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Ruling

Subject: GST and international services

Question 1

Is GST payable on the supply of overseas accommodation to your customers?

Answer

No.

Question 2

Is GST payable on your supply of booking services to the Operator?

Answer

No.

Relevant facts

You operate an online booking agency.

You are registered for GST.

You solely offer an online booking service for rental accommodation in Country X through your website.

You entered into agency agreements with owner/operators of properties in Country X to provide online booking services.

You provided us a copy of an agency agreement (the Agreement) between you, as agent, and an owner/operator (the Operator) of certain holiday accommodation in Country X. The Agreement outlines the following:

· By booking a particular type of accommodation, you acknowledge that a rental contract is entered into between the customer and the Operator. The rental contract is not effective until the initial deposit has been received by the Operator and confirmation in writing for the booking has been sent to you by the Operator.

· Under the Agreement, you must not offer rates lower than the Operator's official published rates and must not reduce commissions to create prices lower than the official published rates without prior written approval from the Operator.

· The Operator offers you a commission for providing the service of being responsible for all financial transactions related to the booking.

· Commissions are calculated on the gross amount paid by the customer and in cases where you accept the payment from the customer. You may retain your commission and transfer the net amount in settlement to the Operator.

When a customer books the accommodation, you send them the invoice and you receive the full payment. You would then receive an invoice from the Operator for the accommodation booked. You remit to the Operator the amounts received from the customers less your commission.

The Operator is based in Country X and does not carry on any business in Australia nor are they registered for GST in Australia. The Operator is not in Australia, either through its employees, representatives or agents, when you provide your services.

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 9-25.

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

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

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

Reasons for decision

Question 1

Summary

GST is not payable on the supply of rights to overseas accommodation to your customers.

Detailed reasoning

GST is payable on any taxable supply that you make.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements of a taxable supply and it states:

You make a taxable supply if:

you make the supply for *consideration; and

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

the supply is *connected with Australia; and

you are *registered, or *required to be registered for GST.

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

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

You do not supply the accommodation yourself. You are merely making a supply of rights to overseas accommodation to your customers who book their accommodation via your online booking service.

You satisfy the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act as:

· you supply the right to accommodation for consideration

· the supply is made in the course of an enterprise that you carry on and

· you are registered for GST.

The supply of the right to accommodation is not input taxed under the GST Act or under any other Act. Therefore, what is left to determine is whether the supply is connected with Australia and whether it is GST-free.

Section 9-25 of the GST Act outlines when supplies are connected with Australia. In particular, subsection 9-25(4) of the GST Act is relevant which states that a supply of real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

The term real property is defined in section 195-1 of the GST Act to include, among other things, a licence to occupy land or any other contractual right over or in relation to land.

Goods and Services Tax Determination GSTD 2004/3 states, at paragraph 1, that a supply of rights to accommodation is a supply of real property for the purpose of GST.

Accordingly, your supply of rights to villa accommodation overseas is a supply of real property for the purposes of the GST Act.

As the real property (the villa) is not located in Australia, the supply of rights to accommodation is not connected with Australia. Hence, the supply does not satisfy the requirement of paragraph 9-5(c) of the GST Act.

Therefore, as not all the requirements of section 9-5 of the GST Act are satisfied, your supply of rights to overseas accommodation is not a taxable supply and GST is not payable on the supply.

Question 2

Summary

GST is not payable on your supply of booking services to the Operator.

Detailed reasoning

The supply of booking services to the Operator satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d). This is because:

a) the supply is made for consideration

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

c) the supply is connected with Australia as the services are done in Australia and

d) you registered for GST.

The supply as outlined in the Agreement is not input taxed under any provision of the GST Act or any other Act. It remains to be determined if the supply is 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 to your supply is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if the non-resident is not in Australia when the thing supplied is done and:

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.

A non-resident for GST purposes is an entity that is not an Australian resident for the purposes of the Income Tax Assessment Act 1936.

You advised that the Operator is an entity existing under the laws of a foreign country and whose principal office is in that country. On the information provided, we consider that the Operator is not a resident of Australia for income tax purposes.

The meaning of 'not in Australia'

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

At paragraph 37 of GSTR 2004/7, we established a test where we consider that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) 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.

Further, 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, or

· the presence of the company is involved in the supply, unless the only involvement is minor.

On the information provided, the Operator does not have any business of its own in Australia nor carry on business through an agent in Australia. The Operator, either through its employees, representatives or agents, is not in Australia when you provide your booking services. Further, all communications in relation to your supply are made directly to the Operator in Country X.

Based on the information provided, we consider that the Operator is not in Australia in relation to your supply when such supplies are made.

The supply under the Agreement must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free.

Paragraph (a) and/or (b) of item 2

The requirement in paragraph (a) of item 2 is met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

Paragraphs 68 and 69 of GSTR 2003/7state:

68 … If the supply includes work physically performed on goods but that work is ancillary to some other dominant part of the supply that is not work physically performed on goods, then that supply is not characterised as a supply of work physically performed on goods. This depends on the particular facts of each supply.

69. For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice if the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods. The testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information.

From the information provided, we consider that the requirements in paragraph (a) of item 2 are satisfied because the supply you make to the Operator under the Agreement is one of services. This supply is neither a supply of work physically performed on goods nor a supply directly connected with real property in Australia.

Accordingly, the supply satisfies the requirements of paragraph (a) of item 2.

As the requirements of paragraph (a) of item 2 are satisfied, there is no need to consider if the requirements of paragraph (b) of item 2 are met.

Exclusion

The scope of item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by item 2 is not 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.

Goods and Services Tax Ruling GSTR 2005/6 provides the ATO view on the operation of subsection 38-190(3) of the GST Act. The ruling explains that subsection 38-190(3) only applies if there is a supply of something, being a supply that is made to a non-resident and covered by item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is, the contractual flow is to one entity (the non-resident entity) and the actual flow of the supply is to another entity.

From the information provided, subsection 38-190(3) of the GST Act is not applicable to your supply to the Operator as you are not required under the Agreement to provide the supply to another entity in Australia. Hence, the contractual and actual flow of the supply is to the Operator in Country X.

Therefore, subsection 38-190(3) of the GST Act does not exclude your supply from being GST-free under item 2.

Accordingly, your supply of booking services to the Operator as outlined in the Agreement is GST-free. Hence, GST is not payable on this supply.

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