Edited version of private ruling

Authorisation Number: 1011553564787

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Ruling

Subject: GST and supply of consultancy and training services

Question 1

Is your supply of consultancy and/or training services to a non-resident entity a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) 1999 Act (GST Act) where you and the non-resident have entered into an agreement which requires you to provide your services to another entity in Australia?

Advice/Answers

Yes, the supply of consultancy and/or training services to the non-resident is a taxable supply under section 9-5 of the GST Act.

Question 2

Does the reimbursement that you receive for the expenses that you incurred whilst providing your services form part of the consideration for a taxable supply that you make?

Advice/Answers

Yes, the reimbursement that you receive for the expenses that you incurred whilst providing your services form part of the consideration for a taxable supply that you make to the non-resident.

Relevant facts

You are an Australian company registered for goods and services tax (GST).

You carry on an enterprise of providing consultancy and training services.

You have entered into an agreement with a non-resident company which requires you to provide consultancy, training and coaching services to their Australian client.

The non-resident does not have a business presence in Australia and is not registered for GST.

Your services are provided by conducting workshops and site tours, preparing checklists and educating the employees of the Australian client.

You provide your services at the head office of Australian client and also at its depot.

As part of your services, expenses such as travelling and internet charges have been incurred. You invoiced the non-resident for reimbursement of these out of pocket expenses.

Under the Services Agreement, the non-resident agrees to reimburse you for any out-of-pocket expenses for meals, travel, lodging or miscellaneous expenses incidentally incurred in the performance of your services. These include expenses such as phone and internet charges, mobile phone charges, computer hardware or software expenses, and all other business expenses.

Reasons for decision

Question 1

GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:

(a) you make the supply for consideration; and

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

(c) the supply is connected with Australia; and

(d) you are 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.

From the facts given, you satisfy all the requirements of paragraphs 9-5(a) to (d) of the GST Act, as follows:

(a) You made a supply of consultancy and/or training services to the non-resident and in return you received consideration for your supply by way of payment;

(b) You made this supply in the course or furtherance of your enterprise;

(c) You made this supply through an enterprise that you carry on in Australia (and therefore the supply is connected with Australia); and

(d) You are registered for GST in Australia.

Hence, the supply of consultancy and/or training services to the non-resident is taxable to the extent that it is not GST-free or input taxed.

The supply of your service does not satisfy any of the input taxed provisions under the GST Act.

GST-free

Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia, is GST-free. Of particular relevance is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where;

(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.

Accordingly, where the provisions of either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done.

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 the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 sets out the Tax Office view on when a non-resident is not in Australia when the thing supplied is done.

A non-resident company is in Australia if the company carries on business in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch, representative office or agent. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor.

Where you supply your services to a non-resident that is not in Australia as contemplated above, the precondition in Item 2 is satisfied.

From the information received, the non-resident company does not carry any business through a representative in Australia and does not have any presence in Australia in relation to your supply. As such, the non-resident is not in Australia in relation to your supply when you perform your service. The precondition in Item 2 is satisfied.

Paragraph (a) of Item 2

Paragraph (a) of Item 2 is met if the thing supplied is not directly connected with real property situated in Australia and is not work physically performed on goods situated in Australia when the work is done.

The phrases 'directly connected with goods or real property' and 'a supply of work physically performed on goods' are explained in GSTR 2003/7. The ruling provides, amongst other things, that a supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. Where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods.

From the information received, the requirements in paragraph (a) of Item 2 are satisfied because the supply of consultancy and/or training services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Accordingly your supply will be GST-free under item 2(a) to the extent that it is not negated by subsection 38-190(3) of the GST Act.

As paragraph (a) of Item 2 is satisfied paragraph (b) does not need to be considered.

Subsection 38-190(3) of the GST Act

A supply covered by Item 2 will not be GST-free if the provisions of subsection 38-190(3) of the GST Act are met. Subsection 38-190(3) provides that the supply will not be GST-free if:

(a) it is a supply under an arrangement entered into, whether directly or indirectly, with a non-resident; and

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

Goods and Services Tax Ruling GSTR 2005/6 provides the Tax Office view on the operation of subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act, in contrast to Item 2, focuses on the entity to which the supply is provided, not the entity (the non-resident) to which the supply is made. If the supply is provided (or is required to be provided) to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status that would otherwise apply to the supply covered by Item 2. Although the non-resident recipient of the supply is not in Australia, consumption of the supply is considered to be in Australia because the supply is provided to an entity in Australia.

Paragraph 38-190(3)(a) of the GST Act

Your supply of consultancy and/or training services is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) of the GST Act is therefore satisfied.

Paragraph 38-190(3)(b) of the GST Act

Paragraphs 59 and 61 of GSTR 2005/6 provide guidance in relation to the expression 'provided to another entity'. Generally a supply is made to whoever you are contractually liable to perform the services for, in this instance your supply is made to X. However, a supply is provided to whoever obtains the actual effective use or enjoyment of the supply, that is, the actual beneficiary.

In this case, you have entered into an agreement with a non-resident to provide consultancy and/or training services to their client in Australia. The contractual flow of your services is to the non-resident and the actual flow of your services is to that other entity in Australia. Paragraph 38-190(3)(b) of the GST Act is therefore satisfied.

Accordingly, subsection 38-190(3) of the GST Act applies to your supply of consultancy and/or training services covered by Item 2 and the GST-free status of your supply is negated.

In conclusion, your supply of consultancy and/or training services to the non-resident is a taxable supply under section 9-5 of the GST Act.

Question 2

Reimbursement of expenses

The term 'consideration' is defined in subsection 9-15(1) of the GST Act to include:

§ any payment, or any act or forbearance, in connection with a supply of anything; and

§ any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

In your case, you receive payment from the non-resident that consists of an amount for work performed plus a separate amount as 'reimbursement' for expenses such as travel and internet. The amount you receive for work performed is consideration for the supply of your services.

However, it is necessary to determine whether the reimbursement for expenses forms part of the consideration for the supply of your consultancy and/or training services.

The treatment of disbursements and reimbursements is considered in Goods and Services Tax Ruling GSTR 2000/37. Paragraph 49 of GSTR 2000/37 provides that:

If a disbursement is made by a solicitor and incurred in the solicitors capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitors overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

In this case, you charge the non-resident for outgoings incurred by you in carrying out your consultancy and/or training work. The supplies which you receive from the payment of these outgoings enable you to perform your services to the non-resident. Therefore the outgoings form part of the consideration payable by the non-resident for your services.

Consequently, the amount of GST payable on the taxable supply of your consultancy and/or training services is calculated on the amount received from the non-resident for the work performed by you as well as the reimbursement of the outgoings incurred in carrying out your consultancy and/or training services. This is the case whether the reimbursement is separately itemised or included as part of your overall fee.

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