1052295624694 | Legal database

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Edited version of private advice

Authorisation Number: 1052295624694

Date of advice: 26 August 2024

Ruling

Subject: GST - supply of authentication and grading services

Question 1

Are you making a taxable supply of authentication and grading services (the services) to the collector in the course of acting as an Authorised Dealer of X?

Answer 1

Yes. You make a taxable supply of the services to the collector in the course of acting as X's Authorised Dealer.

Question 2

How do you calculate the GST payable on the supply of the services to the collector?

Answer 2

The GST payable on the supply of the services is 1/11^th of the price that the collector pays you. None of the following should be deducted from the price the collector pays you for your supply when calculating your GST liability:

• the cost to you of acquiring the services from X

• your total cost of supplying the services to the collector

• your mark-up on costs

This ruling applies for the following period

20XX to 20XX

The scheme commences on:

20XX

Relevant facts and circumstances

You are registered for GST.

You are a resident of Australia.

You carry on a business in the collectible items industry in Australia. You have a shop in Australia.

X authenticates and grades collectible items and other memorabilia.

X is a division of Y a company based in an overseas country. X performs its authentication and grading services in that overseas country,

You entered into a Dealer Agreement with X under which you act as an intermediary between X and the collectors who have their collectible items authenticated and graded by X. You are referred to as an X Dealer.

You use X's trade and service marks.

X is not registered for GST. A collector in Australia sends collectible items to you to be authenticated and graded and you forward these items to X so that they can do the authentication and grading.

You have a website. The website address and the pages of the website contain your name.

The Terms of Service on your website set out the terms of service for the authentication and grading services provided to the collectors.

These Terms of Service specify the following:

• You provide services for collectible items through your X Authorized Dealer service tiers.

The Terms of Service on your website:

• refer to the collectors as your customers

• state that the collectors utilise your services and engage with your services and purchase your services

• specify that you will invoice the collectors and that collectors pay you for your services.

The Dealer Agreement refers to the collectors as the 'dealer's customers' or use other words to that effect in a number of instances. It is clear from the Dealer Agreement that the collectors are treated as being your customers under the circumstances where you act as an intermediary between X and the collectors.

A number of clauses of the Dealer Agreement specify the fees that the dealer is required/obligated to pay X for X's authentication and grading services.

The Dealer Agreement states neither party shall have the power or authority to bind the other with respect to any obligation or agreement

The Dealer Agreement refers to 'Authorised Agents'. The Authorised Agents are agents of the dealer. The Dealer Agreement does not specify or indicate that the dealer is an agent for X. The Dealer Application form also uses the term 'Authorised Agents', but this term refers to staff who are authorised to take actions on behalf of the dealer.

The Dealer Agreement does not specify payment of a commission or other remuneration to you for any services you supply to X

The Dealer Agreement states:

Dealer shall be responsible for adequately insuring item(s) against loss, theft, damage or destruction in mailing, shipping or otherwise delivering the item(s) and while the items are in Dealer's possession.

The Dealer Application form attached to the Dealer Agreement refers to you as X's customer..

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 Division 57

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 9-70

A New Tax System (Goods and Services Tax) Act 1999 section 9-75

Does Division 165 apply to this private ruling?

Reasons for decisions

Questions 1 and 2

Summary

When a collector goes to you (either through your website or visiting your shop) and orders authentication and grading services, we consider that you enter into an agreement with the collector to provide the services subject to the Terms of Service. Therefore, for GST purposes, you are making a supply of the services to the collector, even though X performs the services.

The Terms of Service and the Dealer Agreement indicate that in the course of supplying the services to the collector, you get X to perform those services.

Your supply of the services is a taxable supply because:

• you supply the services for consideration (the payment from the collector) (paragraph 9-5(a) of the GST Act)

• you supply the services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act)

• the supply is connected with Australia as you supply the services through an enterprise that you carry on in Australia (paragraph 9-5(c) of the GST Act); and

• you are registered for GST (paragraph 9-5(d) of the GST Act); and

• the supply of the services is not GST-free or input taxed.

The amount of GST payable on a taxable supply is worked out at 1/11^th of the price/consideration for the supply. As the payment made by the collector to you is the consideration for the supply that you make to the collector, your GST liability is 1/11^th of the total payment.

Detailed reasoning

GST is payable by you on taxable supplies that you make, in accordance with section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

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

(d) the supplier is 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 includes most of Australia).

