Edited version of private ruling

Authorisation Number: 1011490600982

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Ruling

Subject: GST and input tax credits on acquisitions of services received from an Australian supplier

Question

Are you, as a non resident of Australia, entitled to input tax credits on the acquisitions of services which you received from an Australian supplier under an agreement?

Answer:

Where at the time of the acquisition you are not in Australia, you will not be entitled to input tax credits on the acquisitions received from the Australian supplier because your acquisitions will not be creditable acquisitions under section 11-5 of the GST Act.

Where you are in Australia in relation to the acquisition, you will be entitled to input tax credits on the acquisitions received from the Australian supplier because your acquisitions will be creditable acquisitions under section 11-5 of the GST Act.

Relevant facts and circumstances

You are an individual and carry on a business that is registered for GST.

You entered into an agreement with an Australian supplier to provide you with services for a period. You are liable to pay the Australian supplier for their services under the agreement.

You have advised that the supplier is registered for GST.

You have been considered by the Australian Taxation Office to be a non-resident of Australia for part of the period of the agreement you have with the supplier.

You were in Australia for a few weeks during the period after you became a non resident. This was to visit your family. While in Australia you had a one day contact with the supplier in relation to your acquisition.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15,

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1) item 2,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3) and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Detailed reasoning

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to an input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide consideration for the supply; and

(d) you are registered or required to be registered for GST.

All the requirements of section 11-5 of the GST Act must be satisfied for you to be entitled to input tax credits under section 11-20 of the GST Act.

Under subsection 11-5(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on an enterprise.

However, under subsection 11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that:

· the acquisition relates to making supplies that would be input taxed (for example financial supplies and supplies of residential premises); or

· the acquisition is of a private or domestic in nature.

From the information received, you satisfy paragraphs 11-5(a), 11-5(b) and 11-5(d) of the GST Act as:

· you have acquired the services for a creditable purpose since you acquire them in order to carry on your enterprise.

· you have provided consideration for the supplies since you are required to pay for them; and

· you are registered for GST.

Further subsection 11-5(2) of the GST Act does not apply as your acquisitions does not relate to making supplies that would be input taxed supplies and were not acquired for private or domestic purposes.

What needs to be determined is whether paragraph 11-5(b) of the GST Act is satisfied. Where the supplies of services made by the supplier to you are taxable supplies this paragraph will be satisfied and your acquisitions will be creditable acquisitions under section 11-5 of the GST Act.

Is the supply of services to you a taxable supply?

In order for a supply to be a taxable supply to you all the elements of section 9-5 of the GST Act must be met.

A supply is a taxable supply under section 9-5 of the GST Act if:

(a) the supplier makes the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

(c) the supply is connected with Australia; and

(d) the supplier is registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the information provided, the requirements of paragraph 9-5(a) to (d) of the GST Act are satisfied as:

(a) the supplier makes the supplies for consideration as you have to pay the supplier for these services; and

(b) the supply is made in the course or furtherance of an enterprise(business) that the supplier carries on; and

(c) the supply is connected with Australia since the supply is made through a business that the supplier carries on in Australia; and

(d) the supplier is registered for GST.

However, section 9-5 of the GST Act provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed. There are no provisions in the GST Act which would make the supplies of these services input taxed. The next step is to determine whether the supply is GST-free under Division 38 of the GST Act.

GST-free

Section 38-190 of the GST Act treats certain supplies of things other than goods or real property, for consumption outside Australia as GST-free. The supplies of services to you are neither goods nor real property and therefore come within the scope of section 38-190 of the GST Act.

Relevant to the acquisitions you made is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

A supply will be GST-free under Item 2 where it is made to a non-resident who is not in Australia when the thing supplied is done, and either:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

For a supply of services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is supplied and the supply must satisfy either paragraph (a) or (b) in Item 2.

The term 'non-resident' is defined in section 195-1 of the GST Act to mean 'an entity that is not an Australian resident'. A non resident includes an individual who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). From the information received, you became a non resident of Australia for part of the period of the agreement.

The supplies of services provided to you are done by the supplier at the time the services are performed.

Not in Australia

Goods and Services Tax Ruling GSTR 2004/7 (also accessible from our website at www.ato.gov.au) provides guidance on when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'.

In the case of supplies made to an individual, we consider that the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done. If a supply is made to a non-resident individual who is physically in Australia when the thing supplied is done, the individual is in Australia.

