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Edited version of private advice
Authorisation Number: 1012642387493
Ruling
Subject: Goods and services tax (GST) and inspection services
Question
Are you entitled to claim input tax credits on your purchase of inspection services from company X?
Answer
No.
Relevant facts and circumstances
You are a non-resident company based overseas only.
You are not registered for GST.
You acquire inspection services relating to goods ready to be exported to an overseas country. You acquire these services from company X.
The goods are delivered directly to your customer - a company based in an overseas country only.
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 11-5
A New Tax System (Goods and Services Tax) Act 1999 section 11-20
A New Tax System (Goods and Services Tax) Act 1999 section 38-190
Reasons for decision
Summary
You are not entitled to claim input tax credits on your purchase of the inspection services, because the supplies of these services are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You also cannot claim input tax credits because you are not registered for GST.
Detailed reasoning
Section 11-5 of the GST Act states:
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a *creditable purpose; and
(b) the supply of the thing to you is a *taxable supply; and
(c) you provide, or are liable, to provide, *consideration for the supply; and
(d) you are *registered, or *required to be registered.
(*Denotes a term defined in section 195-1 of the GST Act)
You acquire the services for a creditable purpose for use in your business and you provide consideration for this acquisition. You must be registered for GST to claim input tax credits, and the supply to you must be a taxable supply, which we will examine further.
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.
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.
However, subsection 39-190(3) of the GST Act provides that a supply covered by item 2 is not GST-free if:
(a) it is a supply under an agreement 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.
As company X is supplying services and not goods or real property, it is appropriate to consider item 2.
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.
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.
In accordance with paragraph 61 of Goods and Services Tax Ruling GSTR 2005/6, the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of something), 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.
The supplies of the inspection services in question to you are supplies of something other than goods or real property. These supplies are to a non-resident company which does not have a presence in Australia. Therefore, the non-resident recipient is not in Australia in relation to these supplies.
The supplies are not supplies of work physically performed on goods situated in Australia when the work is done and they are not directly connected with real property situated in Australia.
The supplies are not provided to another entity in Australia.
Therefore, the supplies are GST-free under item 2. Hence, these supplies are not taxable. Therefore, you do not satisfy the requirement of paragraph 11-5(b) of the GST Act.
In addition, as you are not registered for GST in Australia, you do not satisfy the requirement of paragraph 11-5(d) of the GST Act.
As you do not meet all of the requirements of section 11-5 of the GST Act, you do not make creditable acquisitions. Therefore, you are not entitled to input tax credits on your acquisition of inspection services from CCIC.
Additional information
The supply of transport services relating to the export of the goods is also GST-free under item 2.
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