Edited version of private advice

Authorisation Number: 1052187572396

Date of advice: 22 November 2023

Ruling

Subject: GST - supply of non-fungible tokens

Question

Are Entity A's supply of non-fungible tokens (NFTs) GST-free under subsection 38-190(1) of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer

Yes, in part, Entity A's supply of the NFTs will be GST-free under paragraph (a) of item 2 in the table under subsection 38-190(1) of the GST Act where they can identify the recipient by their wallet address, and the recipient provided information that they were a non-resident and were not located in Australia at the time of the supply, However, where a recipient does not provide information or provided information that they were either not a non-resident or located in Australia at the time of the supply, Entity A's supply of the NFTs will be taxable under section 9-5 of the GST Act.

This ruling applies for the following period:

DD MMM YYYY to DD MMM YYYY

Relevant facts and circumstances

Entity A is registered for GST and carrying on an enterprise in Australia.

Entity A sold NFTs from DD MMM YYYY to DD MMM YYY. Entity A received digital currency as payment for their NFTs.

Entity A does not have a place of business outside of Australia.

After the supply of the NFTs, Entity A requested for recipients to connect their wallet to Entity A's website and provide information to determine whether they were a non-resident and located outside of Australia at the time the supply was made.

Relevant legislative provisions

A New Tax System (Goods and Service Tax) Act 1999 (Cth) subsection 9-10(1)

A New Tax System (Goods and Service Tax) Act 1999 (Cth) subsection 9-25(5)

A New Tax System (Goods and Service Tax) Act 1999 (Cth) subsection 9-27

A New Tax System (Goods and Service Tax) Act 1999 (Cth) subsection 9-30(1)(a)

A New Tax System (Goods and Service Tax) Act 1999(Cth) section 9-40

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

A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 195-1

Reasons for decision

You are liable to pay GST on any taxable supplies you make.[1] Section 9-5 provides 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 the indirect tax zone; 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.

Entity A sold their NFTs from DD MMM YYYY to DD MMM YYYY.

NFTs are a smart contract or protocol that record the ownership of a unique asset or thing on the blockchain. These assets or things can include goods, services, and real property. As such, we must consider what the underlying asset or thing being supplied is in order to characterise the supply.

We consider that Entity A's supply of the NFTs are a supply of an intangible, and do not involve the supply of goods or real property.

Entity A received digital currency as payment for their supply of the NFTs.

Entity A's supplies were made in the course or furtherance of an enterprise that they carried on.

Entity A's supplies will be connected with the indirect tax zone under paragraph 9-25(5)(b) of the GST Act as they do not have a place of business outside of Australia for their supplies to be connected to.

Entity A is registered for GST.

Therefore, Entity A satisfies section 9-5 of the GST Act. Entity A's supplies of the NFTs will be taxable to the extent that it is GST-free or input taxed.

There are no provisions in the GST Act that would make Entity A's supply input taxed.

Therefore, what remains to be considered is whether Entity A's supplies are GST-free.

GST-free supply

A supply is GST-free if it is covered under Division 38 of the GST Act or a provision of another Act.[2] Subdivision 38-E sets out when exports of goods and other supplies for consumption outside Australia are GST-free.

Subsection 38-190(1) of the GST Act comprises of five items which set out supplies of things, other than goods or real property, that are GST-free when they are consumed outside the indirect tax zone. If the requirements of one of those items are met, the supply is GST-free, provided subsections 38-190(2), (2A) or (3) of the GST Act do not negate that GST-free status.

Item 2 in the table under subsection 38-190(1) of the GST Act (Item 2) provides that a supply of anything, other than goods or real property, made to a non-resident who is not in the indirect tax zone when the thing supplied is done is GST-free if:

(a) 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 indirect tax zone; or

(b) the *non-resident acquires the thing in *carrying on the non-resident's *enterprise, but is not *registered or *required to be registered.

Entity A's supply of the NFTs is neither a supply of work performed on goods located in the indirect tax zone nor a supply that is directly connected with real property in the indirect tax zone. Therefore, paragraph (a) of Item 2 may apply to Entity A's supply of the NFTs.

Although Entity A's supply of NFTs could be GST-free under paragraph (b) of Item 2, given Entity A did not request or obtain information about the recipient at the time or after the sales were made, they do not have information to determine whether a non-resident acquired an NFT in carrying on their enterprise nor whether they are not registered, or required to be registered, for GST.

Only one paragraph under Item 2 needs to be satisfied for the supply to be GST-free.

Non-resident and not located in Australia when thing supplied is done

A non-resident is defined under section 195-1 of the GST Act to mean 'an entity that is not an Australian resident'. An Australian resident is defined under section 195-1 of the GST Act to mean a 'person who is a resident of Australia for the purposes of the [Income Tax Administration Act 1936 (Cth) (ITAA 1936)]'.

