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Edited version of private ruling
Authorisation Number: 1011652184005
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Ruling
Subject: GST and commission paid by franchisee
Question: Is the commission received by you in return for broking services subject to goods and services tax (GST) and if so, how is the GST applied?
Answer: Yes, the commission received by you in return for broking services is subject to GST and GST is applied to 1/11th of the commission you received for your supply of the services.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
· You are a franchisee.
· You are registered for GST.
· You have a franchisor that helps you in getting started but you do not work for him. He receives a cut of the commission you receive from any business you do.
· Your business consists of organising personal loans for clients.
· You send a loan application form to the client.
· The client completes the form and returns it to you.
· The form is sent via an aggregator to a lender who sources the funds.
· A commission payment is sent by the lender to the aggregator who forwards the commission to your franchisor.
· Your franchisor deducts x% and pays commission on receipt of an invoice from you.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
GST is payable on taxable supplies. The term 'taxable supply' is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:
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.
Asterisked terms are defined in section 195-1 of the GST Act.
We need to examine your activities in regard to the personal loans you arrange for your clients to see if the requirements of section 9-5 of the GST Act are satisfied.
You are making a supply of broking services. These services are supplied to the clients who contact you asking you to arrange a personal loan for them. This supply is made for consideration (being the commission paid to you). Paragraph 9-5 (a) of the GST Act is satisfied.
The supply is made in the course or furtherance of an enterprise (of broking services) that you carry on. Paragraph 9-5 (b) of the GST Act is satisfied.
The term 'connected with Australia' is defined in section 9-25 of the GST Act. A supply of anything other than goods or real property is connected with Australia if:
· The thing is done in Australia; or
· The supplier makes the supply through an enterprise that the supplier carries on in Australia.
As your activities occur in Australia, your supply of broking services is connected with Australia. Paragraph 9-5 (c) of the GST Act is satisfied.
As you are registered for GST, paragraph 9-5 (d) of the GST Act is satisfied.
A supply of broking services is not a GST-free supply, nor is it an input taxed supply.
In conclusion, the commission you receive for your broking services is consideration for a taxable supply and is subject to GST. Therefore, you have to remit 1/11th of the consideration you received for your supply of broking services to the Tax Office as GST.