In accordance with sections 9-70 and 9-75 of the GST Act, the GST payable on a taxable supply is 1/11^th of the total GST inclusive price/consideration for the supply.

We need to first determine whether you make the supply of the services to the collector in your own right or you make the supply of the services as agent of X as this will affect the calculation of your GST liability.

You submitted that you make the supply of the services as an agent of X; in other words, X makes the supply of the services to the collector through you as its resident agent.

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law provides guidance on the GST implications of using an agent.

Paragraph 45 of GSTR 2000/27 provide guidance on determining whether a supply is made by a principal through an agent. It states:

When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

Paragraph 41 of GSTR 2000/37 gives an example of an agent. It states:

41. A real estate agent acts under a commercial property management agreement with a landlord to arrange a supply of premises by the landlord. The real estate agent is an agent for the landlord when it arranges leases with tenants if the agent has the landlord's authority to enter into the lease agreement on behalf of the landlord.

Paragraph 28 of GSTR 2000/37 provides indicators of agency. It states:

Factors that indicate an agency relationship

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are 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.

In accordance with paragraph 29 of GSTR 2000/37, documents used by the parties and the conduct of the parties may indicate the existence of an agency relationship.

In accordance with a special rule in Division 57 of the GST Act, the GST payable on a supply made by a non-resident through a resident agent may be payable by the resident agent.

Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies provide guidance in determining who is making a supply, for GST purposes and who is the recipient of the supply for GST purposes. Paragraphs 119 to 122 of GSTR 2006/9 state:

Proposition 11: the agreement is the logical starting point when working out the entity making the supply and the recipient of that supply

119. Examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making a supply to whom.

120. In Grandma's flowers there is no contractual relationship between A and C. Also, there is no contractual relationship between B and C. B simply provides flowers to C on A's behalf.

121. If you take a contractual approach in analysing the arrangement in Grandma's flowers, then the only contractual relationship is between A and B. Under this contract B makes a supply of flowers to A and consideration is paid by A to B. That supply is provided by B to C:

122. The analysis of Grandma's flowers raises the following propositions for identifying supplies in tripartite arrangements:

transactions that are neither based in an agreement that binds the parties in some way nor involve a supply of goods, services, or some other thing, do not establish a supply; and

when A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

In accordance with paragraphs 119 to 122 of GSTR 2006/9 if the supply of the services is made to the collector under a contract you have with the collector, then you would be considered to be making the supply of the services to the collector.

For GST purposes, we consider that you have a contractual arrangement with the collector under which you supply the services to them in return for consideration and that you subcontract X to actually perform the services. As you are subcontracting X to perform the services, we conclude that for GST purposes, X is making a supply of services to you. You pay fees to X for the services X supplies to you. X is not making a supply of authentication and grading services to the collector through you as agent.

We reached these conclusions for the following reasons:

The Terms of Service specify the following:

You provide services for collectible items through your X Authorized Dealer service tiers.

The Terms of Services on your website:

• refer to the collectors as your customers

• state that the collectors utilise your services and engage with your services and purchase your services

• specify that you will invoice the collectors and that collectors pay you for your services.

A number of clauses of the Dealer Agreement specify the fees that the dealer is required/obligated to pay X for X's authentication and grading services.

The Dealer Agreement states:

Neither party shall have the power or authority to bind the other with respect to any obligation or agreement

That paragraph of the Dealer Agreement is inconsistent with you acting as an agent for X as agents have the authority to bind principals to third parties, but that paragraph prohibits you from binding X to third parties.

There is no mention in the Dealer Agreement of X paying a commission or other remuneration to you for any services you supply to X.

The Dealer Agreement states:

Therefore, you bear significant commercial risk associated with the authenticating and grading services, which you insure against.

Although you use X's trade and service marks, you act in your own name in the course of your interactions with collectors

The Dealer Application form refers to you as X's customer.

Your supply of authentication and grading services is subject to GST because:

• you supply the services for consideration (the payment from the collector) (paragraph 9-5(a) of the GST Act

• you supply the services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act)

• your supply of the services is connected with Australia as you supply these services through an enterprise that you carry on in Australia (paragraph 9-5(c) of the GST Act; and

• you are registered for GST (paragraph 9-5(d) of the GST Act)

• your supplies of these services are not GST-free or input taxed.

Your GST liability is 1/11^th of the payment made by the collector to you for the services.

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