Edited version of private advice

Authorisation Number: 1051779194525

Date of advice: 18 November 2020

Ruling

Subject: GST and supply of rights to a non-resident

Question 1

Will you be liable for GST under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you receive a payment from the non-resident company when a good that is made from your design is sold by the non-resident company?

Answer

No. You will not be liable for GST when you receive a payment from the non-resident company when a good that is made from your design is sold by the non-resident company. The payment is consideration for the supply of rights that you make under the agreement you have with the non-resident company. Your supply of rights is a GST-free supply under item 4 in the table in subsection 38-190(1) of the GST Act.

Question 2

When the goods are sold to an Australian customer does the customer pay GST to the Australian customs when the goods come into the country or do you collect the GST?

Answer

Under the agreement you have with the non-resident company, you do not own the goods made from your design and you do not sell the goods. In this instance, you do not have GST liability for the goods that are made from your design and sold on the non-resident company's website to an Australian customer.

Question 3

Are you allowed to register for GST where your current and projected annual turnover is below AU$75,000 and do you insert '0' when completing your business activity statement (BAS) where you have not received any income?

Answer

Yes. Under section 23-10 of the GST Act you can choose to register for GST if you are carrying on a business and your annual turnover is below the GST registration threshold of AU$75,000.

Under section 31-5 of the GST Act you are required to lodge your BAS return for each tax period even if you have not made any taxable sale or if your net amount for the tax period would be zero.

When completing your BAS and if you have not earned any income in a tax period you will input a nil amount at label 1A in the BAS and if you need to claim GST credits for any creditable acquisitions you have made in that tax period, you will complete label 1B in the BAS.

Question 4

Is the supply of the design protection package and prototype package made by the non-resident company to you a taxable sale for the purposes of paragraph 11-5(b) of the GST Act?

Answer

No. The supply of the design protection package and prototype package made by the non-resident company to you is not connected with Australia and therefore not subject to GST as you have notified the non-resident company that you are registered for GST.

Question 5

Is the supply of advertising made by the non-resident company (company B) to you a taxable sale for the purposes of paragraph 11-5(b) of the GST Act?

Answer

No. The supply of advertising made by the non-resident company (company B) to you is not connected with Australia and therefore not subject to GST as you have notified company B that you are registered for GST.

Relevant facts

You are a sole trader and you carry on your business activity in Australia. You are registered for GST.

You have an agreement with a non-resident company located outside Australia where you design the colours and materials for a set type of goods through the website of the non-resident company. You have provided us with a copy of the agreement you have with the non-resident company.

The non-resident company if it agrees with your design, it will produce the goods as per your design and sells the goods online on its website. The non-resident company decides the sale price for the goods and advertises the goods on its website with you as the designer.

Under the Agreement you will receive a payment from the non-resident company where a good is sold and not returned. You do not own the shoes made by the non-resident company and you have granted them with a five year right to use your design under the Agreement. You also granted the non-resident company the right to you your name for commercial purposes.

You have purchased design protection packages and prototype packages from the non-resident company for business purposes. You have notified the non-resident company that you are registered for GST.

You are required to market the shoes made based on your design and sold on the by the non-resident company's website. You have purchased a paid advertisement from Company B a non-resident company to advertise the goods you have designed. You have notified Company B that you are 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 subsection 9-25(5)

A New Tax System (Goods and Services Tax) Act 1999 section 23-10

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

Reasons for decisions

Note:

Unless otherwise stated, all legislative references in the private ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Question 1

Summary

Your supply of rights to the non-resident company under the Agreement is GST-free under paragraph (b) in item 4 of subsection 38-190(1).

Detailed reasoning

What are you supplying?

From the information in the agreement:

•         you supply the non-resident company with a design for a good you have made online on the non-resident company's website,

•         you supply the non-resident company with the right to use your design to make shoes for sale on its website and the right to use your name for commercial use;

•         you will be paid whenever a good made under your design is sold by the non-resident company and not returned.

Under the agreement you have made a supply of rights to the non-resident company. We consider the supply of rights to use your design to make goods for sale by the non-resident company and the use of your name for commercial use is the main supply that you have made to the non-resident company. The design of the good is incidental to the supply of the right to use the design to manufacture goods for sale as it contributes to the supply of the right to use the design as a whole.

In this instance, the payment you will receive would be consideration for the supply of rights you have given to the non-resident company under the agreement.

The next step is to determine the GST status of your supply of rights to the non-resident company.

GST status of your supply of rights

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 if:

a)    the supply is made for consideration; and

b)    the supply is made in the course of a business carried on by the supplier; and

c)    the supply is connected with Australia; and

d)    the supplier is registered for GST.

