Edited version of your written advice

Authorisation Number: 1051517180141

Date of advice: 21 May 2019

Ruling

Subject: GST and sale of advertising space to overseas companies

Question

Is the sale of advertising space for a magazine made by the Australian company to non-residents located outside the indirect tax zone (Australia) GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the magazine is distributed exclusively within Australia?

Advice

Yes, the sale of advertising space for a magazine made by the Australian company to non-residents located outside Australia is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act where the magazine is distributed exclusively within Australia.

Relevant facts

You are an Australian company and registered for GST.

You derive your revenue from two sources – magazine sales and sale of advertising space for the magazine.

Your sale of magazine space is made to Australian and non-resident businesses. The non-resident businesses are not located into Australia and do not carry any business activities in Australia. The advertisings made by these non-resident businesses are not connected with real property in Australia. The advertising would for example for the advertising of aviation spare parts.

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

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.

Summary

Your supply of advertising space in a magazine that is available only in Australia to the overseas companies is GST-free under paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

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 or furtherance of an enterprise that the supplier carries on; and

c. the supply is connected with Australia; and

d. the supplier is 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.

All of the above must be satisfied for your supply of advertising space to be a taxable supply.

From the information given, your supply of advertising space satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you make your supply for consideration; and

b) the supply is made in the course of a business that you carry on; and

c) your supply of advertising space is a supply of services for GST purposes. The supply is connected with Australia as it is made through a business that you carry on in Australia; and

d) you are registered for GST.

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

There is no provision under the GST Act that makes your supply of advertising space input taxed.

GST-free supply

Relevant to your supply of advertising space to the overseas companies 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) is GST-free if it is a supply that is made to a non-resident that 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 in item 2 needs to be satisfied.

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

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 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.

Company in Australia

We consider that a non-resident company is in Australia for the purposes of item 2 if that company carries on its business (or in the case of a company that does not carry on its business, carries on its activities) in Australia:

● at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

● through an agent at a fixed and definite place for a sufficiently substantial period of time; or

● the company has an enterprise that is carried on for the purposes of section 9-27 of the GST Act (Law Companion Ruling LCR 2016/1 provides guidance when an enterprise is carried on in Australia for the purposes of section 9-27 of the GST Act and is available at ato.gov.au).

You advised that the overseas companies do not carry activities in Australia and are located outside Australia. In this instance, the precondition for item 2 is satisfied when you make your supply of advertising space to the overseas companies.

Next is to consider the paragraphs in item 2. Only one of the paragraphs in item 2 needs to be satisfied.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7 provides guidance in regard to when a supply is a supply of work physically performed on goods situated in Australia when the work is done, or is a supply directly connected with real property situated in Australia.

Your supply of advertising space satisfies the requirements in paragraph (a) as your supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor is a supply directly connected with real property situated in Australia.

Your supply of advertising space is GST-free to the extent that it is not negated by subsections 38- 190(2), 38-190(2A) or 38-190(3) of the GST Act.

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

Limitation of item 2

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.

Where a transaction involves a supply of a right or option to acquire something, the supplier will usually enter into an obligation to supply the thing if the right or option is exercised. The fact that the transaction also involves an entry into an obligation does not in itself preclude the operation of subsection 38-190(2) if there is a relevant supply of a right or option to acquire something.

For example, an Australian vehicle rental firm supplies car rental rights to a UK travel agency. The travel agency supplies car rental vouchers to UK tourists who may use the vouchers to obtain car rental in Australia. The supply of the car rental to the tourists is a supply that is connected with Australia. The supply of car rental rights to the UK travel agency is, therefore, not GST-free.

From the facts given, subsection 38-190(2) of the GST Act does not apply to your supply of advertising space to the overseas company as it a not supply of a right or option to acquire something, the supplier will usually enter into an obligation to supply the thing if the right or option is exercised.

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 a real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

For example, a non-resident individual, who owns residential rental property situated in Australia and who is not registered or required to be registered, acquires gardening services for the property and also acquires the services of a local real estate agent to advertise the property for rent. The acquisition of each service relates to the making of an input taxed supply of real property. The supplies of those services are therefore not GST-free.

From the facts given, subsection 38-190(2A) of the GST Act does not apply as your sale of the advertising space does not relate to the making of a supply of a real property situated in Australia.

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.

All of the requirements in this subsection have to be satisfied for the GST-free supply under item 2 to be negated from being GST-free and be a taxable supply under section 9-5 of the GST Act.

From the facts given, subsection 38-190(3) of the GST Act does not apply as you are not required to provide your advertising space to another entity in Australia. Your supply of advertising space is made and provided to the overseas company and not provided to the customers purchasing the magazine.

Your supply of advertising space to the overseas companies is GST-free under paragraph (a) in item 2.