Edited version of your private ruling

Authorisation Number: 1012578808441

Ruling

Subject: GST and provision of goods and services to the blogger

Question 1

Are GST input tax credits able to be claimed for the provision of goods and services to the blogger?

Answer

No.

Relevant facts and circumstances

A trades through B to provide a professional image. B earns income from an existing business activity.

A is a goods and services blog, it will have a website, logo, and business cards. A's aim is to provide captivating online reviews of goods, develop a reader base and generate revenue through the sale of advertising and paid reviews.

A intends to invest money over five years into building its brand. A will purchase products or services and supply them to the reviewer to conduct the review.

A does not advertise to source products for review. Products and services are identified through various active and passive means. Products are selected based on whether or not the reviewer considers people might be interested in reading about them.

Once A has built a reputation it is hoped that vendors will provide their products free of charge to be reviewed. Several reviews have been written, however none of these have been published on a website. Currently the activity has not generated any revenue from advertising.

The profit and loss forecast shows that revenue will exceed expenses in a few years. To generate advertising revenue, A will only publish reviews that are generally positive in nature. This will increase the likelihood of revenue and reduce business risks.

There is only one current staff member. That person's skills or strengths are listed in the business plan as a passion for goods.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

Reasons for decision

Summary

GST input tax credits are not able to be claimed for the provision of goods and services to the blogger

Detailed reasoning

You are entitled to input tax credits for your creditable acquisitions. Creditable acquisition is defined by section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

For the purposes of this ruling we will assume that the acquisitions in question arise from taxable supplies (paragraph (b) above) and that A will either pay or be liable to pay for them (para (c)). B, the company A trades through is registered for GST (para (d)). Creditable purpose (para (a)) is defined by section 11-15 of the GST Act, importantly, part of the definition relates to an acquisition being made in carrying on an enterprise:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

In accordance with paragraph 9-20(1)(a) of the GST Act, an activity or series of activities done in the form of a business is an enterprise.

In accordance with paragraph 9-20(1)(b) of the GST Act, an activity or series of activities done in the form of an adventure or concern in the nature of trade is an enterprise.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for the purposes of entitlement to an ABN.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the principals in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.

Paragraph 170 of MT 2006/1 provides that an activity in the form of a business includes a business and the use of the phrase 'in the form of' indicates a wider meaning than the word 'business' on its own.

Paragraph 177 of MT 2006/1 states:

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

We shall now consider whether A's activity of reviewing and publishing a blog is a business.

The question of whether a business is being carried on is a question of fact and degree. The courts have developed a series of indicators to determine the matter. These indicators are summarised in Taxation Ruling TR 97/11. These indicators are applicable to business activity generally. Paragraph 13 of TR 97/11 lists these indicators as follows:

· whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

· whether the taxpayer has more than just an intention to engage in business;

· whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

· whether there is repetition and regularity of the activity;

· whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

· whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

· the size, scale and permanency of the activity; and

· whether the activity is better described as a hobby, a form of recreation or a sporting activity.

Whether the taxpayer has more than an intention to engage in business

In accordance with paragraph 39 of TR 97/11, a mere intention to carry on a business is not enough. There must be activity. Brennan J in Inglis v. FC of T 80 ATC 4001 at 4004-4005; (1979) 10 ATR 493 at 496-497 said that:

'The carrying on of a business is not a matter merely of intention. It is a matter of activity. ... At the end of the day, the extent of activity determines whether the business is being carried on. That is a question of fact and degree.'

A has indicated that unlike reviewers it will only publish favourable reviews. This is considered to limit the extent of the activity.

Whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity

A states that it has an aim to generate advertising revenue through the two to three blogs written each week. We consider that the prospect of profit is absent given the nature of blogging in as much as competing bloggers of products and services do so freely.

Whether there is repetition and regularity of the activity

Paragraph 55 or TR 97/11 states:

55. It is often a feature of a business that similar sorts of activities are repeated on a regular basis. The repetition of activities by the same person over a period of time on a regular basis helps to determine whether there is the 'carrying on' of a business. For example, in Hope the 'transactions were entered into on a continuous and repetitive basis', such that the taxpayer's activities 'manifested the essential characteristics required of a business'. Similarly, in JR Walker the court held that there was repetition and regularity in the taxpayer's activities directed to the breeding of high quality Angora goats and to keeping up with the latest information on Angora goats.

You intend to write two to three blogs a week.

There would be repetition and regularity in terms of action required by A in respect of its activity of writing blogs albeit not writing when an unfavourable review is the likely outcome.

Whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business

The activities of a taxpayer are more likely to be a business when carried on in a manner similar to that in which other participants in the same industry carry on their activities.

Unlike mainstream reviewers A will not blog about all available products and services, just those that may garner a favourable review and are also thought to be interesting to readers. We believe that the majority of bloggers are not in business, particularly one with restrictions such as this.

Whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit

A's publishing of blogs is planned, organised and carried on in a businesslike manner such that it is directed at making a profit.

Size, scale and permanency of the activity

The larger the scale of the activity the more likely it will be that the taxpayer is carrying on a business. However the size or scale of the activity is not a determinative test and a person may carry on a business though in a small way.

A will publish two to three reviews a week; one reviewer will be responsible for this.

This indicator alone is not conclusive. The smaller the scale of the activity the more important the other indicators become when deciding whether a taxpayer is carrying on a business.

Significant commercial activity

Paragraph 29 of TR 97/11 provides that:

· The 'significant commercial purpose or character' indicator is closely linked to the other indicators and is a generalisation drawn from the interaction of the other indicators. It is particularly linked to the size and scale of the activity, the repetition and regularity of the activity and the profit indicators.

· A way of establishing that there is a significant commercial purpose or character is to compare the activities with those of a taxpayer who is carrying on a similar activity that is a business.

The size and scale of the activity of publishing blogs would be small.

· There would be some repetition and regularity in this activity in terms of the action needed to be taken.

· There is a purpose of profit.

· It is questionable whether there will be a profit.

· This activity would not be carried on in a similar manner to an ordinary professional reviewer's business; i.e. only positive blogs are published.

The overall impression from considering the factors set out in paragraph 29 of TR 97/11 in combination is that there would not be a significant commercial purpose or character to the activity of blogging.

Whether the activity is better described as a hobby, a form of recreation or a sporting activity

A's activity of blogging could be described as a hobby, a form of recreation or a sporting activity.

From a consideration of the indicators above, A's activity of blogging would not amount to the carrying on of a business because:

· there is a lack of a significant commercial purpose or character;

· the extent of your activity is very low

· the propensity to actually make a profit is questionable

· the activity when compared to an ordinary business of reviewing could not be said to be similar; and

· the size and scale of the activity is very small.

The relevant factors point more strongly to the conclusion that A is not carrying on a business of blogging. While there is a profit motive, the prospect of profit is not bright and the activity is not extensive enough to amount to a business. The activity when considered against the relevant indicators is better described as recreational pursuit or hobby, similar to that of most bloggers.

Therefore, A's blogging is not an activity done in the course or furtherance of a blogging enterprise. A's publication of blogs is not connected with the activities for which B holds its existing GST registration. Therefore, the acquisitions A makes in the course of blogging are not made in the course or furtherance of the registrant's existing enterprise.

Therefore, the requirement of paragraph 11-5(a) of the GST Act is not satisfied.

Conclusion

As A does not satisfy all of the requirements of section 11-5 of the GST Act, it does not make creditable acquisitions of goods and services. Therefore, GST input tax credits are not claimable on these acquisitions.