.

Paragraph 42 of GSTR 2003/5 explains the different ways redemption can occur. It states:

42. Redemption involves the contemporaneous provision of supplies in discharge of the obligation evidenced by a voucher. The making of those supplies must discharge the supplier from the obligation to make the supplies. Redemption may occur by:

·presentation of the physical voucher, including a printed electronic voucher; or

·providing a unique number or other information contained on the voucher by use of either telephone, computer or similar means.

Features that a voucher must have to be a face value voucher

Paragraph 56 of GSTR 2003/5 sets out the features a voucher must have to be a face value voucher. It states:

56. The requirement for a FVV first to be a voucher as defined in section 100-25 is discussed at paragraphs 20 to 54. In the following paragraphs we discuss the following additional requirements of section 100-5 and their consequences:

·the supply of a voucher must otherwise be a taxable supply (discussed at paragraphs 57 to 67);

·'the holder of the voucher is entitled' (discussed at paragraphs 68 to 73);

·upon redemption the voucher must entitle the holder to receive a reasonable choice and flexibility of supplies. (discussed at paragraphs 74 to 79);

·the voucher must have a stated monetary value (discussed at paragraphs 80 to 83F); and

·on redemption of the voucher the holder is entitled to supplies up to its stated monetary value (discussed at paragraphs 84 to 129).

In accordance with paragraphs 68 to 72 of GSTR 2003/5, the holder of a face value voucher is entitled to receive supplies on redemption.

Whether the points receipt is a voucher for the purposes of subsection 100-25(1) of the GST Act

Requirement 1

In accordance with the sixth dot point in paragraph 5 of Goods and Services Tax Ruling GSTR 2012/1, points which give a person the right to receive supplies are not in themselves a voucher, but a voucher could be issued to a person for the purpose of redeeming the points for supplies.

X sells points. The points are exchangeable for supplies. However, the points are not in themselves in physical form or the electronic equivalent of the physical form of a voucher, such as a visual graphic representation of a voucher on a computer screen. Therefore, they are not within the scope of paragraph 25 of GSTR 2003/5. Hence, they are not covered by paragraph 100-25(1)(a) of the GST Act.

The points receipts are articles that are exchangeable for supplies. When they are redeemed, the right or entitlement to receive supplies ceases to exist. The points receipts have no further function, such as being able to be topped up. The receipts, whether in physical form or electronic form would be covered by 100-25(1)(a) of the GST Act.

Requirement 2

The points receipt is presented when the end user enters the PIN number on the receipt into a computer. This presentation of the receipt is integral to receiving supplies of credit on redemption.

Requirement 3

On redemption of the points receipt, the receipt entitles the holder to receive supplies of credit.

Therefore, the points receipt is a voucher for the purposes of subsection 100-25(1) of the GST Act.

Whether the points receipts are face value vouchers

Whether the supply of the points would otherwise be a taxable supply

If X was required to be registered for GST and the face value voucher rules had not applied, the supply of the points would have been a taxable supply under the basic rules, as all of the requirements of section 9-5 of the GST Act would have been met.

Whether the holder of the points receipt is entitled to receive supplies

The holder of the points receipt is entitled to receive supplies.

Whether there is reasonable choice and flexibility of supplies

Upon redemption of a points receipt, the receipt entitles the holder to receive credit with any one of a large number of digital product creators.

Whether the receipt has a stated monetary value on it

The points receipt has a stated monetary value on it.

Whether the holder of the receipt is entitled to receive supplies up to its stated monetary value

The holder of a points receipt is entitled to receive supplies of credit up to its stated monetary value.

Summary

As all of the requirements of paragraph 56 of 2003/5 would be met, a points receipt would be a face value voucher if X was required to be registered for GST. Therefore, even if the requirements of section 9-5 of the GST Act were met, the supply of the points would still not be a taxable supply. Hence, GST is not payable on the sale of the points. Therefore, you are not liable for GST on the sale of points, pursuant to section 57-5 of the GST Act or any other provision of the GST Act.

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