Edited version of private advice

Authorisation Number: 1052208155122

Date of advice: 4 January 2024

Ruling

Subject: GST and supplies made through electronic distribution platforms

Question 1

Are you liable to pay goods and services tax (GST) on your supply of digital products made to Australian buyers through an electronic distribution platform (EDP) operated by X?

Answer

No

Question 2

Are you liable to pay GST on your supply of digital products made to overseas customers/buyers through the EDP operated by X?

Answer

No.

Question 3

Are you required to be registered for GST?

Answer

No

Question 4

Are you required to report your sales made through the EDP operated by X in a Business Activity Statement (BAS)?

Answer:

Currently, you are not required to lodge BASs. However, if you register for GST or become required to be registered for GST at some point in the future, you will be required to report your GST-free sales made through X only, in the relevant GST label of your BAS (label G1). You will not be required to report sales you make through X, to Australian customers in any of the GST labels of your BAS.

Relevant facts and circumstances

You are not registered for GST

You carry on an enterprise of selling activity books for children. You operate this enterprise solely in Australia. You deliver these products digitally (by email) to your customers, who are in Australia and overseas. Your GST-exclusive revenue from these sales is historically less than $75,000 a year and it is projected to be less than $75,000 for the next 12 months.

You have a 'shop' on company X's website, which is an electronic distribution platform (EDP). X is registered for GST. Customers who purchase things through the X website can purchase a product by selecting an 'Add to basket' button, then entering or confirming their payment details and then selecting a 'Checkout' button.

There is a written agreement on the X website (the written agreement) which provides that it takes on responsibility for remitting GST on sales made by Australian merchants to Australian buyers where the thing supplied is delivered via automatic download by Australian buyers. This written agreement was in existence before you began selling products through the X website.

The written agreement states:

This policy is a part of our Terms of Use. By opening an X shop, you're agreeing to this policy and our Terms of Use.

The written agreement provides (among other things) that where Australian merchants sell digital items which are delivered via automatic download to buyers in Australia, X will collect and remit GST on the sale of these digital items.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-27

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 31-5

A New Tax System (Goods and Services Tax) Act 1999 section 84-55

A New Tax System (Goods and Services Tax) Act 1999 section 84-60

A New Tax System (Goods and Services Tax) Act 1999 section 84-65

A New Tax System (Goods and Services Tax) Act 1999 section 84-70

Reasons for decisions

Question 1

Summary

Your supplies of digital products to Australian buyers are made through an EDP operated by X, which is registered for GST. You and X have entered into a valid written agreement to treat these supplies as inbound intangible consumer supplies. Therefore, these supplies are treated for GST purposes as being made by X; rather than you. Hence, X is liable for GST on these sales. You will not be liable for GST on these sales even if at some point in the future you register for GST or are required to be registered for GST.

Detailed reasoning

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that GST is payable on taxable supplies and taxable importations.

The basic rules on who makes a taxable supply, for GST purposes are contained in section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a)          you make a supply for consideration

(b)          you make the supply in the course or furtherance of an enterprise that you carry on

(c)          the supply is connected with the indirect tax zone, 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.

The indirect tax zone means Australia.

Since you are not registered nor required to be registered for GST, your supplies of digital products will not satisfy all the requirements of section 9-5 of the GST Act

There are special rules in the GST Act that modify the basic rules above.

Where a merchant supplies digital products through an EDP operated by another entity, the EDP operator may be treated under special rules as being the supplier of the digital product, for GST purposes.

Subsection 84-55(1) of the GST Act states:

If an inbound intangible consumer supply is made through an electronic distribution platform, the operator of the platform, instead of the supplier, is treated, for the purposes of the GST law:

(a)          as being the supplier of, and as making, the supply

(b)          as having made the supply for the consideration for which it was made, and

(c)          as having made the supply in the course or furtherance of the carrying on of an enterprise that the operator carries on.

