Edited version of your private ruling

Authorisation Number: 1012607821503

Ruling

Subject: GST and supply of access to online software to specific agents

Questions

1. Are you making a taxable supply under section 9-5 of the A New Tax system (Goods and Services Tax) Act 1999 (GST Act) to the relevant agents who are in Australia when they subscribe to the online access of your software?

2. Are you making a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act to the relevant agents who are not in Australia when they subscribe to the online access of your software?

Advice

1. Yes, you are making a taxable supply under section 9-5 of the GST Act to the relevant agents who are in Australia when they subscribe to the online access of your software.

2. Yes, you are making a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act to the relevant agents who are not in Australia when they subscribe to the online access of your software.

Relevant fact

You are an Australian company and registered for goods and services tax (GST). You operate an online system from software that is located on your website and this system connects third party suppliers with relevant agents. The website is an Australian based domain and is operated in Australia.

Agreement with supplier

The supplier advertises relevant products on your online system (for example holiday packages, airfares and so on). In order to list their products on your online system the supplier must accept the terms and conditions in the standard supplier agreement (copy of agreement given to us).

You advised you do not receive any fees from the suppliers when they advertise their products on your online system and you do not purchase any products from the suppliers. The suppliers determine the price for the relevant products they wish to advertise and relevant agents will purchase the products and associated rights on behalf of their customers. Customers are provided a confirmation voucher that is presented to the supplier at the time of use.

Agreement with specific agents

You enter into a standard Access Agreement with relevant agents which allow the relevant agent to subscribe for access to your online system (copy of an unexecuted agreement given to us). Once subscribed, the relevant agent can access your online system and view the products offered by the suppliers. You advised that you may provide the relevant agent with a transaction report but do not issue any invoice in relation to the relevant products.

The relevant agent has to pay an annual licence fee and a service fee when subscribing for access to your online system.

You advised the relevant agents are currently based in Australia and overseas. The relevant agents located overseas are non-residents of Australia for the purposes of the Income Tax Assessment Act 1936 and are not registered for the Australian GST. The relevant agents are acquiring the access to your online system for their business purposes. The overseas relevant agents are not carrying on an enterprise in Australia through a fixed or definite place of their own or through an agent for a sufficiently substantial period of time.

The agreement provides amongst other things the following:

• you grant to the subscriber the right to use the online system on the terms and conditions set out in the attached General Terms (including the glossary of defined terms attached), pricing schedule and any other schedules as amended subsequently in any alteration.

• the subscriber acknowledges that all copyright and other industrial and intellectual property rights of whatever nature that subsist or may subsist in the system including, without limitation, patents, trademarks, copyrights, connect templates and trade secrets, are and shall remain your absolute property or the parties through whom you have the right to license the subscriber's use of the online system. Any cloning of the online system is not authorised… The subscriber will not do or permit anything to be done in connection with the names, other trade mark, trade name or logo which you or your associates owns or is entitled to use which …

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 38-190

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decisions

Questions 1 and 2

Summary

Based on the information received, you are making a taxable supply of online access to the relevant agents who are in Australia under section 9-5 of the GST Act.

You are making a GST-free supply of online access to the relevant agents who are not in Australia under item 2 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

Characterisation of supply

In determining the GST status of a supply a distinct characterisation of the supply is required as different test applies under the GST law. For GST purposes a supply can be characterised as follows:

• a supply of goods

• a supply of real property

• a supply of anything other than goods or real property.

Hence we need to determine the character of your supply before determining the GST status of your supply to the relevant agents.

Your supply of access to an online software application is not considered a supply of goods as there is no tangible property supplied. Furthermore it is clear that the supply is not a supply of real property. It is therefore a supply of things other than goods or real property.

Supplies involving software are discussed in Goods and Services Tax Ruling GSTR 2003/8 which states that computer software supplied in intangible form, for example by downloading it from the internet, is not a supply of goods (as no tangible property is supplied) and is not necessarily a supply of rights even when the recipient also receives a 'click-wrap' licence; but a supply of the copyright in a program which allows the recipient to modify, adapt, or copy the program for commercial purposes is a supply that is made in relation to rights (paragraphs 89-90).

From the facts given, the supply of access to an online software application by you to the relevant agents is subjected to various restrictions on its use. You do not supply any rights to the copyright or any other intellectual property rights under the Agreement with the relevant agents. Accordingly your supply of access to the online software application is not a supply of right. In this instance we consider you are making a supply of services when providing the access to the online software application to the relevant agents.

The next step is to determine the GST status of the supply of services to the relevant agents.

GST status of supply

GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a supply is 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 for GST.

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

Your supply of access to your online software application to the relevant agents will be a taxable supply if it meets all the requirements in section 9-5 of the GST Act.

Based on the information provided you satisfied paragraphs 9-5(a) to 9-5(d) of the GST Act when you make your supply to the relevant agents as:

a) you make the supply for consideration since you receive a fee from the relevant agents when they subscribe for access to your online software; and

b) you operate an online system from your website and the supply to access the online software is made in the course of the online business that you are carrying on; and

c) in regard to supply of services, paragraph 65 of Goods and Services Tax ruling GSTR 2000/31 states that a supply of service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia under paragraph 9-25(5)(a) of the GST Act. This is the case even if the recipient of the supply is outside Australia.

In this instance your supply is connected with Australia as the supply of access to the online software is done in Australia and the supply is made through a business that you are carrying on in Australia; and

d) you are registered for GST.

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

Supply to specific agents based in Australia

There is no provision under the GST Act that makes your supply to relevant agents based in Australia GST-free or input taxed. Accordingly your supply to the relevant agents based in Australia is a taxable supply under section 9-5 of the GST Act.

Supply to specifict agents based outside Australia

There is no provision under the GST Act that makes your supply to relevant agents based outside Australia input taxed. The GST Act does have provision for GST-free supplies when the supplies are consumed outside Australia.

Relevant to your supply to the overseas relevant agents is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 appears as follows:

(* denotes a defined term under section 195-1 of the GST Act)

For a supply to be within the scope of Item 2, the supply must be made to a non-resident who is not in Australia when the thing supplied is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply.

From the facts given, the relevant agents are non-residents who are not in Australia at the time of your supply. They do not carry on any business activity in Australia. In this instance, your supply to the overseas relevant agents satisfies the GST-free requirements in paragraph (a) of Item 2 as:

• the non-residents relevant agents are not in Australia in relation to the supply when the supply is made; and

• the supply is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Further, your supply of access to the online software will satisfy paragraph (b) of Item 2 where the non-resident relevant agents are not required to be registered for GST since the non-resident relevant agents acquire the access to the online software for their business purposes and currently are not registered for GST.

Your supply to the overseas relevant agents is GST-free under Item 2 to the extent that they are not negated by the limitations discussed below.

Limitations

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

From the facts given, subsection 38-190(2) of the GST Act is not applicable as the supply of the access to the online software is not a supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

From the facts given, subsection 38-190(2A) of the GST Act is not applicable as the acquisition of access to your online supply does not relate to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 is not GST-free if:

• it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and

• the supply is provided or the agreement requires it to be provided, to another entity in Australia.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable as you are not required to provide the access to the online software to another entity in Australia.

Accordingly, based on the information you provided the supply of access to the online software which you make to the non-resident relevant agents is GST-free under Item 2.

For more information on Item 2 and subsection 38-190(3) of the GST Act refer to Goods and Services Tax Rulings GSTR 2004/7 and 2005/6 (available at www.ato.gov.au).