Edited version of your written advice

Authorisation Number: 1051465884694

Date of advice: 18 December 2018

Ruling

Subject: GST and third party payments

Question

Is the specified payment (payment X) paid by Y to you pursuant to a specified arrangement (arrangement X) consideration for a taxable supply of goods made by you to Y?

Answer

No. Payment X paid by Y to you pursuant to arrangement X is consideration for a taxable supply of goods made by you to the customer. You are liable to pay an amount equal to 1/11 of payment X (which is equal to the customer sale price of the goods) as GST.

Relevant facts and circumstances

You are registered for GST.

You provided a copy of your agreement with Y (the Agreement).

Pursuant to the Agreement, you are appointed to promote Y’s particular products and services upon the terms of the Agreement.

You also own particular goods (the goods) that you purchase from your suppliers for resale to customers.

The Agreement provides that you are an independent contractor unless a relationship is expressly created under the Agreement.

The Agreement indicates that under some arrangements with Y, you sell the goods to the customer as an agent of Y. In this situation, the Agreement provides that you sell the goods to Y immediately prior to their sale by Y to the customer (through you as their agent). Y pays you consideration for the supply of the goods to Y.

Under another arrangement provided for in the Agreement (arrangement X), you sell the goods to the customers in your own right, that is, you are the supplier of the goods and you supply the goods directly to the customers. In such a situation Y pays you payment X.

The business procedures for the supply of the goods under arrangement X is as follows:

● You purchase goods in the course of your business. The supply of the goods to you is a taxable supply and you claim a GST credit for the acquisition of the goods.

● The customer signs up for a service with Y and purchases the goods for an additional cost on a plan with Y.

● You carry out all the checks required and hand over the goods to the customer after a contract between the customer and Y is signed.

● Y sets the customer sale price of the goods to be sold to the customers under arrangement X.

● Y pays you payment X which is equal to the full customer sale price of the goods.

● Payment X is shown on the RCTI issued by Y to you, with a nil GST component.

● The customer commits to repay the cost of the goods to Y by instalments over the term of their contract with Y.

You provided copies of some RCTIs issued to you by Y which show the total amount for each category of payments that Y made to you during a relevant period on a separate line.

The RCTI shows that payment X is the only payment made by Y where the GST amount is shown as $0.00.

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 9-15

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 29-70(2)

Reasons for decision

Summary

When you supply goods under arrangement X, you make a supply to the customer in your own right and not as an agent of Y.

Y pays you payment X, which is equal to the full customer sale price of the goods, on behalf of the customer. Therefore, you receive consideration for the supply albeit from a third party.

Your supply of the goods to the customer is a taxable supply as it meets all requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You are therefore liable to pay an amount equal to 1/11 of the customer sale price (which is equal to the payment X that you receive from Y in respect of the supply of the goods under arrangement X) as GST.

Detailed reasoning

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act states:

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 the indirect tax zone; 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.

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

Paragraph 9-5(a) of the GST Act requires that ‘you’ make the supply for consideration.

Therefore we need to determine whether you make a supply for consideration when the goods are supplied to a customer under arrangement X.

Supply

Based on the information provided, you purchase the goods from your suppliers. The supplies of the goods to you are taxable supplies and you claim GST credits for the acquisitions of the goods. Therefore you are the owner of the goods and hold title to the goods prior to their sales to customers.

The Agreement indicates that under some arrangements you sell the goods to the customers as an agent of Y and under other arrangements you sell the goods in your own right, directly to the customer.

The terms of the Agreement show that under arrangement X you do not supply the goods to Y first and then supply them to the customer as agent of Y. Rather, you supply the goods in your own right as a principal directly to the customer.

Accordingly, when you supply the goods under arrangement X, you make a supply directly to the customer as you are the owner of the goods immediately prior to their sale to the customer.

Consideration

Subsection 9-15(1) of the GST Act provides that consideration for a supply includes any payment, or any act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

Further, subsection 9-15(2) of the GST Act states that the consideration does not have to come from the recipient of the supply.

When you supply the goods to the customer under arrangement X, you receive the full customer sale price of the goods (payment X) from Y. Accordingly, a supply under arrangement X involves three parties, you, entity Y and the customer.

Tripartite Arrangement

Paragraph 115 of Goods and Services Tax Ruling Goods and services tax: supplies (GSTR 2006/9) provides that an analysis of a tripartite arrangement may reveal:

● a supply made to one entity but provided to another entity

● two or more supplies made, or

● a supply made and provided to one entity and consideration paid by a third party.

Paragraph 117 of GSTR 2006/9 sets out six propositions to assist in characterising supplies and analysing the more complex tripartite arrangements.

Proposition 14 is relevant for consideration which provides that ‘A third party may pay for a supply but not be the recipient of the supply’. This is discussed in paragraphs 177 to 216 of the ruling.

Paragraphs 177 to 178 of GSTR 2006/9 discuss subsection 9-15(2) of the GST Act and provide that the payment does not have to come from the recipient of the supply. That is, the GST Act does not require that the supply be made to the entity that pays the consideration as long as there is a supply and the provision by some person of consideration in respect of that supply. Further stating that it makes no difference to the GST liability of the supplier which entity provides the consideration.

To determine whether the third party is a third party payer or the recipient of the supply it is necessary to examine the relevant facts and circumstances of the arrangement entered into.

Examining the Agreement is the starting point in analysing the arrangement between the parties in order to determine who is making a supply to whom under arrangement X and who is providing consideration for the supply.

As stated above, you are the owner of the goods at the time of their supply to the customers. The supply of the goods to the customers under arrangement X is governed by the Agreement between you and Y. Under arrangement X, Y sets the customer sale price of the goods. When a customer enters into a service plan with Y and purchases the goods under a plan, Y pays you the full customer sale price of the goods. The customer is to repay the cost of the goods to Y by instalments over the term of their contract with Y. Under arrangement X, Y basically funds the customer’s purchase of the goods and the customer is required to repay the loan to Y over the term of their contract with Y.

Payment X that you receive from Y is in connection with your supply of the goods to the customer. Y is merely a third party payer and not the recipient of your supply of the goods. The recipient of your supply is the customer and Y provides consideration for that supply. As stated in subsection 9-15(2) of the GST Act, it does not matter if the consideration is not provided by the recipient of the supply.

Y issues RCTIs for the taxable supplies that you make to Y during each relevant period. Y shows payment X on the RCTIs. As Y is not the recipient of your taxable supply of the goods (that is, the payment is not in respect of a taxable supply that you make to Y), payment X shown on the RCTIs does not include a GST component.

Under subsection 29-70(2) of the GST Act, you are required to issue a tax invoice to the customer (recipient of the supply) for the supply of the goods within 28 days after it is requested by the customer.

In summary, under arrangement X you supply the goods to the customers and receive full consideration for the supplies from Y. Therefore, you make supplies for consideration and the requirements of paragraph 9-5(a) of the GST Act are met. Further, your supplies of the goods under arrangement X are taxable supplies pursuant to section 9-5 of the GST Act as the supplies meet all the other requirements of section 9-5 of the GST Act. You are therefore liable to pay an amount equal to 1/11 of the customer sale price of the goods (which is equal to payment X paid by Y for the goods) as GST.

Please note that the above advice is only in relation to arrangement X. The GST outcome under each arrangement will depend on the circumstances of that particular arrangement. If unsure please seek advice from the ATO.