GST on Gold Selling

As questionable it may be, gold selling is a way to make money. Like any other Australian business, a Australian gold seller may get taxed on their proceeds, and if they have not been declaring such income on their BAS (business activity statement), they may well be running up a tax debt...

Josh, as well as his friends Guy and Sandy, have dipped their toes into the grey market, and are now wondering if they will have to pay GST (Goods and Services Tax). Unfortunately, they find the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) too daunting to find out themselves. Will you be able to help them?

This problem has been taken out of Understanding Taxation Law 2011 (see bibliography for full citation), and the GST Act as of 1 November 2010 has been referred to.

How to attract the tax collector
In the GST Act:

• s 7-1 says that "GST is payable on taxable supplies and taxable importations".
• s 9-5 says that a taxable supply is made if a supply is made for consideration in the course or furtherance of an enterprise carried on, if it is connected with Australia and the supplier is registered or required to be registered.

With regard to s 9-5, in the GST Act:

• s 9-10 says that supply includes a supply of goods, a supply of services, the surrender of a right and any combination of the aforementioned.
• s 9-15 says that consideration includes "Any payment ... in connection with a supply of anything".
• s 9-20 says that an enterprise may involve activities done "in the form of a business" or "in the form of an adventure or concern in the nature of trade".
• s 9-25 says that supplies are connected with Australia if goods are delivered or made available in Australia (for supplies of goods wholly within Australia), goods are removed from Australia (for exported goods) or the thing is done in Australia (for supplies of non-goods).
• s 23-5 says that registration is required where the supplier is carrying on an enterprise and GST turnover meets the registration threshold of $75 000 per annum. They may also choose to register.

Josh's problem

• Supply: As a player character (avatar) is a thing, it is a good (even if it is just a string of ones and zeroes on an iron-coated surface). Also, as per the Terms of Use, Blizzard had licensed World of Warcraft to Josh, and so access to Hakai qualifies as a right. Regardless of whether Josh treated it as a good or right, it was supplied/surrendered and this qualifies as a supply. However, I see it as either/or.
• Consideration: Josh received $1500 in exchange for his player character Hakai. This payment to him is clearly consideration.
• Enterprise: In developing Hakai, Josh was simply playing the game for fun and as a player. Such an activity is not in the nature of business (making a profit), nor is it in the nature of trade (commerce). Therefore, selling Hakai must not be in the course or furtherance of an enterprise carried on.
• Connected with Australia: Interestingly, there are no World of Warcraft servers in Australia; almost all Australian residents connect to US servers, and a few to EU, CN, TW and KR ones. Where Hakai is considered a good and the supply was to a person within Australia, it could not have been delivered, as the disk containing the ones-and-zeroes has never even touched down in Australia. However, in surrendering Hakai, Josh did make him available to the buyer while the former was on Australian soil. In the case of where Josh sold him to someone overseas, considering the above, he could not have removed Hakai from Australia. Although, if Josh is treated as surrendering a right, then he can be said to have done so in Australia, despite the disk being all the way over in the US. Therefore, regardless of whether it is a supply of goods or the surrender of a right, it is connected with Australia.
• Required to be registered: Since Josh is not carrying on an enterprise, the question of registration does not arise.

Therefore, Josh is not required to pay GST on his sale of Hakai because he was not carrying on an enterprise and not required to be registered.

An orc warrior (not necessarily Hakai).

Guy and Sandy's problem

• Supply: Considering Josh's problem, the player characters Guy and Sandy sell can be either goods or rights. As for the leveling services being offered, they, by definition, are services. Therefore, the providing of both are supplies.
• Consideration: The money they are receiving for the avatars and leveling services is consideration.
• Enterprise: From these activities Guy and Sandy make a steady income. In addition, they are expecting to make a profit from them. As such, they can be construed to be carrying on a business and so are carrying on an enterprise.
• Connected with Australia: Considering Josh's problem, their selling of player characters is connected with Australia. As for the services, they are being performed on Australian soil (even if the recipient of the services is halfway across the globe). Therefore, the providing of both are connected with Australia.
• Required to be registered: Alas, it cannot be discerned or implied from the facts whether Guy and Sandy together are earning over $75 000 per annum in sales.

Therefore, Guy and Sandy will only be required to pay GST if either they earn over $75 000 in sales or choose to register.

NB: As I am not a qualified lawyer, do not depend on this blog post for legal advice!

Bibliography

• A New Tax System (Goods and Services Tax) Act 1999 (Cth).
• Gilders, F., Taylor, J., Walpole, M., Burton, M. & Ciro, T. (2011), Understanding Taxation Law 2011, 5th edn, LexisNexis Butterworths, Chatswood.