Edited version of private advice

Authorisation Number: 1051809819000

Date of advice: 4 March 2021

Ruling

Subject: GST and advertising

Question

Is the entity making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it on-sells advertising slots to the other entity?

Answer

No, the sale of the advertising slots is GST-free.

This ruling applies for the following periods:

Tax periods ending on or after 1 March 20XX

Relevant facts and circumstances

The entity is a resident of Australia and is registered for GST.

The entity is a media buyer. That is, they buy advertising slots from the media and on sell those slots to clients who require them.

The entity has entered into an agreement with the other entity to place advertising on Australian media for one of their clients in relation to a project located outside of Australia. The other entity is not a resident of Australia and does not have a presence or any operations in Australia.

The advert content was created by the other entity for their client which is also not a resident of Australia and does not have a presence or any operations in 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 38-190.

Reasons for decision

Goods and services tax applies to taxable supplies that satisfy section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•         the entity makes a supply for consideration (generally, payment); and

•         the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

•         the supply is connected with the indirect tax zone (generally, Australia); and

•         the supplier is registered, or required to be registered for GST; and

•         the supply is neither GST-free nor input taxed.

The supply of advertising slots by the entity to the other entity satisfies all of the requirements of being a taxable supply under section 9-5 of the GST Act as the supply is:

•         paid for by the other entity; and

•         the supply is made in the course or furtherance of an enterprise that the entity carries on; and

•         the supply is connected with the indirect tax zone (because the entity operates its enterprise in Australia); and

•         the entity is registered for GST.

However, the supply of advertising slots will not be a taxable supply if the supply is GST-free under one of the provisions in Division 38 of the GST Act. Item 2 in the table in subsection 38-190(1) of the GST provides that a supply is GST-free if:

•         it is a supply that is made to a non-resident who is not in the indirect tax zone when the thing supplied is done, and:

•         the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done, nor a supply directly connected with real property located in the indirect tax zone.

The Goods and Services Tax Ruling, Goods and services tax: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999? (GSTR 2003/7) explains that an analysis of the supply must occur to determine if there is a direct connection between the supply and particular goods or services. In regard to advertising, paragraph 142 of GSTR 2003/7 states:

142. The supply of advertising is about conveying the advertising message. Even though the subject matter of the advertisement may be goods or real property, this does not establish a direct connection with those underlying things. Although the advertising is caused by a need arising in relation to the goods or real property and would not occur but for the goods or real property, this does not make the supply of advertising directly connected with the goods or real property. This is because an advertising supply is directly connected with all the things necessary for the conveying of the message. Its immediate object is not to effect the sale of the goods or real property but the conveying of the message.

The supply of the advertising services satisfies item 2 in the table in subsection 38-190(1) of the GST Act where the advertising is supplied to a non-resident who is not in the indirect tax zone at the time of the supply. The other entity is a non-resident that is located outside of Australia and has no presence in Australia. Consequently, the supply of advertising slots to the other entity satisfies the requirements to be a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

However, subsection 38-190(3) of the GST Act operates to negate the GST-free status of supplies that are covered by item 2 in the table in subsection 38-190(1) of the GST Act where there is an agreement with the non-resident to provide the supply to another entity which is in Australia. As the arrangement with the other entity involves providing the advertising slots to its client which is also not in Australia, subsection 38-190(3) does not apply to cancel out the GST-free status of the supply to the other entity.

The supply of advertising slots by the entity to the other entity satisfies the requirements of item 2 in the table in subsection 38-190(1) of the GST Act and is GST-free. Therefore, the supply is not a taxable supply under section 9-5 of the GST Act and no GST applies to the supply of the advertising slots by the entity.