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Ruling
Subject: goods and services tax (GST) and calculating GST on sales commissions relating to sales of artwork.
Question
Are your formulas for calculating GST relating to your commissions where the artist is not registered for GST correct?
Answer
Yes.
Relevant facts and circumstances
You are registered for GST.
You have an art gallery
You provide a service of selling artworks of artists. You receive commissions from the artists for these services.
Under your arrangements with artists who are not registered for GST, you and the artists agree on certain terms for calculating your sales commissions.
You provided an example of your formulas for calculating GST relating to your commissions where the artist is not registered for GST.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-70
A New Tax System (Goods and Services Tax) Act 1999 subsection 9-75(1)
Reasons for decision
Summary
Under the arrangements in question, the GST amounts you would be arriving at would be 1/11th of the price of your supply of the selling services (the commission). Therefore, your formulas for calculating GST under these arrangements would be correct.
Detailed reasoning
GST is payable by you on your supplies of selling services.
In accordance with section 9-70 and subsection 9-75(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST is 10% of the GST exclusive value of a taxable supply and the GST exclusive value of a taxable supply is 10/11ths of the price. Therefore, GST forms a component of the price of a taxable supply and it is 1/11th of the price.
The price of your supply is the commission. Because GST forms part of the price of a taxable supply, GST forms part of the price of your supply (even though you are required to remit the GST amount to the ATO). The other component of your price is the amount 'retained by the gallery'.
Under the arrangements in question, the GST amounts you would be arriving at using the proposed formulas would be 1/11th of the price of your supply of the selling services. Therefore, your formulas for calculating GST under these arrangements would be correct.
In the example you gave, the price of your supply would be a certain amount (a certain amount, which is 'retained by the gallery' + a certain amount, which you would propose to forward to the ATO as GST). The correct GST liability would be 1/11th of a certain amount (the price of your supply), which is a certain amount, which is the figure that you have arrived at.