Edited version of private advice

Authorisation Number: 1012623641741

Ruling

Subject: Goods and services tax (GST) and legal services

Question 1

Is GST payable on your supply of legal services to the non-resident company defendants?

Answer

No.

Question 2

Is GST payable on your supply of legal services to the non-resident individual defendants?

Answer

GST is payable on your supply of legal services to the non-resident individual defendants to the extent that the services consist of:

• representing them in court on days they are being cross-examined;

• preparing them for trial if they are in Australia at that time; and

• having a consultation with them while they are in Australia (where the consultation goes beyond the defendant merely checking on the progress of the supply).

GST is not payable on the supply of the remainder of the services supplied to them.

Relevant facts and circumstances

You are registered for GST.

You are a legal firm based in Australia.

You act for some of a number of defendants in proceedings no. (proceedings number) conducted in an Australian court.

You have been retained:

(a) by some individual defendants, comprising a number of overseas individuals who are residents of an overseas country and an individual who is an Australian resident:

(b) separately by a number of Australian corporate defendants:

(c) also separately by a number of non-resident corporate defendants, who do not have a fixed place of business in Australia:

You have gone to an overseas country to meet with the non-resident individual defendants and work on their affidavits.

The non-resident individual defendants will come to Australia to be cross-examined during the trial.

Some of the preparatory work is being done while the non-resident individual defendants are overseas.

You will prepare the non-resident individual defendants for the trial. These defendants may be overseas or in Australia when you do this.

You will represent the defendants in court.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decisions

Question 1

Summary

You are making GST-free supplies of legal services to the non-resident defendant companies because they are not in Australia for the purposes of item 2 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 term defined in section 195-1 of the GST Act)

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

• you are supplying legal services for consideration; and

• you supply the legal services in the course or furtherance of an enterprise that you carry on; and

• your supplies are connected with Australia; and

• you are registered for GST.

There are no provisions in the GST Act under which your supplies of the legal services are input taxed. Therefore, what remains to be determined is whether your supplies of the services are GST-free.

Item 2

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, to a non-resident who is not in Australia when the thing supplied is done is GST-free if:

(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.

As legal services are not goods or real property, it is appropriate to consider item 2.

Item 2 deals specifically with supplies to non-residents, whereas item 3 in the table in subsection 38-190(1) of the GST Act (item 3) can apply to supplies to residents and non-residents. If a supply of services to a non-resident is not GST-free under item 2, it will not be GST-free under item 3. Both exemptions require that the recipient of the supply (or deemed recipient of the supply) not be in Australia when the thing supplied is done. Therefore, it is appropriate to consider item 2 specifically because the clients in question are non-residents.

Where a supply of legal services is not GST-free under item 2 or item 3 in the table in subsection 38-190(1) of the GST Act and the supply is not directly connected with goods or real property situated outside Australia, the supply will not be GST-free under any provision of the GST Act.

Goods and Services Tax Ruling GSTR 2004/7 provides the Australian Taxation Office view on the meaning of 'not in Australia' for the purposes of item 2 and item 3.

Paragraph 31 of GSTR 2004/7 states:

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.

Paragraph 37 of GSTR 2004/7 explains when a non-resident company is in Australia. It states:

37. 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.

Paragraph 41 of GSTR 2004/7 explains when a non-resident company is in Australia in relation to a supply. It states:

41. 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. 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.

You are supplying legal services to non-resident companies.

The non-resident company defendants in your case do not have a presence in Australia, for example, an Australia branch. Therefore, they will not be in Australia in relation to your supply of legal services to them.

Your supply of legal services is not 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.

Therefore, your supply of legal services to the non-resident company defendants is GST-free under item 2. Hence, your supplies of these services are not taxable. Therefore, GST is not payable on your supplies of these services.

Question 2

Summary

To the extent that the non-resident individual defendants are not in Australia in relation to your supply of legal services to them, you will make a GST-free under item 2.

Your supply of the remainder of the services you supply to these defendants is not GST-free under item 2 because they will be in Australia in relation to your supply to that extent.

Detailed reasoning

Paragraph 35 of GSTR 2004/7 explains when a non-resident individual is in Australia in relation to a supply. It states:

35. A non-resident individual is in Australia if that individual is physically in Australia. If a non-resident individual is physically in Australia and in contact (other than contact which is only of a minor nature) with the supplier, that presence is in relation to the supply.

