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Authorisation Number: 1012050682049

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Ruling

Subject: GST and right to receive a GST-free supply

Question 1

Is your supply of a right to receive a GST-free supply, a GST-free supply under paragraph 9-30(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

Where there is no separately identifiable consideration passing from the other entity to you, do you make taxable supplies of marketing and other services to the other entity?

Answer

No

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 registered for GST.

You have entered into an agreement (Agreement) with another entity

Under a clause of the Agreement the other entity has supplied the you with the right and authority to market, promote, sell, deliver, facilitate and service the products developed by the other entity.

You market the other entity's products to various clients.

You make an upfront payment which covers the initial supply of various materials and services which enables you to commence operation. GST is included on all components of this supply except for the GST-free supply of training provided by the other entity to you.

The products under the Agreement are the services to be provided by the other entity.

The process is conducted online, usually by you, but sometimes by the clients. It involves logging into the other entity's website and inputting the details of each client into the other entity's database.

The other entity is responsible for the monitoring the process and makes the GST-free supply of services.

When an acquisition is confirmed, clients will be advised of the details of the services to be provided and an invoice is issued to the client in your name.

Depending on how and where the services are being provided, you or the other entity may contract with third parties for the provision of services relating to the GST-free supply of the services.

For each service provided, the other entity charges you a set percentage of the amount invoiced by you (amount). This amount is GST inclusive and represents the supply by the other entity of the rights under the Agreement. There may be additional charges for any further supplies made by the other entity to you in relation to the supply of the services, e.g. handouts, venues, facilitators, etc. The balance of the moneys paid by the client to you represents the profit on the supply.

The other entity does not receive any consideration from the client(s) for the supply of the services to the clients.

Regardless of the level of marketing undertaken by you to sign up clients, there is no consideration received by the other entity for this activity. It is considered to be part of your business activities.

If you participate actively in the provision of the services to the clients, there is no consideration received from the other entity for this activity.

Relevant legislative provisions

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

Section 9-5

Paragraph 9-30(1)(b)

Subdivision 38-C

Reasons for decision

Summary

The supply of the right to receive a GST-free supply is also GST-free.

Detailed reasoning

Where you act within the Agreement, the supply you make to the clients is a supply of a right to receive a supply of services to be provided by the other entity. You do not provide the services as provided for under the Agreement.

It is the view of the Australian Taxation Office that the other entity supplies the services to the clients, and those services are GST-free services under Division 38 of the GST Act, regardless of whether the services are facilitated by the other entity's employees or you.

Paragraph 9-30(1)(b) of the GST Act provides that a supply of a right to receive a supply that is a GST-free under Division 38 of the GST Act is GST-free supply.

Therefore, your supply of a right to receive a GST-free service to be provided for by the other entity is also GST-free.

Question 2

Where there is no separately identifiable consideration passing from the other entity to you, do you make taxable supplies of marketing and other services to the other entity?

Summary

You do not make taxable supplies to the other entity in relation to marketing and teaching as there is no consideration received in return for those supplies.

Detailed reasoning

Section 9-5 of the GST Act provides that an entity is making a taxable supply when all of the following are present:

(a) the entity makes the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise carried on by the entity

(c) the supply is connected with Australia

(d) the entity is registered or required to be registered for GST, and

(e) the supply is neither GST-free or input taxed.

As the other entity does not provide you with any consideration for the marketing and other services, one of the requirements above is not present and therefore you do not make taxable supplies to the other entity in relation to the marketing and other services.