However, the supply is not a taxable supply if the supply is GST-free or input taxed.

Your supply of rights to the non-resident company satisfies paragraphs (a) to (d) in section 9-5 as:

a)    you make your supply for consideration; and

b)    the supply is made through a business that you carry on;

c)    the supply of rights is connected with Australia as it is made through a business that you carry on in Australia; and

d)    you are registered for GST.

Therefore, your supply of rights is not a taxable supply to the extent that it is GST-free or input taxed.

Your supply of rights is not input taxed.

GST-free supply

Relevant to your supply of rights to the non-resident company is item 4 in the table in subsection 38-190(1) (item 4).

Under item 4 a supply that is made in relation to rights is GST-free if:

a)    the rights are for use outside Australia; or

b)    the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

From the facts given, your supply of rights is made to a non-resident company that is not in Australia at the time the supply of your rights is done. In this instance your supply of rights to the non-resident company is GST-free under paragraph (b) in item 4.

Question 2

Under the agreement you do not own the shoes and do not sell the shoes.

Accordingly, you have no GST responsibility for the sale of the shoes made from your design by the non-resident company and sold on its website to an Australian customer.

Generally, when goods that have a customs value above A$1,000 are imported into Australia, GST and duty is payable to the Australian customs by the importer. For more information refer to the fact sheet 'GST and imported goods' at https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/International-transactions/GST-and-imported-goods/

Where the goods have a customs value of A$1,000 or less and are imported by consumers (purchasers not registered for GST or registered and purchase is not for the purpose of the Australian business), GST is payable at the time the online sale is made where the supplier is registered or required to be registered for GST. For more information refer to GST on low value imported goods at https://www.ato.gov.au/Business/International-tax-for-business/GST-on-low-value-imported-goods/

Question 3

Under section 23-5 you are required to register for GST where you are carrying on a business and your GST annual turnover meets the GST registration threshold of AU$75,000 (AU$150,000 for non-profit organisation).

Under section 23-10 you may choose to register for GST where you are not required to register for GST and you are carrying on an enterprise.

Under subsection 31-5 if you are registered or required to be registered for GST, you must give to the Commissioner a GST return for each tax period.

Under subsection 31-5(2) you must give the GST return whether or not:

a)    your net amount for the tax period is zero; or

b)    you are liable for GST on any taxable supplies that are attributable to the tax period.

You advised the annual turnover for your business is below AU$75,000 and you have registered for GST. In this instance you have chosen to register for GST under section 23-10 and you are expected to remain registered for at least twelve months.

Under section 31-5 you are required to lodge your BAS return for each tax period even if you have not made any taxable sale or if your net amount for the tax period would be zero. Accordingly, if you have not made any supply in a tax period you will input a nil amount at label 1A in your BAS.

The simpler BAS GST bookkeeping guide provides guidance on how to complete your BAS and is available at https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/Goods-and-services-tax-(GST)/Simpler-BAS-GST-bookkeeping-guide/

Questions 4 and 5

From 1 July 2017 supplies of imported services and digital products from overseas suppliers to consumers (purchasers not registered for GST or are registered and the purchase is not for the purpose of the Australian business) are connected with Australia. Where the annual turnover for these sales is AU$75,000 or more the overseas supplier is required to register for GST.

However, where the supply of imported services and digital products is made to GST registered Australian businesses, the supply is not connected with Australia. The supply is outside the scope of GST and no GST is payable for the supply.

The overseas supplier must hold evidence that that their supply is made to a GST registered Australian business before treating their supply as not connected with Australia.

For more information refer to:

•         sales of imported services and digital products to Australian GST-registered businesses at https://www.ato.gov.au/Business/International-tax-for-business/GST-on-imported-services-and-digital-products/Sales-of-ISDP-to-GST---registered-businesses/

•         Information for business purchasers at https://www.ato.gov.au/Business/International-tax-for-business/GST-on-imported-services-and-digital-products/Information-for-business-purchasers/

Purchases from the non-resident company

You have notified the non-resident company that you are registered for GST when making the purchase.

In this instance the non-resident company's sales to you are not connected with Australia since you have notified the non-resident company that you are registered for GST and your purchase is for business purposes. You are not liable to pay GST on the purchases made from the non-resident company.

Purchases from Company B

Company Bis a non-resident company and you advised that you have notified Company B that you are registered for GST.

In this instance Company B's sales to you are not connected with Australia since you have notified Company B that you are registered for GST and your purchase is for business purposes. You are not liable to pay GST on the purchases made from Company B.

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