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Ruling

Subject: GST and vouchers

Question 1

Can B when selling vouchers on your behalf, include in the total on which it bases its fee, the GST that you will pay upon redemption of the voucher?

Answer

This is not an issue of GST law, but a contractual issue, please see discussion below.

Question 2

Should the commission or service fee payable upon the supply of a voucher by B be treated as a taxable supply?

Answer

Yes, however please see discussion below.

Question 3

Should B be charging you GST at all?

Answer

Yes, however we disagree with the characterisation of supplies and the attribution of GST between you and B, please see discussion below.

Relevant facts and circumstances

This year you commissioned B to sell vouchers which you will redeem for goods and services. The vouchers have a face value of which you attribute 1/11 GST when the voucher is redeemed. Your agreement with B (Agreement) is governed by the Terms & Conditions.

Under the Terms & Conditions B will use reasonable endeavours to create and sell vouchers in accordance with the deal structure. The vouchers are promoted on B's website and B has control over when this is done within the parameters of the Agreement.

The Terms & Conditions also outline that you have granted B certain rights in respect of the vouchers; upon the sale of a voucher by B to a customer, the rights will be transferred by B to the customer who may demand and receive voucher services from you. You are solely responsible for the provision of the voucher services to the customer.

Under the Terms & Conditions you have agreed that (as you indicated to B that you are registered for GST) that your granting of rights to B to display your voucher will be a taxable supply. You have also agreed that 'the payment by B [to you] of payments received from customers is also a taxable supply'.

B will remit to you the payments received from customers after deducting its fee and the GST on the fee and the GST on the vouchers purchased. Under the Agreement B will issue you with a recipient created tax invoice (RCTI) for your supply of rights.

The front page of the Agreement notes that B will charge a fee of a percentage of the face value of each voucher sold. The fee is 'based on B Australia voucher prices excl. GST'.

The vouchers are created online by B and printed at home by customers once purchased.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 100-5

A New Tax System (Goods and Services Tax) Act 1999 section 100-18

A New Tax System (Goods and Services Tax) Act 1999 section 100-55

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Issue 1

Question 1

Summary

This is not an issue of GST law, but a contractual issue, please see below.

Question 2

Summary

Under the current terms of agreement B should be charging GST for its services supplied in return for commission. If you and B entered into an agreement under section 100-18 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST need not be charged.

Question 3

Summary

The current agreement indicates B is making taxable supplies of its services to you. In the absence of an agreement under section 100-18 of the GST Act, this is correct.

We disagree with your contention that you are making a taxable supply of rights to B. This characterisation leads you to treat the receipt of consideration for one supply as the receipt of consideration for two supplies. As such you are attributing GST twice to what is a single supply.

Detailed reasoning

Supply of rights or vouchers

In respect of the first supply made under the Agreement by you to B, the Terms & Conditions state that the (taxable) supply is one of rights to allow B to display your vouchers on its website. We disagree with this characterisation.

A supply is not subject to GST in Australia unless it is made for consideration. Consideration 'for a supply or acquisition' is defined in section 195-1 of the GST Act as any consideration, within the meaning given by section 9-15 of the GST Act that is 'in connection with the supply or acquisition'.

We consider that, in the context of the GST Act, the expression 'you make the supply for consideration' in paragraph 9-5(a) of the GST Act has a similar meaning to 'there is consideration for the supply that you make'.

The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.

In a similar fashion to the GST legislation in New Zealand, the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply.

In determining whether a payment is consideration under subsection 9-15(1) of the GST Act, the test is whether there is a sufficient nexus between the supply and the payment made. This test may establish a nexus between consideration and supply in a broader range of cases than the 'direct link' test that applies in the European Community and in Canada. While caution needs to be exercised in applying decisions on connective terms in other contexts, the term 'in connection with' has been held to be broader in scope than 'for'.

The meaning given to the term 'in connection with' in Berry v FC of T (1953) 89 CLR 653 ('Berry's case') is similar to that which was described by the Court of Appeal in New Zealand Refining Co Ltd v C of IR (1995) 17 NZTC 12,307, but needs to be applied with regard to the structure of the definition of supply in the GST Act. In Berry's case, Kitto J held that 'in connection with' was a broader test than 'for'. At page 659, his Honour commented that consideration will be in connection with property where:

'the receipt of the payment has a substantial relation, in a practical business sense, to that property'.

In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive.

In your case, the event that triggers your remuneration is the actual sale of a voucher. If no vouchers are sold, you will never receive consideration for the supply of 'rights' you make. Therefore, it is demonstrated that there is no nexus between the supply of rights as per the Agreement and any consideration received. However there is a demonstrated nexus between the sale of vouchers and your remuneration.

Accordingly we believe that it is more correct to characterise the supply you make as a supply of vouchers which is made to B simultaneously with the supply of vouchers by B to customers. Sales of vouchers do not attract a GST liability - please see discussion below.

