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Edited version of private advice
Authorisation Number: 1051530945195
Date of advice: 27 June 2019
Ruling
Subject: The amount of GST payable on a taxable supply
Question
Can the amounts that you pay to the individuals be netted off against the commissions that you receive from the organisations and GST be paid only on the net commission amounts?
Answer
No. You are liable to pay GST equal to 1/11 of the total amounts of the commissions that you receive from the organisations.
Relevant facts and circumstances
You are registered for GST.
You are a specified type of agent and provide your services to various organisations. You sign up individuals on behalf of the organisations. You collect the signing up fees from the individuals on behalf of the organisations and forward the total amount of the signing up fees collected to the organisations. Upon successful signing up, you receive a commission for your services from the organisations.
Upon successful signing up, the individuals are entitled to receive certain goods and services (products) from the organisations.
You enter into a separate agreement with each individual under which you agree to pay the individual an agreed sum of money upon completion of signing up and you receiving a commission from the relevant organisation. The organisation is not a party to the agreement between you and the individual.
You provided the following example:
An individual pays $200 as signing up fee to you. You forward the fee to XYZ organisation without any deductions. After the signing up of the individual, XYZ organisation pays back $60 to you as commission income (GST inclusive). As per the agreement with the individual, $45 is returned back to the individual as discount on the signing up fee.
You also provided a copy of a written agreement that you have entered into with an individual.
The individuals do not pay you for your services. The individuals are not making a taxable supply to you in return for the amounts that you pay back to them.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 7-1
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 17-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
Reasons for decision
Summary
You cannot set-off the payments that you make to the individuals against the commissions that you receive from the organisations.
You are liable to pay 1/11 of the total amounts of the commissions that you receive from the organisations as GST.
Detailed reasoning
Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies.
Section 9-5 of the GST Act provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(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.
Paragraph 9-5(a) of the GST Act requires that the supply is made for consideration.
Subsection 9-15(1) of the GST Act provides that consideration includes any payment, act or forbearance in connection with a supply of anything or in response to, or for the inducement of the supply.
You are an agent. You supply your agency services (your services) to the organisations in return for a commission. The total amount of the commissions that you receive from the organisations is in connection and for the supply of your services to the organisations, and is therefore 'consideration' for the supply of your services to the organisations. In the example provided, the consideration for the supply of your services to the organisation is $60.
The supply of your services to the organisations is a taxable supply as the supply meets all the other requirements of section 9-5 of the GST Act.
Section 9-70 of the GST Act provides that the amount of GST on a taxable supply is 10% of the value of the taxable supply. Section 9-75 of the GST Act defines the value of a supply as 10/11 of the price. Therefore the amount of GST payable on a taxable supply is equal to 1/11 of the price.
The GST Act does not allow the supplier to reduce the consideration/price for their taxable supply by a payment that they make when calculating the GST payable on that taxable supply (unless the payment is made to the recipient of their taxable supply and it adjusts to the price of that supply).
The GST Act requires that the GST payable on a taxable supply is calculated based on the total consideration for that supply and included in the calculation of the 'net amount' for the relevant tax period. The 'net amount', as required under subsection 17-5(1) of the GST Act, is the difference between the sum of the GST payable on all taxable supplies attributable to the tax period and the sum of all of the input tax credits to which an entity is entitled for the creditable acquisitions and creditable importations that are attributable to that tax period.
You stated that as per the agreement with the individual, $45 is returned back to individual as discount on the signing up fee.
In your case, there are two separate taxable supplies. The first supply is the supply of the products to the individuals by the organisations. You are not the entity that supplies the products to the individuals and the signing up fees that you collect from the individuals on behalf of the organisations, are not consideration for the supply of your services to the individuals. The signing up fees are consideration for a supply that the organisations make to the individuals. Therefore, the payments that you make to the individuals are not a discount on the signing up fees. Only the organisations can offer a discount on the signing up fees to the individuals as they are the suppliers of the products to the individuals. You cannot adjust the price of a supply that is made by another entity.
The second supply is the taxable supply of your services to the organisations for which you receive a commission from the organisations. The payments that you make to the individuals have no impact and do not adjust the price of the taxable supply of your services to the organisations.
Further, the individuals do not pay you for any services that you provide to them. Therefore the payments that you make to the individuals are not a discount or an adjustment to the price of your supplies to the individuals either.
Accordingly, you cannot reduce the amount of the commissions that you receive from the organisations for your services, by the payments that you make to the individuals. You are liable to pay 1/11 of the total amount of the commissions that you receive from the organisations as GST. In the example provided, you are liable to pay $5.45 ($60 x 1/11) as GST on the commission received.
Are you making a creditable acquisition from the individuals?
Under section 11-20 of the GST Act you are entitled to an input tax credit for any creditable acquisition that you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose
(b) the supply of the thing to you is a taxable supply
(c) you provide, or are liable to provide consideration for the supply, and
(d) you are registered or required to be registered for GST.
In your case, the requirement of paragraph 11-5(b) of the GST Act is not met as the individuals do not make a taxable supply to you in return for the payments. Therefore you are not entitled to an input tax credit under section 11-20 of the GST Act as you are not making a creditable acquisition.
In summary, the payments that you make to the individuals are not a discount on the signing up fees charged by the organisations. The payments that you make to the individuals do not change/adjust the consideration for the supply of your services to the organisations. Further, you are not entitled to an input tax credit for the payments that you make to the individuals as you are not making a creditable acquisition from the individuals. Therefore, you are liable to pay GST equal to 1/11 of the total amount of the commissions that you receive from the organisations for the supply of your services to the organisations.