Edited version of your private ruling

Authorisation Number: 1012478484925

Ruling

Subject: GST and international services

Question 1

Is the supply by you of project management services to NR1 a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

The supply of your project management services to NR1 is a mixed supply of GST-free supply and taxable supply. It is a GST-free supply when you project manage the equipments located overseas. It is a taxable supply when you project manage the equipments located in Australia.

Question 2

Please confirm that you are required to be registered for GST when the above supply is the only supply you make.

Advice/Answers

You are already registered for GST and we confirm that you are required to be registered for GST.

Relevant facts and circumstances

You are a sole trader. You are registered for GST in Australia.

You signed a contract with an overseas company called NR1 to supply your personal services as an independent contractor/project manager. You are physically based in Australia and you work virtually with international teams on international projects using the internet. You build capability and deliver projects per global directions in Australia and other countries.

NR1 pays you a fee for professional services rendered at $XXX Australian dollars per hour. Your remuneration from NR1 is more than $75,000 Australian dollars annually. NR1 is a non-resident global company with consultants on assignments across the globe. It is not registered for GST or for income tax purposes in Australia and is not registered with ASIC.

NR1 has a services based scope of work agreed with its client, NR2. As per the contract with NR1, you provide project management and consulting services to NR2 in relation to several projects in many different countries (including Australia).

NR2 is a global/multinational company. It is not registered for GST or for income tax purposes in Australia and is not registered with ASIC. However, NR2 has a permanent establishment in Australia through its Australian subsidiary, Australian Resident. Australian Resident is registered for GST and income tax purposes and with ASIC in Australia.

You provide us with a copy of contractor agreement between you and NR1.

The scope and key responsibilities of your role in NR2's projects are as follows: Project Scoping, Project Planning, Resource Planning, Forecasting/Budgeting, Execution, Monitoring and Controlling and Project Closure.

Most of your projects deal with equipments located outside Australia. However, in your Australian project for NR2, you deal with equipments located in Australia. Your project's goal is to give advice on the equipment update/transformation. You believe the devices and equipments in the Australian project are for the use of Australian Resident.

You carry out your Project Management Services via project management tools. You do not procure hardware or engage any third party vendor. NR2 procures the equipment which you recommend in your projects. You are not responsible for the physical deployment of equipment. . You do not provide technical support to the entities that use the equipments in your projects.

You provide advice to NR2, who commissions/updates equipments and you manage the due dates of the projects. No physical work is performed on goods situated in Australia. No work is directly connected with real property situated in Australia.

It is NR1 Manager located in the USA who approves payments for you.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 188-10

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 188-25(a)

Reasons for decision

Question 1

Summary

The supply of your project management services is a mixed supply of GST-free supply and taxable supply.

Detailed reasoning

GST is payable on the supply of your project management services if you are making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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.)

Based on the information provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

you supply your project management services to NR1 for consideration

the supply of your project management services is in the course or furtherance of your enterprise.

the supply of your project management services is connected with Australia as the services are performed in Australia and made through an enterprise that you carry on in Australia, and

you are registered for GST.

The supply of your project management services is not input taxed under the GST Act. Therefore, it remains to be determined whether the supply is GST-free.

The supply of your project management services is not considered to be a supply of goods or real property. Hence, the GST status of this supply is appropriately considered under section 38-190 of the GST Act, which provides that certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. Of relevance, are items 2 and 3 in the table in subsection 38-190(1) of the GST Act.

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is:

· a supply that is made to a *non-resident who is not in Australia when the thing supplied is done, and:

· 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

· 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.

Non-resident is not in Australia when the thing supplied is done

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

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.

A company is a resident of Australia if:

· the company is incorporated in Australia, or

· the company is not incorporated in Australia but has either its central management and control in Australia or its voting power is controlled by shareholders who are residents of Australia.

On the information provided NR1 is not a resident of Australia for income tax purposes.

As stated in paragraph 37 of Goods and Services Tax Ruling GSTR 2004/7, 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:

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

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

You have advised that NR1 does not have a permanent establishment in Australia and does not carry on a business of its own in Australia; nor does it carry on a business through a representative in Australia. Therefore, based on the information provided, we consider that NR1 is not in Australia when you supply project management services to NR1. We do not need to consider whether NR1 is in Australia in relation to your supply of project management services.

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

Paragraph (a) of item 2

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.

Paragraph 21 of GSTR 2003/7 states:

21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs.

You state that your projects aim to give recommendation and advice to the engineers who decommission/update computer devices/equipments and you manage the due dates of the projects. On the information provided, the supply of your project management services is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with goods or real property situated in Australia. As such, the supply of your project management services to NR1 satisfies the requirements of paragraph (a) of item 2.

As the supply of your project management services satisfies the requirements of paragraph (a) of item 2, it is not necessary to consider whether the requirements of paragraph (b) of item 2 are satisfied.

Limitations of item 2

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided to another entity in Australia, or the agreement requires that it be so provided, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

Subsection 38-190(3) of the GST Act states:

Without limiting subsection 38-190(2) or (2A), 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 which provides the Tax Office view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

In this case, the supply of your project management services is a supply under an agreement entered into with a non-resident, NR1, therefore paragraph 38-190(3)(a) of the GST Act is satisfied.

In general, your projects mostly deal with equipments located overseas, and in this situation, your supply is not provided to another entity in Australia, hence paragraph 38-190(3)(b) would not be satisfied. Therefore, subsection 38-190(3) of the GST Act does not apply and your supply to NR1 is GST-free where your projects deal with equipment located overseas.

