Edited version of your written advice

Authorisation Number: 1051293452522

Date of advice: 11 October 2017

Ruling

Subject: GST and supply of rights to Australian entities

Question 1

Is your supply of rights relating to your literary works to the Australian publishers subject to the goods and services tax (GST)?

Advice

No. Your supply of rights relating to your literary works to the Australian publishers is not subject to GST since you have advised that your projected annual turnover will be less than $75,000 and therefore you are not required to be registered for GST.

Question 2

In regard to your acquisition of agency services from your Australian literary agent, is the supply of agency services made by the Australian literary agent to you a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

No. In regard to your acquisition of agency services from an Australian literary agent, the supply of agency services made by the Australian literary agent to you is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are an individual and do not reside in Australia. You are not registered for GST.

You write literary works in your country of residence. You have entered into contracts with Australian publishers and under the contracts you have granted them the sole rights and licence to print, publish and market your work in and outside Australia. You receive an advance payment and royalties for supplying the rights to the publishers. You were not in Australia at the time you signed the contracts with the Australian publishers.

You supply the rights to the publishers through your Australian based literary agent (agent) with whom you have entered into an agreement (copy received). The agent withholds a commission on all monies related to the sale or royalties for a work and remits your share of the fund collected in your bank account. Your agent represents your literary works in and outside Australia.

Your agent is registered for GST

Under the agreement with your agent:

● The agent will represent your interests exclusively and to the best of their ability in and outside Australia in relation to the exploitation of all your works.

● The agent will act on your behalf in negotiating terms for the sale and licensing of all rights in your books and scripts (the works), in particular volume and subsidiary rights with respect to publishing. These include electronic, film, TV, radio and theatrical rights as well as CD, DVD, musical and all other related rights in the work only when/if the issue arose.

● The agent will charge a commission which will be a percentage of the income arising from all contracts for the exploitation of the work you create and entered into during the period the agent represents you.

● You agree that all publishers of the work as well as purchasers and licensee of subsidiary rights will be directed and authorised by you to remit all payments to your agent

Your annual turnover for the years before the financial year 2017 was less than $75,000. For the financial year 2017 your turnover was above $75,000 and for the financial year 2018 you predict your turnover would be less than $75,000. The increase in income for the financial year 2017 is because of a onetime payment.

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 23-5

A New Tax system (Goods and Services Tax) Act 1999 section 38-190

A New Tax system (Goods and Services Tax) Act 1999 Division 188

Reasons for decision

Note: Where the term ‘Australia’ is used in this document, it is referring to the ‘indirect tax zone’ as defined in section 195-1 of the GST Act.

Question 1

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a) the supplier makes the supply for consideration; and

b) the supply is made in the course of an enterprise that the supplies carries on; and

c) the supply is connected with Australia; and

d) the supplier is registered for GST.

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

You must satisfy all the above for your supply to be a taxable supply and to be liable for the GST.

When you supply the rights of your literary work to the Australian publishers your supply satisfy paragraphs 9-5(a) and 9-5(b) of the GST Act as you make the supply of rights for consideration and the supply is made in the course of the enterprise that you carry on.

The next step is to consider whether your supply of rights is connected with Australia and whether you are required to be registered for GST.

Paragraph 9-5(c) of the GST Act - connected with Australia

Under subsection 9-25(5) of the GST Act, a supply of anything other than goods or real property (for e.g rights) is connected with Australia if:

a) the thing is done in Australia; or

b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

c) the thing is a right or option to acquire another thing and the supply of that other thing would be connected with Australia; or

d) the recipient of the supply is an Australian consumer (from 1 July 2017).

An Australian consumer is an Australian resident that is not registered for GST or is registered for GST and acquires the thing solely for private purposes.

Only one of the above paragraphs needs to be satisfied for your supply of rights to be connected with Australia. Therefore it is necessary to consider all paragraphs when determining whether your supply is connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance on when a supply is connected with Australia.

Paragraph (a) of subsection 9-25(5) of the GST Act

In regard to supply of rights under an agreement, we consider that the granting of that right to another is done where the agreement is made. If the agreement is made in Australia, the supply of that right is connected with Australia. If the agreement is made outside Australia, the supply is not connected with Australia under paragraph 9-25(5)(a).

