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I am working on an app that resells a service in Australia. To encourage use of our app we want to provide promo codes to the end user. The money to fund this promotion comes from our marketing expenses account and not the service provider. Do we calculate the taxes on the pre or post reduction amount?

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Going by the information from Goods and Services Tax (GST) on the Australian Government website, there seem to be a number of possibilities.

Note:

  • First I am neither a tax expert nor a lawyer; this is simply my interpretation of the rules on the page linked above.

  • Second, this interpretation is based on the assumption that "resells a service" means you (at least technically) buy the service from another company and sell it on to the users of your app. Depending on the nature of the service, and possibly factors such as whether you are deemed to "take possession" during the transaction, it might be that different rules apply.


Your Turnover is Under A$75,000 (Providing you're not reselling taxi services!)

You won't need to register for GST, should not charge it, and your invoices should show that GST was not included in the price. However, if the turnover of the company whose services you are reselling is registered for GST, they will be charging you GST that you will not be able to claim back, so you would need to factor this into the price you charge your users (before any promotional discount). For example:

                                 No        $2
                             Coupon    Coupon
Your net purchase price       10.00     10.00
GST charged to you             1.00      1.00
Your actual purchase price    11.00     11.00
Your operating costs/profit    1.00      1.00
Discount coupon                  --     -2.00
Customer pays                 12.00     10.00
Your profit/loss              +1.00     -1.00


Your Turnover is Over A$75,000

If your turnover is above the limit, you would need to charge GST on the final sale amount and pay this amount (one eleventh of the price your customer paid) to the Australian Government. You also have to send out properly-formatted tax invoices. However, it's probably safe to say the company you are buying the original service from will also be over the GST threshold, so you should be able to reclaim the GST that was charged to you by them. For example:

                                 No        $2        $3
                             Coupon    Coupon    Coupon
Your net purchase price       10.00     10.00     10.00
GST charged to you             1.00      1.00      1.00
Your actual purchase price    11.00     11.00     11.00
Your operating costs/profit    1.00      1.00      1.00
Discount coupon                  --     -2.00     -3.00
Base selling price            12.00     10.00      9.00
GST you add                    1.20      1.00      0.90
Customer pays                 13.20     11.00      9.90
Net GST you pay Government     0.20      0.00     -0.10
Your profit/loss              +2.00      0.00     -1.00
  • Here, your overall profit/loss is helped by the fact that you can reclaim the GST you were charged, and can under some circumstances result in an overall rebate.

  • These figures assume you add 10% to your selling price to cover the GST you have to pay the Government. However, this may make your offering uncompetitive, so you may have to absorb some/all of the GST yourself.

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Australian Goods and Services Tax is charged on the sale amount. Whatever internal accounting you do before billing the customer is of no interest to the Australian Tax Office.

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  • However you may have to pay the seller of the service taxes, depending on various things. – DJClayworth May 11 '17 at 2:11

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