Note: As a consequence, GST on the supply is payable by the operator of the electronic distribution platform.

Under section 84-60 of the GST Act a supply made through an EDP that is not an inbound intangible consumer supply (for example, because it is not an imported intangible) may be treated as being an inbound intangible consumer supply in certain situations where there is a bilateral agreement between the merchant and the EDP operator. As a consequence, GST on the supply made by a merchant through the EDP may be payable by the operator of the EDP.

Meaning of inbound intangible consumer supply

Section:84-65 of the GST Act states:

(1)          A supply of anything other than goods or real property is an inbound intangible consumer supply if the recipient is an Australian consumer, unless

(a)          the thing is done wholly in the indirect tax zone, or

(b)          the supplier makes the supply wholly through an enterprise that the supplier carries on in the indirect tax zone.

(2)          Disregard section 84- 55 in determining whether paragraph (1)(b) applies.

'Australian consumer' is defined in subsection 9-25(7) of the GST Act. It states:

An entity is an Australian consumer of a supply made to the entity if

(a)          the entity is an Australian resident (other than an entity that is an Australian resident solely because the definition of Australia in the ITAA 1997 includes the external Territories), and

(b)          the entity

(i)            is not registered, or

(ii)           if the entity is registered - the entity does not acquire the thing supplied solely or partly for the purpose of an enterprise that the entity carries on.

Meaning of electronic distribution platform

Section 84-70 of the GST Act states:

(1)          A service (including a website, internet portal, gateway, store, or marketplace) is an electronic distribution platform if

(a)          the service allows entities to make supplies available to end-users

(b)          the service is delivered by means of electronic communication, and

(c)          any of the supplies that are inbound intangible consumer supplies are to be made by means of electronic communication.

(2)          However, a service is not an electronic distribution platformsolely because it is

(a)          a carriage service (within the meaning of the Telecommunications Act 1997), or

(b)          a service consisting of one or more of the following

                                             i.                providing access to a payment system

                                            ii.                processing payments

                                           iii.                providing vouchers the supply of which are not taxable supplies because of section 100-5.

Extension of section 84-55 to certain other supplies through an electronic distribution platform

Section 84-60 of the GST Act states:

(1)          Section 84-55 applies to a supply that is to be made by means of electronic communication as if it were an inbound intangible consumer supply if

(a)          the supply is made through an electronic distribution platform

(b)          the supply is covered by a written agreement between the supplier and the operator of the platform before the supply was made

(c)          the operator is registered, and

(d)          under the agreement, the supply is to be treated as if it were an inbound intangible consumer supply made through the platform.

(2)          However, subsection (1) does not apply to the supply if

(a)          the supply is GST-free or input taxed, or

(b)          the operator would not be treated under section 84- 55 as being the supplier of and as making, the supply if it were an inbound intangible consumer supply.

(3)          If subsection (1) applies to the supply, the supply is treated as having been made in the course or furtherance of the carrying on of the enterprise through which the operator operates the platform.

Application of the law to the facts in your case

As explained above, a supply of a digital product made by a merchant through an EDP is treated, for GST purposes, as a supply made by the EDP operator.

One of these circumstances is where a merchant makes an inbound intangible consumer supply through the EDP.

We shall now determine whether you are making inbound intangible consumer supplies.

Your supply of activity books is made in the form of digital products and they are not supply of goods or real property. Therefore, you are making intangible supplies.

Your customers may include 'Australian consumers' (as some of your customers are in Australia).

You are carrying on an enterprise in Australia and you make your supplies of digital products wholly through the enterprise that you carry on in Australia. Hence, the supplies you make through X's website are not inbound intangible consumer supplies. However, we need to consider whether your supplies of digital products through the X website can be treated as inbound intangible consumer supplies under section 84-60 of the GST Act.

Law Companion Ruling LCR 2018/2 GST on supplies made through electronic distribution platforms provides guidance on applying the special EDP rules which can apply to digital supplies and supplies of low value imported goods.

