Edited version of private ruling

Authorisation Number: 1011523737307

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Ruling

Subject: GST and the supply of entertainment services in your premises

Questions

1. Are you liable for goods and services tax (GST) on the supply of the services by the performers in your premises?

Answer: No.

2. Are you liable to remit GST on the entry fee that you receive from the performers?

Answer: Yes.

Relevant facts and circumstances

You are an entity which is registered for GST.

You operate an entertainment venue at which individual performers provide services to patrons of the venue.

You hold a Permit from an authority for the premises (venue).

You provide the venue, security, advertising, licences, stock, furniture and fittings for the service.

Your business, not the performers, provides the only advertising for the services provided on the premises. It advertises in newspapers, magazines, and internet websites as well as through out the venue.

The patrons pay an entry fee to the venue at the reception area.

You set the fixed price for services, not the performers.

At the reception area patrons can view the fixed price for the services, a notice board for separate fees for admittance to the venue, the seat fee and the Notice for Patron.

A patron can approach one of your employees for assistance with selecting a performer who provides services to the patron or patrons.

Price Lists

You provide a price list for different types of services. In the price list you also provide that:

· the patron must pay the performer directly

· you do not hold any money on the performer's behalf, and

· you do not take any responsibility for the performer's action.

Notice to patron

· Entry fee only covers entry and to the club and does not provide for the provision of any services unless the patron directly engages the services of a performer.

· You provide a cash out facility for credit and EFTPOS card transactions so that the patron can pay the performer directly.

· A patron needs:

- to pay the performer directly for a personal service. These fees are fixed and not negotiable, and

- to hire an exclusive area within the club to view the performance. This area must be obtained prior to the commencement of the performance.

Then, the patron can view the performance only in the area designated by you.

You and individual performer agree in writing that:

· Each performer is running their own business which is the provision services in accordance with the all relevant Acts (the Acts) and/or any other legislation that may apply to the provision of the services.

· Performer accepts a fee directly from the patron. The fees are fixed and are not negotiable. Performers who over-charge for services will be told to leave the premises immediately.

· You (at your sole discretion) are providing the premises from which the performers may operate their business.

· The performers will need to negotiate directly with the patrons for the provision of the services, independent of you.

· The patron will need to hire an exclusive area from you from which to view any performance the performer provides to the patron.

· It is the performer's sole responsibility to source any patrons to perform for during the evening.

· Both you and the performers acknowledge that you have permitted entry to the performers to the club either under a gratuitous basis or for a fee, so that the performers may conduct their independent business from the premises.

· There is no employee/employer, master/servant, agency, representative, contractor or subcontractor relationship between the performer and you.

· You reserve the right to refuse entry to the performers without having to provide any reason for the refusal. You reserve the right at any time to refuse the performer the right to enter the premises for the purpose of conducting their own business and that refusal may be given without offering the performer any notice or reason.

· You and the performer acknowledge that you are independent of each other and neither has control over the other. Notwithstanding that, the performer agrees that they will use their best endeavours to maintain a professional standard of behaviour in the operation of their business:

- not behave in a manner which will bring your reputation into disrepute

- ensure that they comply with the provisions of any applicable law and code of conduct under the Permit, and

- not perform any acts that may be detrimental to the business and if possible operate their business in a manner which is consistent with those desired outcomes of you.

· The performer also acknowledges that:

- they have made aware that they are operating as an independent business, which operates from the premises with the sole and unfettered discretion of the management.

- they are responsible for GST, income tax obligations and the management has used their best endeavours to encourage them to obtain suitable advice in order that they may be fully compliant in all matters of GST and/or income tax.

Notice to performers:

· responsible for collecting their own money from the patron

· if performers provide the services and the patron does not pay, you are not responsible for the payment.

You maintain records of performers details e.g. Name, address, ABN for legal purposes, identification and authentification.

You control which performers are allowed to perform at your venue.

Performers control the number of hours they work on any given day, the types of services they provide to the patrons, within the law, and to which patron those services are provided.

Relevant legislative provisions

The A New Tax System (Goods and Services) Tax Act 1999 Sections 9-5.

Reasons for decision

Question 1

Are you liable for GST on the supply of the services by the performers in your premises?

Summary

You are not liable for GST on the supply by the performers in your premises as it is the performer who is making the supply to the patron.

Detailed reasoning

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies and taxable importation.

Section 9-5 of the GST Act provides that an entity is making a taxable supply where:

· it makes supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia, and

· it is registered, or required to be registered for GST.

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

Before examining the elements of section 9-5 of the GST Act, it is necessary to identify who is actually making the supply of the services to the patrons.

You have contended that you only make a supply of entry to the venue, food and drink and seat hire, and it is the performer who makes the supply of services to the patron. There appears to be more than two parties to the transaction; you, the performer and the patron.

