Edited version of private advice

Authorisation Number: 1052233381478

Date of advice: 17 April 2024

Ruling

Subject: GST - export of rights to a non-resident

Question 1

Are you required to be registered for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you are required to be registered for GST as you are carrying on an enterprise of supplying digital content and the rights to use your website to display advertisement and receive consideration. Your GST turnover has exceeded the GST registration threshold of $75,000.

Question 2

Is your supply of rights to a non-resident to use your website to display advertisement GST-free under subsection 38-190(1) of the GST Act?

Answer

Yes, your supply of rights to the non-resident is GST-free under subsection 38-190(1) of the GST Act.

This ruling applies for the following periods

Not applicable.

Relevant facts and circumstances

You started blogging as a hobby in 20XX. You received a small amount of consideration from advertising on your blog.

Consideration received from advertising on your blog increased significantly from 20YY and became your primary source of income.

Your blog was hosted by a non-resident company which offers you the facilities required to create and maintain your website.

All consideration received is from advertising. Ads on the site are managed by a non-resident entity.

Your current GST turnover is greater than $75,000.

You do not sell anything on your blog and it is free for all viewers to access.

Approximately 15% of the viewers accessing your blog are Australian residents.

Agreement with the non-resident entity.

The Agreement provides the following:

•         You grant the non-resident entity an exclusive, worldwide rights to own, control and represent all ads on the property while bound under this Agreement either during its initial term or any extended term thereafter. You are not permitted to sell, discuss or negotiate with any third party regarding Property's advertisement inventory. The non-resident entity is under no obligation to provide ads to the property if the property violates any of the terms and conditions herein.

•         The non-resident entity owns all rights in the program, any technology associated with the program and the non-resident entity's trademarks and any goodwill, derivative works, improvements and/or intellectual property. No rights to the non-resident's intellectual property are granted to you through this agreement... the non-resident entity grants you a limited, revocable, non-transferable, non-exclusive, non-sublicensable license during the terms to use the program solely for the purpose of displaying ads on the property. No other rights are granted an all rights are expressly reserved by the non-resident 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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

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

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

Reasons for decision

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You are required to be registered under this Act if:

a)    you are carrying on an enterprise; and

b)    your GST turnover meets the registration turnover threshold.

Enterprise

Subsection 9-20(1) of the GST Act provides that the term 'enterprise' includes, among other things, an activity or series of activities done:

•         in the form of a business; or

•         in the form of an adventure or concern in the nature of trade.

However, under paragraph 9-20(2)(c) of the GST Act, an enterprise does not include an activity, or series of activities, done by an individual without a reasonable expectation of profit or gain.

The question of whether an entity is carrying on an enterprise is explained 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.

The Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 provides that the discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraph 150 of MT 2006/1 provides that an enterprise includes an activity, or series of activities done in the form of a business and in the form of an adventure or concern in the nature of trade.

Paragraph 159 of MT 2006/1 stipulates that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling TR 97/11 Income tax; am I carrying on a business of primary production? lists indicators of carrying on a business:

•         a significant commercial activity;

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

•         an intention to make profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

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

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 provides that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant factors.

Paragraph 180 of MT 2006/1 explains that an enterprise may be carried on a small scale stating:

180. An enterprise can be conducted in a small way. The size or scale of the activities, although important, is not the sole test of whether they amount to an enterprise. The larger the scale of the activities the more likely it is that they are an enterprise. However, if the activities are carried on in a small way, other indicators become more important in determining whether they amount to an enterprise.

In your circumstances there is an intention to engage in commercial activity by posting blogs. Although, viewers can view the content for free, your intention is to make profit from the advertising revenue. Your activities are profitable as it has become your main source of income and therefore there is a reasonable expectation of profit. You post blogs regularly on a continuous basis and the scale of your activities is not small. Your blogs are similar in nature to activities undertaken through other social media platforms, under which content creators deriving consideration through advertisements, are considered to come within the definition of carrying on an enterprise under section 9-20 of the GST Act. Therefore paragraph 23-5(a) of the GST Act is satisfied.

As per paragraph 23-5(b) of the GST Act, since you meet the GST registration threshold of $75,000, you will be required to be registered within 21 days of your GST turnover exceeding the relevant threshold.

Question 2

Detailed reasoning

Goods and Services Tax (GST) is payable on a taxable supply.

Under section 9-5 of the GST Act, 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 for GST.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

As explained in the answer to question 1, you are making a supply of digital contents to viewers for free and the supply of rights to the non-resident entity and receive consideration.

You receive consideration through ads placed on your website by the non-resident entity and you make this supply of rights in the course of carrying on your enterprise as determined in the reasoning for decision in question 1. You are also required to be registered for GST as your turnover exceeds the GST registration threshold.

One of the requirements of a taxable supply is that the supply should be connected with the indirect tax zone (Australia).

Subsection 9-25(5) of the GST Act states that a supply of anything other than goods or real property is connected with Australia if:

a)    the thing is done in Australia; or

b)    the supplier makes the supply though an enterprise that the supplier carries on in Australia; or

c)    all of the following apply:

                      i.        neither paragraph (a) nor (b) applies in respect of the thing;

                     ii.        the thing is a right or option to acquire another thing;

                    iii.        the supply of the other thing would be connected with Australia; or

d)    the recipient of the supply is an Australian consumer.

To satisfy the requirement of the supply being connected with Australia, you need to meet one of the listed elements in subsection 9-25(5) of the GST Act. Since you make the supply through an enterprise carried on in Australia, your supply will satisfy 9-25(5)(b) of the GST Act.

Supply to the non-resident entity

According to the Agreement, you have entered into a contract with the non-resident entity and grant them exclusive, worldwide rights to own, control and represent all ads on your website. Furthermore, you have granted the non-resident entity the right to use trademarks and trade names owned, operated, and/or controlled by you.

Based on the Agreement and Privacy Policy, it is our view that you make a supply of rights to the non-resident entity and the supply of rights should be considered for GST purposes under section 9-5 of the GST Act.

The supply of digital content to the viewers will not satisfy section 9-5 of the GST Act as you do not make this supply for consideration. The content on your website is not confidential and viewers can access it at no cost.

Your supply to the non-resident entity will satisfy all the requirements of section 9-5 of the GST Act as the supplies are connected with Australia and therefore those supplies will be subject to GST.

The supply of rights to the non-resident entity will not be an input taxed supply under the GST provisions. However, the supply of rights to the non-resident entity may satisfy the GST-free provisions.

GST-free supply of rights

Subsection 38-190(1) of the GST Act provides that the supplies of things other than goods or real property for consumption outside Australia will be GST-free.

Table item 4 of subsection 38-190(1) of the GST Act provides that a supply that is made in relation to rights is GST-free where:

a)    the rights are for use outside the indirect tax zone; or

b)    the supply is to an entity that is a not an Australian resident and is outside the indirect tax zone when the thing supplied is done.

You supply of rights to a non-resident who is outside Australia when the rights are supplied. Hence, your supply of rights to the non-resident entity will satisfy the requirements of table item 4(b) of subsection 38-190(1) of the GST Act and is GST-free.

You only need to satisfy either paragraph (a) or (b). Since table item 4(b) of subsection 38-190(1) is satisfied, we do not need to consider whether table item 4(a) of subsection 38-190(1) applies.