A non-resident individual may be physically in Australia when the thing supplied is done, but that presence may be unrelated to the supply. For example the non-resident is in Australia on holidays only. Thus, if the non-resident is in Australia and has no contact with the supplier, we consider that the presence of the non-resident individual in Australia when the thing supplied is done, is not in relation to the supply.

If a non-resident individual recipient of a supply is physically in Australia and in contact with the supplier (other than contact which is only of a minor nature) we consider that presence is in relation to the supply.

Contact is minor if it is limited to contact of a simple administrative nature, such as checking on the progress of the supply or a courtesy call on the supplier. If this is the only contact between the non-resident individual and the supplier we consider that the individual is not in Australia in relation to the supply.

From the information given, you were not in Australia except for the few weeks you came to Australia to visit your family and had a one day contact with your supplier. The one day contact was in relation to your acquisition from the supplier.

In this case, when you acquired the services while located overseas you are considered not to be in Australia in relation to your acquisitions. Further when you were in Australia except for the one day visit to your supplier, you are still considered not to be in Australia in relation to your acquisitions. Accordingly, where the other requirements in either paragraph (a) or (b) of item 2 are satisfied the supply of services to you will be GST-free under Item 2.

As for the one day visit to your supplier, you are considered to be in Australia in relation to the acquisition and Item 2 will therefore not be applicable for that day. The supply to you for that day will be a taxable supply under section 9-5 of the GST Act. Paragraph 11-5(b) of the GST Act is therefore satisfied for that day and your acquisition on that day will be a creditable acquisition under section 11-5 of the GST Act. Hence you are entitled to input tax credit for the acquisition made on that day.

Paragraph (a) of Item 2

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done, is not GST-free if the supply is directly connected with real property situated in Australia or is a supply of work physically performed on goods in Australia when the work is done.

Goods and Services Tax Ruling GSTR 2003/7 (also accessible from our website at www.ato.gov.au) discusses the meaning of the term directly connected with goods or real property and a supply of work physically performed on goods.

From the information received, the supplies of services to you are neither a supply directly connected with real property situated in Australia nor a supply of work physically performed on goods situated in Australia. Paragraph (a) of Item 2 is satisfied.

Accordingly, the supply of services to you will be GST-free under paragraph (a) of Item 2.

Where paragraph (a) of Item 2 is satisfied there is no need to consider paragraph (b) of Item 2. However, it will be discussed briefly.

Paragraph (b) of Item 2

Paragraph (b) of Item 2 will be satisfied if the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

Based on the information provided, paragraph (b) of Item 2 will not be satisfied as you are registered for GST when you as a non resident acquired the services in carrying on your enterprise. Accordingly, the supply of services will not be GST-free under paragraph (b) of Item 2.

Subsection 38-190(3) of the GST Act

Having met the requirements of Item 2 it is necessary to consider subsection 38-190(3) of the GST Act. Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 will not be GST-free if:

· it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and

· the supply is provided or the agreement requires it to be provided, to another entity in Australia.

A supply is provided to another entity in Australia if, when the supplier does the thing to be supplied, the flow of the actual services is to another entity located in Australia.

If the supplier enters into an agreement with the non-resident to provide their services to another entity in Australia, subsection 38-190(3) of the GST Act will apply to negate the GST-free status under Item 2, and the supply will be a taxable supply.

From the information received, subsection 38-190(3) of the GST Act does not apply to deny the GST-free status in Item 2(a) as the supply of services is made and provided to you, a non-resident individual outside Australia (except for the one day contact with the supplier in Australia).

The supply of services made to you (except for the one day) is therefore GST-free under Item 2(a). Paragraph 11-5(b) of the GST Act is therefore not satisfied and your acquisitions will not be creditable acquisitions under section 11-5 of the GST Act. Hence you are not entitled to input tax credits for the acquisitions of these services.

For the taxable and GST-free part of the supplies made to you, the supplier is required to apportion the consideration received from you on a reasonable basis.

Summary

Where at the time of the acquisition you are not in Australia, you will not be entitled to input tax credits on the acquisitions received from the Australian supplier because your acquisitions will not be creditable acquisitions under section 11-5 of the GST Act.

Where you are in Australia in relation to the acquisition, you will be entitled to input tax credit on the acquisition received from the Australian supplier because your acquisition will be a creditable acquisition under section 11-5 of the GST Act.

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