Paragraph 218 of GSTR 2004/7 explains when contact is of a minor nature.

218. Contact is minor if it is limited to contact of a simple administrative nature, such as checking on the progress of the supply or a courtesy call on the supplier. If this is the only contact between the non-resident individual and the supplier we consider that the individual is not in Australia in relation to the supply.

Paragraphs 219 and 220 of GSTR 2004/7 give examples involving legal services. They state:

Example 6 - non-resident individual is in Australia but not in relation to the supply

219. A supply of legal services is made by an Australian lawyer to a non-resident sole trader who is in Australia on holiday for part of the time when the services are performed. The non-resident individual has no contact with the lawyer while in Australia. The presence of the individual in Australia is not in relation to the supply of the legal services .

Example 7 - non-resident individual is in Australia in relation to the supply

220. A non-resident individual falls over while shopping in a store in Australia. While in Australia the individual seeks legal advice from an Australian legal firm. The legal firm, on behalf of the individual, writes to the shopping centre seeking out of pocket expenses and a small amount for pain and suffering. The non-resident individual is in Australia in relation to the supply of legal advice to the extent that the individual is in Australia and, in meeting with the lawyer, is involved with the supply .

Paragraphs 83, 84 and 86 of GSTR 2004/7 explain that a supply in some cases is only partly GST-free under item 2. An apportionment is required in these cases. They state:

Apportionment

83. If the 'not in Australia in relation to the supply' requirement for the non-resident or other recipient of the supply is met for only part of the time when the thing supplied is done, the supply is only partly GST-free under items 2 or 3.

84. The need to apportion in the context of items 2 and 3 arises if the thing supplied is done over a period of time. For example, apportionment is necessary if the recipient of a supply of services is in Australia in relation to the supply for part of the time over which the services are performed. That part of the supply that is done when the recipient is in Australia in relation to the supply is the taxable part of the supply. That part of the supply that is done when the recipient is not in Australia in relation to the supply is the GST-free part of the supply, provided the other requirements of the item are met.

86. If a supply consists of a taxable part and a GST-free part, it is necessary to apportion the consideration between these parts to work out the GST payable on the taxable part of the supply.

An Australian court will hear the case. A non-resident individual defendant will be in Australia in relation to your supply of the service of defending them in court on days they are being cross-examined because they will be attending an Australian court and they will be in contact with you at that time and the contact will be of more than a minor nature.

When you are preparing a non-resident individual defendant for trial, they will be in contact with you while you provide this service and this contact will be of more than a minor nature. Therefore, the defendant will be in Australia in relation to your supply of this service if they are physically in Australia at that time.

Where you have a consultation with a non-resident individual defendant that goes beyond the defendant merely checking on the progress of the supply, the defendant will be in contact with you at that time and the contact will be of more than a minor nature. Therefore, these defendants will be in Australia in relation to your supply of these services if they are physically in Australia at that time.

Where contact between a non-resident individual defendant and you while they are in Australia is limited to contact of a simple administrative nature, such as checking on the progress of the supply or a courtesy call, the defendant will not be in Australia in relation to your supply of any services provided to them during that contact.

You will not make a GST-free supply of legal services to non-resident individual defendants under item 2 to the extent that the services consist of:

• representing them in court on days they are being cross-examined;

• preparing them for trial if they are in Australia at that time; and

• having a consultation with them while they are in Australia (where the consultation goes beyond the defendant merely checking on the progress of the supply).

This is because they will be in Australia in relation to your supply of legal services to that extent.

There are no provisions in the GST Act under which the supply of these services will be GST-free. Therefore, as all of the requirements of section 9-5 of the GST Act will be met, you make taxable supplies of these services. Hence, GST is payable on your supplies of these services.

The supply of the remainder of the services you supply to those defendants will be GST-free under item 2 because:

• they will be supplies of something, other than goods or real property, to non-residents; and

• those defendants will not be in Australia in relation to these supplies; and

• these supplies will not be supplies of work physically performed on goods situated in Australia when the work is done nor supplies directly connected with real property situated in Australia.

You will need to apportion your total fee relating to a particular non-resident individual defendant between the GST-free portion of the services you provide to them and the non-GST-free portion of the services you provide to them. GST will be payable on the non-GST-free portion of the services.

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