You advised that you were not in Australia when you enter into an agreement with the Australian publishers for your supply of rights to them. In this instance your supply of rights to the Australian publishers is not connected with Australia as it is not done in Australia.

Paragraph (b) of subsection 9-25(5) of the GST Act

If the supply of a thing is not connected with Australia because the thing is not done in Australia, the supply is connected with Australia if, under paragraph 9-25(5)(b) of the GST Act the non-resident supplier makes the supply through an enterprise that it carries on in Australia.

Section 9-27 of the GST Act explains the concept when an enterprise is carried on in Australia for GST purposes. This section states:

9-27 When enterprises are carried on in the indirect tax zone

(1) An *enterprise of an entity is carried on in the indirect tax zone if:

a) the enterprise is *carried on by one or more individuals covered by subsection (3) who are in the indirect tax zone; and

b) any of the following applies:

i. the enterprise is carried on through a fixed place in the indirect tax zone;

ii. the enterprise has been carried on through one or more places in the indirect tax zone for more than 183 days in a 12 month period;

iii. the entity intends to carry on the enterprise through one or more places in the indirect tax zone for more than 183 days in a 12 month period.

(2) It does not matter whether:

a) the entity has exclusive use of a place; or

b) the entity owns, leases or has any other claim or interest in relation to a place.

(3) This subsection covers the following individuals:

a) if the entity is an individual—that individual;

b) an employee or *officer of the entity;

c) an individual who is, or is employed by, an agent of the entity that:

i. has, and habitually exercises, authority to conclude contracts on behalf of the entity; and

ii. is not a broker, general commission agent or other agent of independent status that is acting in the ordinary course of the agent’s business as such an agent.

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

Law Companion guide LCG 2016/1 – GST and carrying on an enterprise in the indirect tax zone (Australia) provides guidance on when a non-resident is carrying on an enterprise in Australia.

Section 9-27 of the GST Act applies to agents that are dependent agents who have, and habitually exercise, authority to conclude contracts on behalf of their principal.

The agreement you have with your agent provides that the agent will act on your behalf in negotiating terms for the sale and licensing of all rights in your books and scripts (work), in particular volume and subsidiary rights with respect to publishing. These include electronic, film, TV. Radio and theatrical rights, as well as CD, DVD, musical and all other related rights in the work only when/if the issue arose. The agent will represent your interests exclusively and to the best of their ability in and outside Australia in relation to the exploitation of your works and they will not commit you to any agreement without your written consent.

From the above we consider section 9-27 of the GST Act applies to you as you are making your supply of rights to the Australian publishers through your dependent agent, who is carrying on their business in Australia. In this instance your supply of rights to the publishers is connected with Australia under paragraph 9-25(5)(b) of the GST Act by virtue of section 9-27 of the GST Act.

Since paragraph 9-25(5)(b) is satisfied there is no need to consider paragraphs (c) and (d) of subsection 9-25(5) of the GST Act.

The next step is to consider whether you are required to be registered for GST since the supplies of rights to the publishers need to be considered when calculating your GST turnover.

GST registration

Under section 23-5 of the GST Act, you (resident and non-resident) are required to be registered for GST if:

● you are carrying on an enterprise (business); and

● your GST annual turnover meets or exceeds the GST turnover registration threshold of A$75,000 (A$150,000 for non-profit).

Your GST turnover will reach the GST turnover registration threshold if either:

● your 'current GST turnover' (turnover for the current month and the previous 11 months) totals A$75,000 or more (A$150,000 or more for non-profit organisations); or

● your 'projected GST turnover' (your total turnover for the current month and the next 11 months) is likely to be A$75,000 or more (A$150,000 or more for non-profit organisations).

Your GST turnover is your gross sales revenue, excluding:

● sales not connected with Australia

● GST you included in sales to your customers

● sales that are not made for payment and are not taxable

● input-taxed sales you make

● GST-free sales not made through an enterprise in Australia

● sale of a right or option to purchase something that is not done in Australia or made through an enterprise carried on in Australia while the underlying sale would be connected with Australia

● sale of a right or option to purchase something that is not done in Australia or made through an enterprise carried on in Australia while the underlying sale would be connected with Australia unless all of the following apply

● the sale is made to an Australian consumer

● the sale is not GST-free

● the underlying sale is not a sale of goods or real property.