However, part of what is being supplied by you is a service of project management to assist Australian Resident to manage their IT equipment, which is located in Australia. You state that in your Australian project for NR2, you deal with the transformation of aged devices and equipments facilities in Australia into modern facilities. You believe the devices and equipments you are making recommendations on are owned by Australian Resident. You will recommend which legacy assets to retire and which assets to be updated/transformed to modernise IT facilities.

In your Australian project, the supply you make to NR1 of project management services is provided to Australian Resident. As the supply of your services is for the purposes of Australian Resident, the supply is provided to Australian Resident in Australia. Accordingly, subsection 38-190(3) of the GST Act applies to the extent that your supply is provided to Australian Resident in relation to your Australian project, and the GST-free status of the supply covered by item 2 is negated in this situation.

Hence, the supply of your project management services in relation to your Australian project is made to NR1 but provided to Australian Resident is not GST-free under item 2.

Item 3 in the table in subsection 38-190(1) of the GST Act (item 3)

Item 3 provides that a supply of a thing (other than goods or real property) is GST-free if it is:

· a supply:

· that is made to a *recipient who is not in Australia when the thing supplied is done; and

· the effective use or enjoyment of which takes place outside Australia;

· other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

Both paragraphs (a) and (b) of item 3 must be satisfied for the supply to be GST-free.

Paragraph (a) of item 3

Similar to the precondition of item 2 discussed above, paragraph (a) of item 3 requires that the recipient must not be in Australia in relation to the supply when it is done (that is, when services are provided/performed).

As stated above, on the information provided, it is considered that NR1 is 'not in Australia' in relation to your supply, and therefore paragraph (a) of the item 3 is satisfied.

Paragraph (b) of item 3

Paragraph (b) of item 3 requires that the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia).

Goods and Services Tax Ruling GSTR 2007/2 examines the circumstances in which the effective use or enjoyment of a supply takes place outside Australia for the purposes of paragraph (b) of Item 3. We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. Firstly, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia.

Paragraphs 52 to 54 of GSTR 2007/2 deal with identifying the entity to which the supply is provided (the providee entity). These paragraphs 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)...

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).

54. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity and thus the other entity is the providee.

In this case, you supply project management services under your agreement with NR1. In most of your projects you deal with equipments located outside Australia. In these situations, the providee entities are the owners/users of the equipments located outside Australia. Hence, the effective use and enjoyment of your project management services takes place outside Australia. As such, paragraph (b) of item 3 is satisfied in situations where the equipments are located outside Australia. Accordingly, the supply of your project management services made to NR1 but provided to entities who own/use equipments located outside Australia is GST-free under item 3.

However, you provide, or are required to provide, the project management of the Australian project to Australian Resident in Australia. The providee entity is Australian Resident, being the entity who receives your project management services. The providee entity, Australian Resident, is in Australia when you perform your project management services in Australia. Hence, the effective use and enjoyment of your project management services does not take place outside Australia. As such, paragraph (b) of item 3 is not satisfied in relation to the Australian project.

Accordingly, the supply of your project management services made to NR1 but provided to Australian Resident in Australia is not GST-free under item 3. The supply of your project management services to Australian Resident is not GST-free under any other provision of the GST Act or any other Act. Therefore, as all the requirements of section 9-5 of the GST Act are met, you are making a taxable supply when you supply project management services to NR1, but provide the services to Australian Resident in Australia.

Note:

Please take note of paragraphs 632-635 and 672-674 of GSTR 2005/6 as follows:

apportionment is necessary

632. Section 9-5 provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed. We are of the view that the GST Act requires apportionment of consideration as between the taxable component and the non-taxable component of a supply.

633. If a supply made to a non-resident meets the requirements of item 2 and part of the supply covered by item 2 is provided to another entity in Australia, subsection 38-190(3) negates the GST-free status accorded to that part. The supply remains GST-free under item 2 to the extent that it is not provided to the other entity in Australia (unless another provision of the Act negates that GST-free status).

634. Therefore, the need to apportion in the context of subsection 38-190(3) arises if the supply is only partly provided to another entity in Australia.

635. This can occur where there is provision of the supply in part to another entity in Australia.

apportionment method

672. If a supply covered by item 2 is partly GST-free and partly taxable because of the operation of subsection 38-190(3), the supplier is required to apportion the consideration between the GST-free and taxable parts of the supply.

673. The supplier can use any reasonable method that is supportable in the particular circumstances to apportion the consideration.

674. The supplier should keep records that explain the method used.

2. Are you required to be registered for GST?

You are a sole trader who is already registered for GST. You wish to confirm that you are required to be registered for GST in relation to the supply you make to NR1.

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

your projected GST turnover is at or above $75,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

· supplies that are input taxed (which includes financial supplies, residential rent and sale of residential premises).

· supplies that are not for consideration.

· supplies that are not made in connection with an enterprise that you carry on.

· supplies that are not connected with Australia.

Your supply is for consideration and is not input-taxed supply under any provisions of the GST Act or any other legislation. Your supply is made in connection with an enterprise that you carry on and they are connected with Australia since you perform the work in Australia. Therefore, your supply to NR1 is included in the calculation of your GST turnover. Hence, the whole value of your supply, whether taxable supply or GST-free supply, must be included in the calculation of your current and projected GST turnovers.

Accordingly, we confirm that you are required to be registered for GST because your current and projected GST turnover would be above the GST registration turnover threshold of $75,000.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).