Edited version of private advice

Authorisation Number: 1051746381607

Date of advice: 2 September 2020

Ruling

Subject: GST and consideration for a taxable supply

Question

Do you have to pay full GST on the sale price of your intended product if 50% of all revenues are sent directly to charities and not-for-profit organisations?

Answer

Yes, the sale price of your products will be fully taxable despite a percentage of all revenues being sent directly to charities and not-for profit organisations.

This ruling applies for the following period:

Period ending 30 June 20XX

The scheme commences on:

1 September 20XX

Relevant facts and circumstances

You are looking to sell a range of products with the primary aim being to support a range of not-for-profit and charitable organisations (partner organisations) who work in the area of biodiversity promotion/waste reduction

You will be selling the product for $X each and $Y from every sale transaction will go directly to one of these partner organisations. The details as to how this money will be spent will be itemised and can be accessed through the online selling platform or physical shopfront.

Every single transaction will be published on your website with purchaser's name for full transparency and accountability. At the end of every month all transactions to each partner organisation will be totalled and you will then pay the amount of money accordingly.

The partner organisations who received the amount of money from you will provide details on how the money has been spent and such information will be published on your website.

In purchasing the products, a customer might make a decision from two standpoints:

·         they might really like a specific product and choose to buy on that basis. If this product is linked to a specific cause then that is where there donation goes; or

·         they might feel passionately about one of the causes and the work you are doing in that area and choose a product that supports that cause.

Your intention is to have the price tag showing $X per product. Prominent point of sale graphics in your physical store, digital info on your website, and information printed on the product will detail the amount of the charitable donation and how it is to be spent for each of your charitable categories. On purchasing a product, the customer will then receive a receipt, again advising of the ($X-$Y)/$Y split.

At month end or quarter end, you will produce a table for each of your categories and publish it on your website

You do not believe it would be feasible (or with this level of details necessary) for your partner organisations to individually receive the donation of each individual customer.

The marketing of the products could be phrased in different ways. E.g. donate $Y to this cause and you can purchase a product for ($X-$Y), or buy a product for $X and you will donate $Y to this cause. Either way, the end result is the same and the pots are kept distinctly separate.

There is no option for any customer to purchase a product only without making the $Y donation. Also, you do not accept someone makes donations only without purchasing a product.

You are not an endorsed Australian charity that is currently registered with the Australian Charities and Not-for-profits Commission and you do not have a permit/license to fundraise within Australia.

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 subsection 9-17(2)

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that 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 Australia; 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.

In the current case, it is not in dispute that when selling the products, you are making a taxable supply of the products as all the requirements for a taxable are met.

The issue arises as to whether the full payment of $X is the consideration for the taxable supply or only the amount of ($X-$Y) (total amount received minus the portion to be donated to partner organisations).

Consideration' is defined in section 9-15 of the GST Act as including any payment, or any act or forbearance in connection with a supply of anything or in response to, or for the inducement of a supply of anything. Further, it does not matter whether the payment, act or forbearance was voluntary, or whether it was by the recipient of the supply.

In order for there to be a taxable supply, paragraph 9-5(a) requires a supply for consideration. A payment, act or forbearance is consideration for a supply where there is a sufficient nexus between the payment, act or forbearance and the supply. The test as to whether there is a sufficient nexus is an objective test.

In paragraph 180 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9), it provides that:

In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' other rulings take the view that:

·         the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

·         regard needs to be had to the true character of the transaction; and

·         an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made. (paragraph 180 of GSTR 2006/9).

Applying the principle in paragraph 180 of the GSTR 2006/9 to the current case, in purchasing a product, a customer makes a payment of $X to you. You have made a supply of a product and received a payment from the customer in responding to the supply. The nexus between the supply of the shirt and the payment is sufficient to establish that the payment is consideration for the supply. This conclusion can only be altered if any of the payment is a gift (donation) to a non-profit body. This is because pursuant to subsection 9-17(2) of the GST Act, a gift to a non-profit body is not the provision of consideration.

Although in your case, you will donate $Y to the partner organisations for every product you sell, when looking at how the arrangement is set up and run, there is no suggestion that there is a donation of $Y to you by a customer when they purchase a product for $X. In particular, the fact that there is no option for any customer to purchase a product only without making the $Y donation, plus you do not accept someone making donations only without purchasing a product, indicates that none of the payment of $X constitutes a donation. This is also supported by the fact that you are not an endorsed Australian charity that is currently registered with the Australian Charities and Not-for-profits Commission and you do not have a permit/license to fundraise in Australia.

It is therefore concluded that there is no gift/donation given by a customer who pays $X to buy a product from you. This payment is consideration for a taxable supply therefore is subject to GST on the total amount of consideration.