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Ruling

Subject: GST and monies held in trust and supply of management / marketing service

Question 1

Is the money you receive in trust for payment of prizes consideration for a supply that you make and subject to goods and services tax (GST)?

Answer

No.

Question 2

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 I (GST Act) when you supply management / marketing services to your client?

Answer

Yes.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

You are a company registered for GST.

You provide management / marketing services (services) to a client.

The services consist of you managing a competition where the winners are paid in cash.

You deposit the funds received from the client to a separate competition bank account and pay out funds to winners from the same separate competition bank account.

You invoice your client (including GST) independently for providing the services.

You do nothing to earn the funds deposited and derive no benefit from the funds paid out.

You have no ownership in the competition funds.

You regard the competition funds as trust funds.

You have not entered into or released your client from an obligation in relation to the monies.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5.

Paragraph 9-5(a).

Paragraph 9-5(b).

Paragraph 9-5(c).

Section 9-10

Reasons for decision

Question 1

Summary

The monies that you receive in trust are not consideration for a supply that you make. They are therefore not subject to GST.

Detailed reasoning

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

· the entity makes the supply for consideration;

· the supply is made in the course or furtherance of an enterprise carried on by the entity;

· the supply is connected with Australia; and

· the entity is registered or required to be registered for GST; and

· the supply is neither GST-free nor input taxed.

Therefore, the starting point in determining the GST treatment of the monies received depends primarily on whether the payment received represents consideration that has the relevant connection with a supply

A 'supply' under section 9-10 of the GST Act, includes such things as a supply of goods, or services, or the entry into, or release from, an obligation to do anything. However, it does not include the supply of money: subsection 9-10(4) of the GST Act.

Goods and Services Tax Ruling GSTR 2000/11 provides guidance in determining whether an entity has made a supply of an obligation in return for consideration. The example in paragraph 112 of GSTR 2000/11 shows that a mere expectation does not constitute a supply.

On the facts provided and confirmed by you, you have not entered into or released your client from an obligation. While the facts prescribe how the funds should be disbursed, they do not establish a contractual commitment between you and your client. Given this, the monies received by you create no more than expectation that the money will be used for the designated purpose.

As the requisite nexus between a supply and consideration has not been established, you have not made a taxable supply to your client and the monies received are not subject to GST. Therefore, the receipt of monies paid by your client in the circumstances you have described will have no GST consequences.

Question 2

Summary

You are making a taxable supply under section 9-5 of the GST Act when you supply your services to your client.

Detailed reasoning

As described above, section 9-5 of the GST Act provides that an entity is making a taxable supply where:

· the entity makes the supply for consideration;

· the supply is made in the course or furtherance of an enterprise carried on by the entity;

· the supply is connected with Australia; and

· the entity is registered or required to be registered for GST; and

· the supply is neither GST-free nor input taxed.

You are registered for GST and the management / marketing fee represents the consideration for the supply of the services.

The services are supplied in the course of you carrying on your enterprise.

The supply is connected with Australia in that it is made between two entities located in Australia.

There are no provisions in the GST Act that would make the supply of your services GST-free or input taxed.

The supply of the services satisfies all of the other positive limbs of section 9-5 of the GST Act. Furthermore, as the supply is neither GST-free nor input taxed, it is not excluded by the negative limb of section 9-5 of the GST Act.

Therefore, you are making a taxable supply under section 9-5 of the GST Act when you supply your services to your client.

Agency Relationship

Where you act as an agent for the provision of managing the competition, it is considered that the supply of the services is directly from your client to the purchaser. The fee you receive on the services represents the consideration for the supply of agency services.

Where an entity is registered for GST, GST will apply to any taxable supplies that entity makes.

Section 9-5 of the GST Act defines a taxable supply. Under this section, you make a taxable supply if:

(a) you make a supply for consideration;

(b) the supply is made in the course of an enterprise that you carry on;

(c) the supply is connected with Australia; and

(d) your are registered or required to be registered for GST.

However, the supply will not be a taxable supply to the extent that it is GST-free or input taxed under a specific provision of the GST Act.

As per the arguments above the supply of the services is a taxable supply.