Goods and Services Tax Ruling GSTR 2001/7 provides guidance in regard to GST turnover. Paragraphs 16 to 19 of GSTR 2001/7 state:

Whether your GST turnover meets, or does not exceed, a turnover threshold

16. Whether you have a GST turnover that meets or does not exceed a particular turnover threshold depends on an objective assessment of your projected GST turnover and current GST turnover. An 'objective assessment' is one that a reasonable person could be expected to arrive at having regard to the facts and circumstances which apply to your enterprise at the relevant time. The Commissioner will accept your assessment of these turnovers unless he has reason to believe that your assessment was not reasonable.

17. Under sub-section 188-10(1), you meet a particular threshold if your projected GST turnover is at or above the threshold. You also meet a turnover threshold if your current GST turnover is at or above the turnover threshold and it is not possible to conclude that your projected GST turnover is below the threshold. This will occur if your projected GST turnover is also above the relevant threshold, or if your circumstances are such that it is not possible to calculate a projected GST turnover. In either of these situations, the Commissioner cannot be satisfied that your projected GST turnover is below the turnover threshold.

18. Similarly, under sub-section 188-10(2), you have a GST turnover that does not exceed a particular turnover threshold if your projected GST turnover is at or below that threshold. You also do not exceed a turnover threshold if your current GST turnover is at or below the turnover threshold and it is not possible to conclude that your projected GST turnover is above the threshold. This will occur if your projected GST turnover is at or below the relevant threshold or your circumstances are such that it is not possible to calculate a projected GST turnover. In either of these situations, the Commissioner cannot be satisfied that your projected GST turnover is above the turnover threshold.

19. Although your current GST turnover and your projected GST turnover may be capable of being determined on every day during a month, there is no requirement for continuous recalculation. However, under the GST Act there are obligations if you meet or exceed a particular threshold and there is an opportunity for you to make certain elections if you do not exceed a particular threshold. Therefore, you should be aware of the relevant thresholds likely to affect you and consider whether your turnover may be sufficiently close to the relevant thresholds to make a review prudent. For example, Entity A conducts an enterprise with a GST turnover of $70,000 and is not registered for GST. Because Entity A is aware that a $5,000 increase in its GST turnover will result in the $75,000 registration turnover threshold being met, it should monitor changes in its turnover. Entity B by contrast, is registered for GST, conducts an enterprise with a GST turnover of $600,000 and accounts on a cash basis. The nearest relevant threshold is the cash accounting turnover threshold ($2,000,000). Entity B may decide to review its current GST turnover and projected GST turnover on an annual basis whilst being aware that a significant change in turnover may require a further review.

From the facts given, your income for the 2017 financial year was above $75,000 and you consider that your projected turnover for the 2018 financial year would be less than $75,000. Your income for the years before the 2017 financial year was below $75,000. The increase of income for the 2017 financial year was due to a one-time payment.

Under section 23-5 of the GST Act you are required to be registered if your current or projected turnover is $75,000 or more. You advised that your projected turnover will be less than $75,000. Due to the nature of your business, in this instance you are not required to be registered for GST because of your projected turnover being under $75,000. Paragraph 9-5 (d) of the GST Act is not satisfied. Your supply is therefore outside the scope of GST.

However, if you are not registered for GST, you need to check each month to see whether you have reached the threshold, or are likely to exceed it. If your turnover exceeds the relevant threshold, you must register within 21 days of reaching it.

If you do not register for GST and are required to do so, you may have to pay GST on the supplies you have made since the date you became required to be registered for GST. This could happen even if you did not include GST in the price of those supplies. You may also have to pay penalties and interest.

Summary

Based on the information given, your supply of rights to the Australian publishers is not a taxable supply as you are not required to be registered for GST.

Additional information

For completeness of this issue the following is provided to you in the event you are required to be registered for GST.

Where you are required to be registered for GST your supply of rights will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act. However your supply of rights is not a taxable supply to the extent that it is GST-free or input taxed. Your supply of rights is not an input taxed supply under the GST Act.

