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Edited version of your private ruling
Authorisation Number: 1012582824020
Ruling
Subject: GST and commissions paid
Question 1
Will X have a GST liability in respect of commissions paid to people who sell X's products and services?
Answer
No.
Relevant facts and circumstances
X is about to engage the services of people who will become its agents to sell services (Agents). This will be done under Licence which will be granted on condition that the appropriate training is undertaken.
The Agents will conduct their own business, in their own time under the name 'XL'. The Agents will be paid commission only, based entirely on the number of referrals that they send to X and that X completes and receives payment. If payment is not received by X, no commission will be paid to the Agents.
X has sought advice on whether the Agents could be considered to be its employees. For the purposes of this ruling we will presume that the Agents are not employees of X.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 9-40
Reasons for decision
Summary
X will not have a GST liability in respect of commissions paid to Agents.
Detailed reasoning
GST is a tax levied on supplies and the liability for its payment to the Australian Taxation Office rests with the supplier. A GST registered supplier will include a component of GST in the price charged for supplies.
In the scenario outlined the Agents will supply X with referral services and are remunerated by commission when a referral is successful. The Agents, as suppliers will make taxable supplies if their referral services meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):
You make a taxable supply if:
(a) you make the supply for *consideration; and
(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c) the supply is *connected with Australia; and
(d) you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.
Section 9-40 of the GST Act confirms that it is the supplier who has any resultant GST liability:
You must pay the GST payable on any *taxable supply that you make.
Conversely, X as recipient of the Agents' supplies will not have a GST liability for these supplies (or for the commissions it pays).