The subject of GST compliance is complex but we will attempt to provide a simple explanation below.
GST on Products
Australian Tax Law requires all products that are sold by GST registered companies (eg MiVeda) to have GST (Goods and Services Tax) applied to the sale price. MiVeda has therefore applied GST to all the products which can be purchased from their online store (www.miveda.com). This includes RRP priced products, Discount Customer priced products and also Member priced products. Obviously the lower the product price (eg Discount Customer Price or Member Price) then the lower the GST (since GST is 10% of the purchase price). The GST is collected by MiVeda and paid to the ATO at regular intervals.
Commission Calculations on Product prices which include GST
MiVeda pays commissions to Members in regards to purchases made by customers and/or Members who have been directly or indirectly referred to the online MiVeda shopping cart by respective Members. These multiple commissions are described and explained in other sections of this website.
However these commissions are calculated on percentages of products sales, but commissions are not paid on GST (in fact it would be wrong to do so).
Therefore MiVeda has created a Credit Value (CV) system which is essentially an “internal currency” system. This CV system not only helps in regards to GST calculations, but also enables MiVeda to easily set up international branches (but have all products maintain equal value between all countries). Further, it allows MiVeda to create lower prices on “lead” products if desired (eg Toothpaste, Shaving Gel, Deodorant).
In almost all cases, MiVeda assigns a ratio of 1 CV to 1 dollar (1 CV = $1). This is a major advantage of MiVeda in comparison to other companies (since almost all other companies “dilute” their ratios – eg 1 CV = $2 or even more). This is explained in other sections of this website. However the important point to grasp is that this CV ratio is on the real price of the product NOT on the price of the product plus GST. As such the CV amount will always be one eleventh (1/11th) less that the product price charged, although CV will be less on the “lead” products.
Therefore commissions are calculated on CV amounts, not on dollar prices. Once the commissions are calculated, the amount is converted back to dollars (ratio of 1CV = $1).
GST payments with Commisions
The majority of MiVeda Members will not be registered for GST. As such these Members do NOT have GST added (10% more) to their commissions payments each month and there is no consequent tax implication for either MiVeda or such Members.
However a small number of Members will be registered for GST (often due to their other business activities – ie irrespective of MiVeda). In this case, such a Member needs to inform MiVeda of their GST status and MiVeda will add GST to their commission payments. MiVeda will “claim” this GST payment back from the ATO and the Member will have to pay the respective GST to the ATO (ie it is the Member’s responsibility to declare and pay the GST to the ATO).
When a Member (who is not registered for GST) becomes very successful with their MiVeda business, it is very likely their income from commission payments can be greater than $75,000 per annum. When this happens, it is an ATO requirement that such a person (or company) registers for GST (with the ATO) and then informs MiVeda of relevant details. MiVeda will then add GST to their commission payments. MiVeda then claims these payments back from the ATO and the Member is required by Tax Law to pay the GST to the ATO. If a Member who should register with the ATO for GST, fails to do so or fails to notify MiVeda of appropriate details, then MiVeda may be forced to suspend commission payments until the matter is resolved with the ATO.
Once a Member is registered for GST, they may be able to “claim back” GST payments they pay on products and services that are related to any business which they derive an income from. Thus in such a circumstance the Member should obtain proper tax accounting advice from an appropriate professional.