Edited version of private advice

Authorisation Number: 1051945510693

Date of advice: 1 February 2022

Ruling

Subject: Taxable supply

Question

Are the payments made by an entity under an agreement consideration for any taxable supplies you make pursuant to section 9-5 of the GST Act?

Answer

No.

This ruling applies for the following period:

From 1 August 2021

The scheme commences on:

1 August 2021

Relevant facts and circumstances

You entered into an agreement for which you are paid money by an entity.

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 9-10

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

•                All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•                All reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

•                All legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Section 9-10 relevantly defines a supply to include an entry into or release from an obligation to do anything or refrain from an act.

You will make a taxable supply if, pursuant to section 9-5:

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 (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.

In your case there is no provision that would make any supply GST-free or input taxed.

Supply

Section 9-10 relevantly defines a supply to include an entry into or release from an obligation to do anything or refrain from an act.

Who is the supplier?

Paragraph 9-5(a) requires that 'you' make a supply. Section 195-1 states that if a provision of the GST Act uses the expression 'you', it applies to entities generally, unless its application is expressly limited.

Section 195-1 also states that 'entity' has the meaning given by section 184-1 and includes:

a)    an individual

b)    a partnership, and

c)    any other unincorporated association or body of persons.

For GST purposes a supply must be made by an entity.

As set out above, where the payments are not in relation to any enterprise, there will be no taxable supply.

We will therefore consider the question of enterprise.

Enterprise

An enterprise is an activity or series of activities done in certain ways as provided for under subsection 9-20(1).

In particular, an 'enterprise' includes an activity or series of activities done:

a)    in the form of a *business;

b)    in the form of an adventure or concern in the nature of trade; or

c)    on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The Commissioner considers these matters in Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1).

Paragraph 177 of MT 2006/1 provides that to determine whether an activity or series of activities amounts to a business, the activity needs to be considered against the indicators of a business established by case law. Some indicators of carrying on a business are:

•                A significant commercial activity

•                A purpose and intention of the taxpayer to engage in commercial activity

•                An intention to make a profit from the activity

•                The activity is or will be profitable

•                Is recurrent or regular in nature

•                The activity is carried out in a manner similar to that of other businesses in the same or similar trade

•                Activity is systematic, organised and carried on in a businesslike manner

•                Commercial sales of product and

•                The entity has relevant knowledge or skill.

On balance, you are not undertaking activities in the form of a business in entering into and performing the obligations under the agreements.

The concept of an 'adventure or concern in the nature of trade' is considered in paragraphs 233-261 of MT 2006/1. The public ruling considers the characteristics of trade including the subject matter of realisation, length of period of ownership, frequency or number of similar transactions, supplementary work on or in connection with the property realised, and the circumstances responsible for the realisation.

On balance, the characteristics of trade are not satisfied and your activities, in entering into and performing the obligations under the agreement do not involve activities in the nature of trade.

Under the agreements, you do not on a regular or continuous basis, lease, licence or otherwise grant any interest in property to the entity or any other entity.

Therefore, the payments made by the entity to you under the agreement are not for making supplies in the course or furtherance of an enterprise.