Edited version of private advice

Authorisation Number: 1052071928962

Date of advice: 20 December 2022

Ruling

Subject: GST and agency services

Question 1

Is the entity liable under section 57-5 of the A New Tax System (Goods and Services Tax) Act 1999 to pay the GST on sales of goods by the non-resident manufacturers?

Answer

No, as the entity is not acting as agent for the non-resident manufacturers in relation to the sale of the goods, any GST liability on the sale of those goods remains with the non-resident manufacturer.

Question 2

Is the entity making taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when he receives the commission payments under the contracts entered into with the non-resident manufacturers?

Answer

No, as the supplies of services are made to a non-resident who is not in Australia at the time of the supplies, the supplies are GST-free.

This ruling applies for the following periods:

Tax periods ending on or after 1 July 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The entity has entered into contracts with manufacturing entities in Country AA to assist them in selling their products in Australia through websites such as XXXX.

Sample contracts provided specify:

•         the entity is not a representative or employee of the manufacturers but is a 'freelance retail consultant'

•         the entity is required to:

o   promote the products using social media;

o   introduce customers to the manufacturers;

o   transfer money for customer orders through the relevant shop via XXXX (minus the commission payable);

•         the manufacturer:

o   arranges for the goods to be delivered directly to the customer;

o   is liable for any damage or loss of goods during transportation;

o   must pay a commission to the entity.

Essentially, the entity assists consumers in purchasing products from the manufacturers. The consumers pay the entity using PayPal who then forwards the money, minus the commission, to the manufacturer via XXXX. The manufacturer then sends the product directly to the consumer.

The supplies of goods to the consumers in Australia are taxable supplies subject to GST.

The entity is not currently registered for GST but is required to be registered as the annual turnover is expected to exceed $75,000.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999Division 57

A New Tax System (Goods and Services Tax) Act 1999section 9-5

A New Tax System (Goods and Services Tax) Act 1999section 38-190

Reasons for decision

Question 1

Under Division 57 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity in Australia which is acting as an agent for a non-resident is liable to pay the GST on taxable supplies made by the non-resident through the agent. Therefore, if the entity is acting as agent for the non-resident manufacturers, he will be liable to pay the GST on taxable supplies of goods made to Australian consumers.

The Goods and Services Tax Ruling, Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) explains that "an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties". Paragraph 17 of GSTR 2000/37 further explains that an agent may be appointed for a specific, limited purpose:

17. Agents can be classified according to the extent of the authority conferred by the principal. Special agents have authority to act for some special occasion or purpose that is not within the ordinary course of business or a profession. For example, Mike appoints Graeme as his agent for the purposes of obtaining a motor vehicle. The only authority given to Graeme as an agent is to obtain the motor vehicle.

Although the contracts between the entity and the manufacturers state that the entity is not 'a representative or employee' of the manufacturer but is a 'freelance retail consultant', the entity has been appointed as a special agent of the manufacturers to receive the payments and forward that money to the manufacturers. Additionally, the entity provides marketing services by promoting the manufacturers products on social media and introducing the customers to the manufacturers through the relevant shop on the XXXX website. However, the manufacturers have not appointed the entity as their agents in regard to the supplies of the goods. As such, the entity is not liable for the GST on taxable supplies of goods made by the manufacturers to Australian consumers under Division 57 of the GST Act.

Note: Generally, when a non-resident business sells goods into Australia that have a customs value of A$1,000 or less, GST applies and the non-resident will have to collect this from its customers and send the GST to the ATO. If the sale is done through an electronic distribution platform (EDP) such as E-Bay or XXXX, the EDP operator is generally responsible for GST payable on these sales.

Question 2

Generally, a supply is subject to GST if it is a taxable supply. Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

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

•         the supply is made in the course or furtherance of an enterprise (generally a business) that the entity carries on; and

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

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

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

As discussed above, the entity is providing services of social media marketing, customer introduction and payment processing to the manufacturers. The commission earned is the consideration for those supplies. The entity provides those services within Australia and does so in the course of their enterprise and, as their annual turnover is expected to be more than $75,000, the entity is required to be registered for GST. As such, the services provided will be taxable supplies unless they are GST-free or input taxed.

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property which are consumed outside of Australia are GST-free. Item 2 in the table in subsection 38-190(1) of the GST Act specifies that 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 situated in the indirect tax zone' is GST-free.

The supplies made by the entity under the contracts are supplies made to the non-resident manufacturers and those manufacturers are not in Australia when those services are performed. As the services are neither of work physically performed on goods situated in Australia, nor directly connected with real property with Australia, the supplies of services by the entity are GST-free.

As the supplies provided by the entity are GST-free, they are not taxable supplies and are not subject to GST.