In accordance with paragraph 63 of LCR 2018/2, the consequence of an agreement being made under section 84-60 is that a supply made by a merchant through an EDP is treated as being made in the course or furtherance of carrying on the enterprise of the EDP operator.

X's Terms of Use for merchants states that when you open a X shop, you are agreeing to the X's policy and terms of use. Therefore, it is considered that you have entered into an agreement with X to make your supply of digital products through X according to their policy and terms of use. This means that your supply to Australian consumers will be treated as if they were inbound intangible consumer supplies. Furthermore, you and X have entered into this agreement before you began making supplies through X to Australian consumers.

The supplies of digital products made through X, to Australian consumers are not GST-free or input taxed. Therefore, subsection 84-60(2) of the GST Act has no application to the scenario covered by this ruling.

As all the requirements of section 84-60 of the GST Act are met in relation to your supplies of digital products, through X, to Australian Consumers, section 84-55 of the GST Act applies to these supplies as if they were inbound intangible consumer supplies.

Therefore, in regards to your sale of digital products to Australian buyers, the operator of the platform you sell through (X), instead of the actual supplier (you), is treated, for the purposes of the GST law as:

(a)          being the supplier of, and as making, the supply

(b)          having made the supply for the consideration for which it was made, and

(c)           having made the supply in the course or furtherance of an enterprise that the operator carries on.

As a consequence, GST on these supplies is payable by the operator of the electronic distribution platform (X) and not you (even though you are the actual seller of the products).

Question 2

Summary

Your supply of digital products to overseas purchasers would be GST-free and you are not required to report GST if you are registered or required to be registered for GST.

Detailed reasoning

A supply of something other than goods or real property is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act if the purchaser is a non-resident who is not in Australia and the requirements of paragraph (a) or (b) below are met:

(a)          the supply is not a supply of work physically performed on goods situated in Australian when the work is done, nor a supply directly connected with real property located in Australia, or

(b)          the recipient of the supply acquires the thing in carrying on their enterprise but is not registered or required to be registered for GST.

Your supply of digital products to overseas purchasers is not a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property located in Australia. Therefore, your supply of digital products to overseas purchasers will be GST free.

Hence, GST is not payable on your supply of a digital product to overseas purchasers.

The supplies you make through the X website, to overseas customers are not considered as inbound intangible and therefore, you are required to report the GST free sales in your BAS, if you are registered or required to be registered for GST.

Question 3.

Summary

You are not required to be registered for GST as you do not meet the GST registration threshold of $75,000.

Detailed reasoning

In accordance with section 23-5 of the GST Act, you are required to be registered for GST if:

(a)          you are carrying on an enterprise, and

(b)          you meet the registration turnover threshold of $75,000 per annum.

You are carrying on an enterprise and you are required to include income from GST free sales made to your customers as explained above, in working out your GST turnover threshold.

You reach the GST turnover threshold if either:

•                     your current GST turnover - your turnover for the current month and the previous 11 months - totals $75,000 or more ($150,000 or more for non-profit organisations)

•                     your projected GST turnover - your total turnover for the current month and the next 11 months - is likely to be $75,000 or more ($150,000 or more for non-profit organisations).

Since you do not meet the $75,000 registration threshold, you are not required to be registered for GST.

Question 4

Summary

Since you are not registered for GST, you are not required to lodge a BAS.

Detailed reasoning

In accordance with section 31-5 of the GST Act, you are only required to lodge a GST return if you are registered or required to be registered for GST. If you register or are required to be registered for GST at some point in the future, you will need to report the sale that's attributable to you, for GST purposes at label G1 of the BAS (that is the GST free sales only). The taxable sales which are attributable to X, for GST purposes under the EDP rules, are not reportable in any BAS that you lodge (even if you register or become registered for GST at some point in the future).