Edited version of your private ruling

Authorisation Number: 1012461159875

Ruling

Subject: GST on consigned sales

Question:

Are you liable for GST on the consigned sales you make on behalf of the owners of the goods?

Decision:

No, you are not liable for GST on the consigned sales you make on behalf of the owners of the goods.

Relevant facts and circumstances

You are registered for GST.

You carry on an enterprise as a business operator.

Your business displays goods on consignment.

You do not purchase the goods before you record, price and display them.

You do not have any written agreements in place with any of the suppliers.

You do not provide any warranty or guarantee of title over the goods. If goods are returned, you send them back to the supplier who conducts the repairs.

The supplier's name and details are displayed and you do not hold the goods out in your own right.

You determine the retail price of the goods by,

1. Adding your GST-inclusive commission on top of the amount the supplier wishes to receive for the sale of the goods; or

2. Displaying the total retail price the supplier requests after negotiating what percentage of the retail price will be your commission.

You finalise each transaction within your business, provide an invoice to the purchaser containing your business name and ABN, accept payment from each purchaser, deduct the commission from the money received and forward the proceeds to the suppliers.

At the end of each month, you provide a statement to the supplier detailing any items sold and the agreed amounts that will be paid to them.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5; and

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

Reasons for decision

Under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you must pay the GST payable on any taxable supplies that you make.

Section 9-5 of the GST Act provides you make a taxable supply if:

· you make the supply for consideration,

· the supply is made in the course or furtherance of an enterprise you carry on,

· the supply is connected with Australia, and

· you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

As the liability for GST rests with the supplier, it is important that you understand the nature of any arrangement you have entered into.

Paragraph 10 of Goods and Services Tax Ruling (GSTR) 2000/37 explains the concept of agency relationships under general law. It states:

An intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent to act on their behalf is called the principal.

Paragraph 11 and 12 of GSTR 2000/37 further explains:

For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties;

The principal is bound by the acts of the agent as a result of the authority given to the agent. In cases of actual authority, the relationship between a principal and an agent is a consensual one so that no party can claim to be a principal's agent unless both parties consent to the creation of the agency.

Paragraph 28 of GSTR 2000/37 talks about the factors which determine whether an agency arrangement exists, it provides that in most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship.

While no single factor (by itself) is determinative, the following factors are indicators that you are an agent under an agency relationship:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party,

· any exercise of the authority that you are given to enter into legal relations with a third party,

· whether you bear any significant commercial risk,

· whether you act in your own name,

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party, and

· whether you decide the price of things that you might sell to third parties.

The way GST applies to consignment sales you make depends on your agreements in place with the suppliers and whether the sale is a 'sale or return' or an 'agency' sale.

Sale or return consignment arrangements

A 'sale or return' arrangement is where you enter into an arrangement with a supplier to sell their goods and the agreement stipulates that you buy the goods from the supplier when a buyer is found. Effectively, you are selling the goods to the purchaser in your own right and where that supply satisfies the requirements of a taxable supply, GST will be payable. In this type of agreement, you are making an acquisition of the goods from the supplier at or before you are making a supply to the purchaser.

Factors which indicate that you are selling consignment goods on a sale or return basis include:

· the amount you pay to the owner when a buyer is found is pre-agreed (this can often evidence an agreement for you to purchase and then resell the goods),

· any amount over and above this pre-agreed amount is yours to keep,

· you set the sale price of the goods,

· you are entitled to keep secret from the owner of the goods the final selling price and details of your remuneration or profit on the transaction,

· you are required to provide a warranty on the goods,

· you are required to guarantee title on the goods.

Where the supplier is not registered for GST, the supply of the goods to you will not be a taxable supply and you will not be entitled to input tax credits for the acquisition of the goods.

Agency arrangement

As listed above, an intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. When you sell consigned goods on behalf of the owner of the goods, you are acting as an 'agent'.

In addition to the factors listed above, other indicators that you are selling consignment goods within an agency arrangement include:

· you do not set the sale price of the goods;

· you receive either a flat rate or percentage commission on completion of the sale;

· you do not hold the goods out in your own right;

· you and the owner of the goods state that you will act as an agent in your agreement.

In your case, you do not purchase the items from the suppliers, nor are there any written agreements between you and the supplier that would indicate a principal-agent taxable supply arrangement is apparent. You negotiate your commission before displaying the goods and the supplier dictates to you an amount that must be charged for the item or minimum amount they must receive from the sale of the item. You do not guarantee title, provide a warranty over the goods or hold the goods out in your own right. When goods are sold, you finalise the transaction with the buyer of the item, deduct your commission and forward the remaining proceeds to the supplier.

Therefore on the above facts, when a supplier sells their consigned goods to a purchaser through you, you are acting as an agent. It is each supplier who would be liable to report the sale in their activity statement if registered for GST.

As you meet the requirements of section 9-5 of the GST Act, you are liable for GST on the commission you receive for your agency services

Examples on the application of the GST rules to your question

(a) Owner is registered for GST and you are registered for GST

Generally, if the supplier is registered for GST, they will be making a taxable supply of goods to the purchaser. The goods will be subject to GST and the supplier will be required to remit 1/11th of the GST-inclusive sale price of the goods to the Tax Office. As you are registered for GST, any commission charged to the supplier will be subject to GST and you will be liable to remit 1/11th of the commission to the Tax Office. As the supplier is registered for GST, they will be entitled to claim an input tax credit for GST payable on the commission, provided that you provide them with a valid tax invoice.

(b) Owner is not registered for GST and you are registered for GST

If the supplier is not registered for GST, the supply of the goods to the purchaser will not be subject to GST as the supply does not constitute a taxable supply. If the agent is registered for GST, then the commission charged to the supplier will still be subject to GST and the agent will be liable to remit 1/11th of the commission to the Tax Office. However, as the supplier is not registered for GST, they will not be entitled to claim an input tax credit for the GST payable on the commission.