1 Are you liable to pay GST on the non-monetary rewards that you receive from XYZ for meeting the sales targets, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 Yes. Question 2 If yes to question 1, is the price of the non-monetary rewards equal to the GST inclusive market value of the non-monetary rewards in accordance with paragraph 9-75(1)(b) of the GST Act? Answer 2 Yes. This ruling applies for the following period: From a specified date to a specified date The scheme commenced on: A specified date
You are registered for GST. You are an independent distributor for XYZ. XYZ is a multi-level marketing company. You are a high-performing distributor. As a distributor you receive monetary rewards such as commissions and bonuses on your own sales and on a percentage of the sales generated by distributors you recruit. In addition to the monetary rewards, XYZ uses non-monetary rewards to increase sales of its products through its independent distributors/members. A distributor must meet certain levels of sales set by XYZ to qualify for the non-monetary rewards. Distributors who qualify are rewarded for consistent performance and efforts in building their business. Any distributor that meets the set sale target will qualify and receive the non-monetary reward. You provided detail of the type of non-monetary rewards that XYZ gives to the distributors. Some non-monetary rewards, when viewed as a supply themselves, may be GST-free supplies. XYZ does not provide the distributors with any information about the value of the rewards. You provided copies of documents outlining the terms and conditions of being a distributor for XYZ.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 9-15 A New Tax System (Goods and Services Tax) Act 1999 section 9-75(1)(b) A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Question 1 Are you liable to pay GST on the non-monetary rewards that you receive from XYZ for meeting the sales targets, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Summary The non-monetary rewards that you receive are consideration for the taxable supply of your services to XYZ. You are therefore liable to pay GST on the non-monetary rewards that you receive. Detailed reasoning Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with Australia, 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. Paragraph 9-5(a) of the GST Act requires that the supply is made for consideration. Consideration is defined in section 195-1 of the GST Act to mean 'any consideration, within the meaning given by sections 9-15 and 9-17 of the GST Act, in connection with the supply'.
Section 9-15 of the GST Act provides that a payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. Thus, there must be a sufficient nexus between a particular payment and a particular supply for the payment to be consideration for that supply. It follows that there are two elements to the definition of consideration. The first is the payment by one entity to another. The second element is the nexus that must be established between the payment and a supply. The meaning given to consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearances. It may include payments made voluntarily, and payments made by persons other than the recipient of a supply. Further a payment is not limited to a payment of money. It includes a payment in a non-monetary or in an in-kind form such as goods or services. Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) explains how the GST Act applies if part or all of the consideration for a supply is not expressed as an amount of money. Paragraph 12 of GSTR 2001/6 states:
12. A 'payment' is not limited to a payment of money. It includes a payment in a non-monetary or in an 'in kind' form, such as: • providing goods; • granting a right or performing a service (an act); and • entering into an obligation, for example to refrain from selling a particular product (a forbearance). In relation to identifying non-monetary consideration, paragraphs 47 and 48 of GSTR 2001/6 state: 47. The definition of a taxable supply requires, among other things, that you make a supply for consideration. There needs to be a supply, a payment and the necessary relationship between the supply and the payment. Where one party makes a monetary payment to another, something of economic value is provided. The question is whether there is a sufficient nexus between the supply and the payment as consideration.
48. The same analysis applies in determining whether a good, service or thing is non-monetary consideration for a supply. However, due to the breadth of the definition of consideration (and the numerous promises that each party to a transaction usually makes), establishing what is the consideration for a supply is not always as simple as for monetary transactions. Nor is it always as clear if something of economic value is being provided. In your case, you are an independent distributor selling XYZ's products. You receive monetary commissions and bonuses for sales made by you and your recruits. You also receive non-monetary rewards when you achieve sales targets set by XYZ. We consider that similar to the monetary commissions and bonuses, the non-monetary rewards are consideration for the supply of your services to XYZ. Therefore, the requirement of paragraph 9-5(a) is met.
