GST and right to a share of net profit in return for a contribution of money - not a supply of money

Is an entity making a supply of money, that is provided as consideration for a supply of money for the purposes of subsection 9-10(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it contributes an amount to another entity's business in return for a right to a share of the net profit from the other entity's business?

No. The entity is not making a supply of money, that is provided as consideration for a supply of money for the purposes of subsection 9-10(4) of the GST Act, when it contributes an amount to another entity's business in return for a right to a share of the net profit from the other entity's business.

The entity enters into an arrangement with another entity (the enterprise operator). Under the terms of the arrangement, the entity agrees to contribute an amount of money as consideration for the right to receive a share of the net revenue of the enterprise operator's business, at a certain rate up to the extent of the contribution amount, and thereafter, at a lesser rate.

The entity is registered for goods and services tax (GST) and the arrangement entered into is connected with Australia.

Subsection 9-10(4) of the GST Act provides that a supply does not include a supply of money, unless the money is provided as consideration for a supply that is a supply of money. In circumstances where subsection 9-10(4) of the GST Act applies, both of the supplies of money are supplies for GST purposes, and each side of the transaction needs to be examined to determine the GST character of the supplies.

In this case, the amount contributed by the entity is not provided as consideration for a supply that is a supply of money. The amount contributed is consideration for the supply of a right to receive a share of the net revenue of the enterprise operator's business, at a certain rate up to the extent of the contribution amount, and thereafter, at a lesser rate. Furthermore, the share of the net revenue that the entity receives as a consequence of the supply of that right is not consideration for the contribution amount.

The arrangement between the entity and the enterprise operator therefore does not involve a supply of 'money for money' to which subsection 9-10(4) of the GST Act applies.