Edited version of private ruling

Authorisation Number: 1011712698075

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Ruling

Subject: GST and supply of services to a non-resident

Question

Is the supply of management and administrative services to a non-resident company GST-free under section 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of management and administrative services to a non-resident company is GST-free under section 38-190(1) of the GST Act.

Relevant facts

You are carrying on an enterprise of catalogue printing.

Your business includes the provision of graphic design, advertising, media, printing, direct mail and associated business services.

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

You have an agreement with a non-resident company to provide management and administrative services as well as the following services:

§ printing

§ sending advertisement to publications

§ birthday mailings

§ return to sender management

§ product return management

§ mail house costs

§ attend Trade shows specific to client's needs

The non-resident company does not operate any business in Australia and is not registered for GST.

A copy of the agreement between yourself and the non-resident company was provided.

Reasons for decision

GST is payable on a taxable supply. Section 9-5 of the 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.

In this situation, you make a supply of services that satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as follows:

a) you make a supply of management and administrative services for payment as consideration;

b) the supply of service is made in the course or furtherance of your enterprise;

c) the supply of services is connected with Australia because the services are performed in Australia and you make the supply of services through an enterprise that you carry on in Australia; and

d) you are registered for GST.

Hence, your supply of management and administrative services to the non-resident company 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.

However, the GST-free provisions for certain supplies of things other than goods or real property for consumption outside Australia may be applicable.

The supply of management and administrative services is not a supply of goods or real property. Therefore, it is appropriately considered under section 38-190 of the GST Act.

In particular, item 2 in the table in subsection 38-190(1) of the GST Act (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 for GST.

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.

Not in Australia

We consider that the precondition in Item 2 requiring that the non-resident is not in Australia is a requirement that the non-resident is not in Australia in relation to the supply.

As expressed in paragraph 37 of Goods and Services Tax Ruling GSTR 2004/7 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, your client is a non-resident company and 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 company is considered to be '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 management and administrative 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)

A supply covered by Item 2 will not be GST-free if the provisions of subsection 38-190(3) 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.

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.

In this case, you provide your services to the non-resident entity and you do not have an agreement with the non-resident requiring you to provide your services to another entity in Australia. Therefore, subsection 38-190(3) of the GST Act does not exclude the supply of your services to the non-resident company from being a GST-free supply under Item 2.

In conclusion, the management and administrative services you supply to the non-resident company are GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

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