Goods and Services Tax Ruing GSTR 2004/7 provides at paragraph 115:[3]

115. An individual is a 'resident of Australia' as defined in subsection 6(1) of the ITAA 1936 if that individual is:

(a) a person, other than a company, who resides in Australia and includes a person:

(i) whose domicile is in Australia, unless the Commissioner is satisfied that the person's permanent place of abode is outside Australia;

(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that the person's usual place of abode is outside Australia and that the person does not intend to take up residence in Australia; or

(iii) who is:

(A) a member of the superannuation scheme established by deed under the Superannuation Act 1990; or

(B) an eligible employee for the purposes of the Superannuation Act 1976; or

(C) the spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B).

Paragraph 116 of GSTR 2004/7 provides that residency is a question of fact. Therefore, a non-resident is an individual who is not a resident of Australia for the purposes of the ITAA 1936.

GSTR 2004/7 provides our view on, among other things, when a non-resident is 'not in Australia' for the purposes of Item 2.

Paragraph 202 of GSTR 2004/7 provides, 'that the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done'.

Determining whether a recipient is a non-resident and located outside of the indirect tax zone

Potential primary buyers were required to connect their wallet via Entity A's website before purchasing an NFT. Entity A did not request or obtain information to determine the legal identity of the recipient or whether they were a non-resident or located outside of the indirect tax zone at the time the supply was made.

Where Entity A cannot determine whether the recipient is a non-resident who is located outside of the indirect tax zone at the time of the primary sale, their supply of the NFTs will not be GST-free under paragraph (a) of Item 2.

Proxy for supplying securities in an on-market exchange

Paragraph 168 of Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) provides:

168. In some circumstances, it may not be possible for a financial supplier in Australia to determine whether the counterparty to a transaction is a resident or a non-resident or whether the counterparty is in Australia when the thing supplied is done. This may be the case where the Australian enterprise supplies or acquires securities in an on-market transaction. Where it is not possible to determine the residency or location of the counterparty in an on-market securities transaction (and only in that circumstance), the Australian enterprise may use the following to approximate the residency and location of the counterparty:

•         the place the transaction takes place (that is, the location of the securities exchange through which the transaction takes place);

•         if it is not known where the transaction takes place, the place where the security is listed;

•         if it is not known where the transaction takes place or where the security is listed, the place where the counterparty's broker is ordinarily resident.

(emphasis added)

In determining the residency and location of the recipient, paragraph 168 of GSTR 2002/2 only applies to supplies of securities in an on-market transaction and not to supplies of NFTs. NFTs are not securities. Therefore, the approximation method to determine the residency and location of a counterparty, as explained in paragraph 168 of GSTR 2002/2, is not applicable to Entity A's supply of the NFTs.

Information obtained about recipients

After the supply of the NFT, Entity A requested for recipients to connect their wallet to Entity A's website and provide information to determine whether they were a non-resident and locate outside of the indirect tax zone at the time the supply was made.

Based on the information Entity A obtained from the recipients of their NFTs, we consider that their supply will

•  be GST-free under paragraph (a) of Item 2 if the recipient responded that were a non-resident and not located in the indirect tax zone at the time of sale;

•  not be GST-free under paragraph (a) of Item 2 if they responded that were either not a non-resident or located in the indirect tax zone at the time of the sale, or both; and

•  not be GST-free under paragraph (a) of Item 2 if they did not provide a response.

If a recipient (as identified by their wallet address) did not provide a response, Entity A cannot use the responses received from other recipient's as an approximation method to determine whether they are non-resident or located outside of the indirect tax zone.

Limitations of Item 2

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides:

(2) However, a supply covered by any of items 1 to 5 in the table in subsection (1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be *connected with the indirect tax zone and would not be *GST-free.

Entity A's supply is neither a supply of a right nor an option to acquire something, the supply of which would be connected with the indirect tax zone and would not be GST-free. Subsection 38-190(2) of the GST Act does not apply to negate the GST-free status of Entity A's supply.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides:

(2A ) A supply covered by any of items 2 to 4 in the table in subsection (1) is not *GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of *real property situated in the indirect tax zone that would be, wholly or partly, *input taxed under Subdivision 40-B or 40-C.

Entity A's supply does not relate to the making of a supply of real property situated in the indirect tax zone. Subsection 38-190(2A) of the GST Act does not apply to negate the GST-free status of Entity A's supply.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides:

(3) Without limiting subsection (2) or (2A), a supply covered by item 2 in that table is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

(b) the supply is provided, or the agreement requires it to be provided, to another entity in the indirect tax zone; and

(c) for a supply other than an *input taxed supply-none of the following applies:

(i) the other entity would be an *Australian-based business recipient of the supply, if the supply had been made to it;

(ii) the other entity is an individual who is provided with the supply as an employee or *officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

(iii) the other entity is an individual who is provided with the supply as an employee or officer of the *recipient, and the recipient's acquisition of the thing is solely for a *creditable purpose and is not a *non-deductible expense.

Based on the information provided, subsection 38-190(3) of the GST Act does not apply to negate the GST-free status of Entity's supply as they are not required to provide their supply to another entity in the indirect tax zone.

[1] GST Act section 9-40.

[2] GST Act subsection 9-30(1)(a).

[3] See also Paragraph 208 of Goods and Services Tax Ruing GSTR 2005/6 Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2005/6).