ATO Interpretative Decision

ATO ID 2003/1103

Goods and Services Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a financial advisor, making a GST-free supply under item 1 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a financial review of a construction project outside Australia?

Decision

No, the entity is not making a GST-free supply under item 1 in the table in subsection 38-190(1) of the GST Act when it supplies a financial review of a construction project outside Australia.

The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity is a financial advisor. The entity supplies, to an Australian company, a financial review of an existing construction project that is being undertaken outside of Australia. The purpose of the financial review is to ascertain the overall financial viability of the project in order to obtain ongoing finance.

The entity is registered for goods and services tax (GST) and the supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for Decision

Section 38-190 of the GST Act provides that certain supplies of things, other than goods or real property for consumption outside Australia, are GST-free.

As the supply of a financial review is not a supply of goods or real property, its GST status is appropriately considered under section 38-190 of the GST Act.

Item 1 in the table in subsection 38-190(1) of the GST Act (Item 1) provides that a supply is GST-free where the supply is directly connected with goods or real property situated outside Australia.

Goods and Services Tax Ruling, GSTR 2003/7, examines the meaning of the expression 'directly connected with goods or real property' and provides that there must be a very close link or association between the supply and particular goods or real property.

A close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property. Some examples of when this close link or association exists includes where:

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the supply changes or affects the goods or real property in a physical way; or

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there is a physical interaction with the goods or real property but without changing the goods or real property; or

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the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

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the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

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the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

The financial review that the entity is conducting will assist in a business decision being made about the financial viability of a construction project. Even though the information provided in the review may lead to the continuance of the project, this connection is too remote to be a direct one. The supply is not directly connected with particular real property. The supply does not affect or change the nature or value of the real property.

This is further supported in the examples provided in GSTR 2003/7 of supplies of things that are not directly connected with goods or real property and these examples are similar to the entity's supply of financial review services. Paragraph 44 provides that a demographic study or market research to determine the economic viability of a business project for a particular region or site is a supply that is not directly connected with goods or real property. Paragraph 186 provides that a supply of information that is to be used to assist in deciding whether a business project should commence, is a supply that is too remotely connected to be deemed a direct connection with goods or real property.

As such, the entity's supply of services is not directly connected with real property situated outside Australia. Accordingly, the entity is not making a GST-free supply under Item 1 when it provides a financial review of an existing construction project outside Australia.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under any other provision of Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it provides a financial review of an existing construction project outside Australia.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   Division 38
   section 38-190
   subsection 38-190(1) table item 1
   Division 40

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2003/7

Keywords
Goods and services tax
Consumption outside Australia
GST international services
Supplies used or enjoyed outside Australia
Supply directly connected with goods or real property situated outside Australia
GST supplies & acquisitions
Taxable supply

Business Line:  GST

Date of publication:  12 December 2003

ISSN: 1445-2782