It does not matter that B rather than you 'creates' the actual vouchers, you have implicitly authorised them to do this and are considered to be the originator of the voucher. In recent times such arrangements have become common with the rise of promoters who consolidate 'deals' and discounts from various suppliers into one location for the ease of customers.

Vouchers as a supply not subject to GST at point of sale

Subsection 100-25(1) of the GST Act states:

(1) 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.

Under paragraph 100-25(1)(a) of the GST Act the definition of voucher includes a voucher, token, stamp, coupon or similar article. As the GST Act does not define 'voucher', 'token', 'coupon', 'stamp' or 'article' these terms take their ordinary meaning. A perusal of the sample voucher tendered indicates that it would normally be described as a coupon or voucher.

The ordinary meanings of coupon and voucher 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. The sample vouchers have this characteristic.

A voucher for the purposes of paragraph 100-25(1)(a) of the GST Act voucher ceases to be a voucher once fully redeemed for supplies or when it expires. Examples of such vouchers include:

o bus tickets;

o vouchers that can be used only to make telephone calls;

o vouchers that can be used only to purchase books;

o retailer branded gift vouchers; or

o vouchers with unique numbers which can be used only to obtain supplies.

The sample voucher shares this characteristic with the items listed above. Vouchers that have more than one function are not vouchers within the meaning of paragraph 100-25(1)(a) of the GST Act. It is considered that the vouchers in question meet the requirements of subsection 100-25(1) of the GST Act and are what are commonly called 'Face Value Vouchers' or 'FVVs'.

Subsection 100-5(1) of the GST Act allows for a supply of FVVs without the incidence of GST:

(1) 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.

When a FVV is redeemed for goods and services, it becomes 'consideration' for the purposes of section 9-15(1) of the GST Act. At redemption GST is applied to the supply of goods or services, if GST is applicable to that supply, the supplier's liability is triggered at that point.

It follows that if GST liabilities are only triggered at the point of supply upon redemption, any supply or resupply of a FVV prior to the redemption point can meet the requirements of section 100-5 of the GST Act and not create a GST liability.

We consider that the concurrent supplies of vouchers by you to B and by B to customers meet the requirements of section 100-5 of the GST Act. These supplies do not attract any GST liability. You however, will have a GST liability when the vouchers are redeemed for taxable supplies of goods or services.

Given we consider that you are making a supply of vouchers to B rather than a supply of rights, the details of the first supply set out in the tendered RCTIs is incorrect. Both state that you have an additional GST liability to that incurred when the vouchers are redeemed. In treating the first supply as a taxable supply of rights and your subsequent voucher redemption as a taxable supply, you are inadvertently attributing GST twice to the receipt of one amount of consideration.

GST on distributors' services

GST will be payable on a distributor or consolidator of FVVs services where that entity's supply meets the requirements of section 9-5 of the GST Act:

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.

However section 100-18 of the GST Act which has effect from 6 April 2006 allows for services supplied in return commission paid on the distribution of FVVs to be treated as if they were not taxable supplies. Therefore the sale of the voucher and the commission earned in selling in do not attract a GST liability. Section 100-18 states:

(1) An entity (the supplier) may, in writing, enter into an arrangement with another entity under which the other entity supplies (whether or not as an agent on the supplier's behalf) a *voucher to a third party.

(2) If, under the arrangement, the supplier pays, or is liable to pay, an amount, as a commission or similar payment, to the other entity for the other entity's supply, the supply by the other entity to the supplier, to which the supplier's payment or liability relates, is treated as if it were not a *taxable supply.

(3) This section has effect despite section 9-5 (which is about what are taxable supplies).

Note that the distributor need not be your formal agent, although there must be some form of agreement in writing to evidence the arrangement.

In your case, there does not appear to be a section 100-18 agreement. Under the current terms, if B's supply of services to you meets the requirements of section 9-5 of the GST Act, B will charge GST.

Calculation base

This appears to be a contractual dispute on pricing; the ATO does not intervene in such matters. We offer the following observations however.

Where B does charge GST for its services, it does so 'based on B Australia voucher price excl. GST'. We are not sure what this means given that vouchers in general may or may not have an implied GST component. We believe that this statement is the matter at the heart of the contractual dispute. We consider that you should take this matter up with B; it appears that B believes its base calculation starts with the face value of the voucher.

Another point is that it is presumed that B and entities like it will distribute vouchers for a variety of businesses. Some of the vouchers will be redeemed for taxable supplies, some for GST-free supplies. At the time of issue, B may not be aware of whether a voucher will be redeemed for a taxable supply or GST-free supply. If B's commission was to be calculated on a value that takes into account a subtraction of the presumed value of GST to be applied at redemption it may prove problematic and lead to incorrect outcomes.

Further, we are aware of other instances where commissions are calculated on the face value of vouchers, this does not appear to be an uncommon practice.