GST-free supply

Relevant to the supply of rights is item 4 in the table in subsection 38-190(1) of the GST Act (item 4).

Under item 4 a supply that is made in relation to rights is GST-free if:

a) the rights are for use outside Australia; or

b) the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

From the facts given, the rights you supply to the Australian publishers will be use in and outside Australia.

Where the rights are for use outside Australia your supply is GST-free under paragraph (a) of item 4. Where the rights are for use in Australia your supply will be a taxable supply under section 9-5 of the GST Act. In this instance your supply will be a mixed supply of taxable and GST-free supplies. You will need to apportion the consideration received between the taxable and GST-free supplies.

Goods and Services Tax Ruling GSTR 2001/8 may be of assistance to you to do the apportionment.

Summary

Where you are required to be registered for GST your supply will be a mixed supply of taxable and GST-free supply of rights. You will need to apportion the consideration you receive for this mixed supply.

Question 2

When your agent supplies their agency services to you, the supply satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a) the agent makes the supply of agency services for consideration; and

b) the supply is made in the course of an enterprise that the agent carries on; and

c) the supply is connected with Australia as the supply is made through a business that the agent carries on in Australia; and

d) the agent is registered for GST.

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

There is no provision under the GST Act that makes the supply of agency services input taxed.

GST-free supply

Relevant to the supply of agency services made to you is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that is made to a non-resident, who is not in Australia when the thing supplied is done, and:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

Only one of the paragraphs needs to be satisfied for the supply to be GST-free.

Precondition of item 2 – non-resident is 'not in Australia'

The requirement that the non-resident in item 2 is not ‘in Australia’ when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2. The ruling is available at ato.gov.au

A supply that is made to an individual is a supply to a non-resident if the individual is not a resident of Australia, as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), for Australian income tax purposes. Residency status is a question of fact and is one of the main criteria that determine an individual’s liability to Australian income tax.

A non-resident individual must be physically in Australia to be ‘in Australia’.

A non-resident individual is in Australia in relation to the supply if the non-resident individual is involved with the supply while in Australia. A non-resident individual is involved with the supply where the non-resident is in contact with the supplier while in Australia and that contact is not minor (e.g a courtesy call or checking on the progress of the supply).

If the non-resident individual is in Australia for a purpose that is not related to the supply, e.g the individual is on holiday in Australia and has no contact with the supplier or only has minor contact, the non-resident individual is not considered to be involved with the supply and is therefore ‘not in Australia in relation to the supply’.

A supply to a non-resident individual who is physically in Australia and involved, other than in a minor way, with the supply is taxable during the period of that involvement. The period of the individual’s involvement while in Australia is determined on a reasonable basis having regard to the circumstances of the case. That part of the supply that is done when the non-resident individual is not physically in Australia, or is physically in Australia but not involved with the supply will satisfy the requirement that the ‘non-resident is not in Australia in relation to the supply’.

From the facts given you reside outside Australia and are a non-resident for the Australian income tax; further you are not in Australia at any time in relation to the supply. In this instance you satisfy the requirement for the non-resident not to be ‘in Australia in relation to the supply’.

The next step is to consider the paragraphs in item 2.

Paragraph (a) of item 2

Paragraph (a) of item 2 requires that the supply of services is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is a supply of work physically performed on goods and when a supply is directly connected with real property.

From the facts given, the agency services made to you satisfy paragraph (a) of item 2 as the supply of agency services is neither a supply of work physically performed on goods situated in Australia when done nor a supply directly connected with real property situated in Australia.

In this instance the supply of agency services is GST-free to the extent it is not negated by subsection 38-190(3) of the GST Act.

There is no need to consider paragraph (b) of item 2 as paragraph (a) is satisfied.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table is not GST-free if:

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

b) the supply is provided or the agreement requires it to be provided to another entity in Australia; and

c) for a supply other than an input taxed supply – none of the following applies:

i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;

ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient’s acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on subsection 38-190(3) of the GST Act.

From the facts given, subsection 38-190(3) of the GST Act does not apply as you have not requested the agent to provide their agency services to another entity in Australia.

Summary

The supply of agency services to you is GST-free under paragraph (a) of item 2.