In a situation such as this, Goods and Services Tax Ruling GSTR 2006/9 sets out some propositions that the Commissioner considers relevant in determining who the supplier is and who is the recipient of a supply for a given arrangement.

GSTR 2006/9 discusses the meaning of the term 'supply' in the GST Act. Part 3 of this ruling discusses propositions which apply to analysing more complex multi-party arrangements, commonly known as tripartite arrangement. Propositions 11, 12, 13 and 16 in Part 3 of the ruling are relevant in working out who is the supplier and recipient of the services.

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

Paragraph 119 of GSTR 2006/9 explains that examining the agreement or other reciprocal legal relationships is the starting point in analysing an arrangement to determine who is making the supply to whom.

Proposition 12: transactions that are neither based in an agreement that binds the parties in some way nor involve a supply of goods or services, or something, do not establish a supply.

Proposition 13: 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).

Paragraph 131 of GSTR 2006/9 explains that:

'Made' in the context of 'a supply made' takes its meaning from the definition of 'recipient' in section 195-1:

recipient, in relation to a supply, means the entity to which the supply was made.

Paragraph 132.of GSTR 2006/9 adds:

'Provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

Proposition 16: the total fact situation will determine the nature of a transaction, the entity that makes the supply and the recipient of the supply.

Paragraph 122 of GSTR 2006/9 provides that:

Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes.

For proposition 16, the circumstances in which the agreement will not represent the total fact situation include where the agreement is vague, may be varied by the actions of the parties, or may be the outcome focused, rather than looking to the supplies that have been made between the parties.

We consider the relevant facts are:

The Agreement

The agreement between you and the individual performer is not a contract of service as it does not require the performer to produce anything at the venue. It is a set of rules/conditions applied to the performers at which premises are provided to performers to operate their own business. It does not specify that payment will be made on completion of any services as you do not pay the performers at any time. There is no agreement/arrangement between you and the performers whereby the performers "provide" services to the patron and in doing so "make' a supply to you.

It is the performer's sole responsibility to source any patrons to perform for during the evening and negotiate directly for the services. The agreement for the services is made between the performer and the patron. You take no part in the selection of performer and the service agreement between the performer and the patron. This is done in accordance with the notices that you put up inside the venue and at the reception when the patron enters the premises. The performers are paid directly by the patrons.

There appears a strong desire to separate the operations of the venue from the performers. The patron is advised that payment to the venue is for entry to the premises, the seat hire and any food or drink consumed at the premises. The patron will pay the performers separately for their services. It could be viewed there are two distinct businesses making separate supplies to the patron.

Licence

You operate a venue at which a permit has been obtained to provide services. The service is regulated under a State Act and may only be conducted on premises to which a licence or permit relates.

You are the only entity licensed to enable the performer's services to be performed on your premises.

Whilst the performers provide their services in your premises, the nature of your business activity is such that you work in conjunction with one another. Your business and that of the performers complement each other. They are not restricted to using only your premises. The performers are also free to attend other premises to conduct their own business. The nature of their profession makes it essential to have these types of premises available. The performers and the venue operate jointly but each has distinct characteristics of carrying on enterprise in their own right.

Advertising

You are the only entity that places and pays for all advertisements in your own name and do not consult the performers about the content of those advertisements.

The newspaper advertisements lead patrons to the venue and after arrival they have reasons to believe that they are acquiring separate supplies from different entities as explained above.

Control and supervision

There is little or no control and supervision asserted over the performers.

This indicates, consistently with the discussion above, that the performer is making the supply of the services in their own right to the patron.

Consequently, there is no tripartite arrangement. It is not the case that a supply is made to one entity (you) but subsequently provided to another entity (patron) by the performer.

The relationship between the performer and the patron is a two party transaction where the performer is the supplier of the services and the patron is the recipient of the services. The payment that the performer receives from the patron is the consideration for their supply of the services.

It follows that in respect you are not liable for GST (if any) included in the supply of services by the performers to the patrons.

Question 2

Are you liable to remit GST on the entry fee that you receive from the performers?

Summary

You are liable for GST on the entry fee paid by the performers to you.

Detailed reasoning

You have provided in the agreement that you have permitted entry to the performers to the club either under a gratuitous basis or for a fee, so that the performers may conduct their independent business from the premises'.

The entry fee is subject to GST as all of the requirements under section 9-5 of the GST Act are met in your circumstances, namely:

· you are making a supply under section 9-10 of the GST Act by giving permission to enter your premises

· the entry fee is the consideration for the above supply

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia

· you are registered for GST, and

· the supply is not GST-free or input taxed.

Therefore, the fee you receive from the performer is subject to GST. You are required to remit 1/11th of the entry fee received from the performers to the ATO.