Furthermore, the other requirements of section 9-5 of the GST Act are also met. This is because you supply your services in the course or furtherance of your enterprise, the supply is connected with Australia, you are registered for GST and the supply of your services is neither input taxed nor GST-free. Therefore, the supply of your services is a taxable supply as it meets all the requirements of section 9-5 of the GST Act. You submitted that, in your view, the non-monetary rewards are consideration for the taxable supply of your services to XYZ. However, as XYZ does not provide information about the value of the non-monetary rewards, it is impossible for you, as the distributor, to determine the GST amount payable. Therefore, you request an exemption from reporting GST on the non-monetary rewards that you receive from XYZ. As the non-monetary rewards are consideration for the taxable supply of your services to XYZ, they are not exempt from GST. You are liable to pay GST on the non-monetary rewards that you receive. Question 2
If yes to question 1, is the price of the non-monetary rewards equal to the GST inclusive market value of the non-monetary rewards in accordance with paragraph 9-75(1)(b) of the GST Act? Summary The price of the non-monetary rewards is equal to the GST inclusive market value of the non-monetary rewards. You are liable to pay GST equal to 1/11 of the GST inclusive market value of the non-monetary rewards. GSTR 2001/6 provides guidance on methods that you can use to determine the GST inclusive market value of the non-monetary rewards on a reasonable basis. You need to retain records that explain how you worked out the GST inclusive market value of the non-monetary rewards. Detailed Reasoning Paragraph 9-75(1)(b) of the GST Act provides that where the consideration for a taxable supply is not expressed as an amount of money, the price of the taxable supply is the GST inclusive market value of that non-monetary consideration. GSTR 2001/6 provides guidelines on how to determine the GST inclusive market value of a non-monetary consideration to work out the price of the supply, and when that valuation should be done. Paragraph 144 of GSTR 2001/6 states:
144. You may determine the GST inclusive market value of non-monetary consideration for a taxable supply by applying a method that produces a reasonable GST inclusive market value of the consideration. There will be situations where the methods used by parties differ according to their particular circumstances. Examples of reasonable methods include: • the market value of an identical good, service or thing; • the market value of a similar good, service or thing; • the market value of the supply; or • a professional appraisal. The above methods and other reasonable methods are discussed at paragraphs 145 to 158 of GSTR 2001/6. While some non-monetary rewards, when viewed as a supply themselves, may be GST-free supplies, you are still liable to pay GST on the GST inclusive market value of these non-monetary rewards. This is because they are consideration for the taxable supplies of your services. The supply of a non-monetary reward that is GST-free has a GST inclusive market value with a nil GST component. This is explained in paragraphs 130 and 131 of GSTR 2001/6:
130. The GST treatment of non-monetary consideration (when it is viewed as a supply itself) is not relevant to its status as consideration. Circumstances in which the GST treatment is not relevant include where non-monetary consideration is received from an entity that is not registered for GST purposes, or is a GST-free or an input taxed supply. These things, when they are consideration, have a GST inclusive market value with the GST component being 'nil'. Example 22 - non-monetary consideration is itself a GST-free supply 131. Jana makes a taxable supply of a case of soft drink to Wendy, in return for a case of mangoes with a market value of $110. The price for the taxable supply of the soft drink is the GST inclusive market value of the mangoes. As mangoes are GST-free, their GST inclusive market value is $110 . The GST on the taxable supply of the soft drink is 10% of 10/11 of the GST inclusive market value of the mangoes, that is, 10% of 10/11 x $110 = $ 10 . Record keeping requirements As outlined in paragraph 228 of GST 2001/6, you need to keep records that explain how you worked out the GST inclusive market value of a non-monetary consideration:
228. Section 382-5 of Schedule 1 to the Taxation Administration Act 1953 sets out record keeping requirements of indirect tax transactions. Records that explain indirect tax transactions and acts relevant to the supply, importation, acquisition and dealing need to be retained for at least five years after the completion of the transactions or acts to which they relate. You need to retain records that explain how you worked out the GST inclusive market value of any non-monetary consideration.