Edited version of private ruling

Authorisation Number: 1011613164347

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Ruling

Subject: goods and services tax (GST) and consultancy services

Questions

1. Will GST be payable on your supplies of services to X?

Answer: Yes.

2. Will you be required to include the payments you receive from X at label G1 of your activity statement/s?

Answer: Yes.

Relevant facts and circumstances

You are registered for GST.

X has contracted you to supply consultancy services in return for payments.

X is a fully owned subsidiary company of Y. X is incorporated in Australia. X does not have a branch outside of Australia.

The consultancy services are detailed in a consultancy agreement.

The consultancy agreement provides that you will supply consultancy services. The services you will supply will include undertaking specific activities outside Australia. The services you will supply will be organizing consultations, interacting with various entities and participating in missions. Your supply of consultancy services will be provided, and the agreement you have entered into with X requires your supply of consultancy services to be provided, to X. Your supply of consultancy services will not be provided, and the agreement you have entered into with X does not require your supply of consultancy services to be provided, to another entity outside Australia. You will provide, and the agreement you have entered into with X will require you to provide, reports to X. These reports will be on the outcomes of consultations.

Your contract with X requires you to work a total of a certain number of days to be worked over a certain length of time. A certain number of days will be spent outside of Australia and a certain number of days will be spent in Australia.

Reasons for decisions

Question 1

Summary

GST will be payable on your supplies of services to X as these supplies will satisfy all of the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Detailed reasoning

GST is payable on taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

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.

(*denotes a defined term in section 195-1 of the GST Act.)

In your case, your supplies of services to X will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as you will make these supplies for consideration, you will make these supplies in the course or furtherance of an enterprise that you carry on, your supply of the consultancy services will be connected with Australia as the supply will be made through an enterprise that you carry on in Australia and you are registered for GST.

Your supply of the consultancy services will not be input taxed under the GST Act. Therefore, it remains to be determined whether your supply of the services will be GST-free.

We need to consider whether the GST-free provisions in the GST Act and specifically item 3 in the table in subsection 38-190(1) of the GST Act (item 3) apply.

Subsection 38-190(1) of the GST Act deals with supplies of things for consumption outside Australia.

For a supply to be GST-free under an item in subsection 38-190(1) of the GST Act, the supply must not be a supply of goods or real property.

You advised that you have an agreement with X, under which you are to supply consultancy services. The services you will supply will include undertaking specific activities outside Australia. Additionally, your supply of the consultancy services will not be a supply of goods or real property. Thus, subsection 38-190(1) of the GST Act is relevant.

Item 3 provides that a supply that is neither a supply of work physically performed on goods situated in Australia when the thing supplied is done nor a supply directly connected with real property situated in Australia is GST-free where:

(a) the supply is made to a recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of the supply takes place outside Australia.

(The supply must not be a supply of goods or real property).

Both paragraphs (a) and (b) must be satisfied for the supply to be GST-free.

Paragraph (a) of item 3 requires that the recipient not be in Australia when the thing supplied is done.

Paragraphs 31 and 65 of Goods and Services Tax Ruling GSTR 2004/7 provide guidance in relation to this and state:

31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done.

65. A 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 it is a non-resident company or the Australian head office if it is an Australian incorporated company. 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.

Subsection 38-190(4) of the GST Act states:

A supply is taken, for the purposes of item 3 in that table, to be a supply made to a *recipient who is not in Australia if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with an *Australian resident; and

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

Paragraphs 52 and 53 of Goods and Services Tax Ruling GSTR 2007/2 state:

52. A supply may be made and provided to the same entity, or may be made to one entity but be provided to another entity (or entities). Such circumstances are provided for in the legislation by subsections 38-190(3) and (4).

53. The entity to which the supply is made is the recipient. The supplier may provide the supply to that recipient entity (in which case the recipient is also the providee) or may provide the supply to another entity (in which case the other entity is the providee).

In accordance with GSTR 2007/2, the providee entity is the entity that uses or enjoys the supply.

In this case, X has contracted you to supply consultancy services. Hence, the entity to which your supply of consultancy services will be made will be X, and therefore, X will be the recipient of your supply of consultancy services. X is a company, and the supply of the consulting services will be for the purposes of its Australian presence.

You will make your supply of consultancy services under an agreement you have entered into with X, which is an Australia resident. Therefore, the requirement of paragraph 38-190(4)(a) of the GST Act is satisfied.

However, your supply of consultancy services will be provided, and the agreement you have entered into with X requires your supply of consultancy services to be provided, to X, an entity in Australia. Your supply of consultancy services will not be provided, and the agreement you have entered into with X does not require your supply of consultancy services to be provided, to another entity outside Australia. Therefore, the requirement of paragraph 38-190(4)(b) of the GST Act will not be satisfied.

Hence, your supply of consultancy services will not be made, or be taken to have been made, to a recipient who is not in Australia when you perform these services. Therefore, the requirement of paragraph (a) in item 3 will not be satisfied.

Accordingly, the supply of your consultancy services to X will not be GST-free under item 3.

Additionally, the supply of your consultancy services to X will not be GST-free under any other item in the table in subsection 38-190(1) of the GST Act and the supply will not be GST-free under any other provision in the GST Act.

Therefore, as all of the requirements of section 9-5 of the GST Act will be satisfied, you will make a taxable supply when you supply your consultancy services to X. Hence. GST will be payable on your supply of consultancy services to X.

Question 2

A GST registered entity must record the consideration it receives for supplies it makes at label G1 of activity statements, where:

· the supplies are made in the course or furtherance of an enterprise that it carries on, and

· the supplies are connected with Australia.

You are registered for GST. Your supplies of services to X will be made for consideration; you will make these supplies in the course or furtherance of an enterprise that you carry on and these supplies will be connected with Australia.

Therefore, you must include the payments you receive for these supplies at label G1 of your activity statement/s.

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