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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012695472516

Ruling

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

Question 1

Is GST payable on your supply of services to your client?

Answer

GST is payable on part of the price for your supply of services to your client.

Question 2

Are you entitled to input tax credits in relation to associated expenses you incur?

Answer

You are entitled to input tax credits in relation to some of the associated expenses you incur.

Relevant facts and circumstances

You are an individual.

You are registered for GST

You are a solicitor.

You are just based in Australia.

You are an Australian resident.

You act for a client who is currently a non-resident and not domiciled in Australia for tax purposes, although an Australian citizen.

The proceedings relate to breach of a fixed term contract of employment which was entered into in Australia. The relevant services were performed in Australia.

After repudiation of the contract by their employer and its termination by your client, your client moved to overseas where they were able to gain employment to progress their career.

Your client has commenced legal proceedings in an Australian court for breach of contract against their former employer.

You have engaged a barrister in relation to this court case. The barrister gives you advice and you pass this on to your client. The barrister prepared a statement of claim on behalf of your client. The barrister is representing your client in court. You are liable to pay the barrister for their associated fees.

You have also engaged a solicitor/agent. This entity retained a process server to serve the statement of claim on your client's former employer. You are liable to pay this other solicitor/agent for their associated fees.

The barrister and other solicitor/agent are registered for GST and perform all of their services in this case in Australia.

You incur associated legal stationery costs and fees for searches done, for example, an ASIC search on the company that employed your client.

Your client will attend court for the entire time that the barrister represents your client in court. Your client will not be physically in Australia when other services are performed for their benefit, other than possibly being in Australia for the purpose of visiting family.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

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 decisions

Question 1

Summary

Your supply of legal services to your client is partly GST-free under section 38-190 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act), which deals with supplies of services consumed overseas.

Detailed reasoning

GST is payable by you where you make a taxable supply.

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:

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

Goods and Services Tax Ruling GSTR 2000/37 discusses agency and disbursements made by a solicitor. Paragraphs 48 to 53 of GSTR 2000/37 state:

However, despite paragraphs 48 to 53 of GSTR 2000/37, a supply of legal services that are supplied or provided to a non-resident may be GST-free under section 38-190 of the GST Act.

You engaged the barrister to perform services and you are liable to pay the barrister their fees. Therefore, in accordance with paragraph 51 of GSTR 2000/37, the supply made by the barrister is made to you and you on-supply these services to your client.

You engaged the other solicitor/agent to perform services and you are liable to pay the other solicitor/agent their fees. Therefore, in accordance with paragraph 51 of GSTR 2000/37, the supply made by the other solicitor/agent is made to you and you on-supply these services to your client.

You acquire stationery and search services. Your on-charge for these expenses forms part of the consideration for your supply of legal services to your client.

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

There are no provisions of the GST Act under which your supplies of services are input taxed.

Therefore, what remains to be determined is whether you are making a GST-free supply.

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of something other than goods or real property is GST-free if made to a non-resident who is not in Australia when the thing supplied is done and:

However, subsection 38-190(3) of the GST Act provides that a supply covered by item 2 is not GST-free if:

Item 3 in the table in subsection 38-190(1) of the GST Act (item 3) provides that a supply of something other than goods or real property is GST-free if the supply:

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.

Subsection 38-190(4) of the GST Act provides that a supply is taken, for the purposes of item 3, to be a supply made to a recipient who is not in Australia if:

Where a supply to a non-resident is not GST-free under item 2, it will not be GST-free under item 3.

Paragraph 31 of 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. It states:

Paragraphs 35, 202 and 214 to 217 of Goods and Services Tax Ruling GSTR 2004/7 provide guidance on determining whether the recipient of a supply is in Australia for the purposes of item 2 and item 3. They state:

Paragraph 41 of Goods and Services Tax Ruling GSTR 2007/2 discusses the concept of providing a supply to an entity. It states:

Your client is a non-resident individual.

Your client will be physically in Australia when the barrister is representing them in court. This presence will be related to the on-supply that you make of these barrister's services to your client and your client will be involved with your on-supply of these services. Therefore, your client will be in Australia in relation to your on-supply of these barrister's services. Hence, your supply of these services is not GST-free under item 2. There are no provisions in the GST Act under which your supply of these services is GST-free. Therefore, your supply of these services is taxable because all of the requirements of section 9-5 of the GST Act are met.

Your supply of services to your client other than the service of the barrister representing your client in court is GST-free under item 2 because:

Any services that you supply to your client that are GST-free under item 2 will not be taxable.

Paragraph 16 of Goods and Services Tax Ruling GSTR 2001/8 discusses mixed supplies. It states:

You make a mixed supply to your client. In accordance with paragraph 30B of GSTR 2001/8, the GST payable on your overall supply is 1/11th of the part of the total price you charge that is reasonably apportionable to the taxable services. In regards to the charges you impose, only the charge you impose for the service of the barrister representing your client in court is subject to GST.

Question 2

Summary

The supply of the barrister's services to you is partly GST-free under section 38-190 of the GST Act.

The supply of the other solicitor's/agent's services to you is GST-free under section 38-190 of the GST Act.

Detailed reasoning

You are entitled to input tax credits on your creditable acquisitions.

In accordance with section 11-5 of the GST Act, you make a creditable acquisition if:

Section 11-15 of the GST Act defines creditable purpose.

Subsection 11-15(1) of the GST Act states:

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the extent that:

You acquire legal services, stationery etc in carrying on your enterprise. These acquisitions do not relate to making supplies that would be input taxed and are not of a private or domestic nature. Hence, you acquire the things in question for a creditable purpose. Therefore, you meet the requirement of paragraph 11-5(a) of the GST Act.

You provide consideration for the supplies made to you. Therefore, you meet the requirement of paragraph 11-5(c) of the GST Act.

You are registered for GST. Therefore, you meet the requirement of paragraph 11-5(d) of the GST Act.

Hence, what remains to be determined is whether taxable supplies are made to you.

GST-free supplies under item 3

Paragraph 60 of GSTR 2004/7 provides guidance on determining whether a recipient is in Australia in relation to a supply where the recipient is a resident individual. It states:

Paragraphs 100 to 107 of GSTR 2007/2 provide guidance on determining where effective use and enjoyment takes place. They state:

Supply of barrister's advice to you

Barrister's advice is supplied to you. You are the recipient of this supply. You are a resident individual who is physically in Australia. Therefore, the recipient of this supply is in Australia in relation to the supply. The barrister does not provide the advice to 'another entity' (someone other than the resident recipient with whom the barrister has an agreement to make its supply of advice) outside Australia. Instead, the barrister provides advice to you.

Effective use and enjoyment of this supply takes place in Australia because the providee (you) is a resident individual who is physically in Australia.

Therefore, the barrister's supply of advice to you is not GST-free under item 3. This supply is a taxable supply because all of the requirements of section 9-5 of the GST Act are met. Hence, you meet the requirement of paragraph 11-5(b) of the GST Act. As you meet all of the requirements of section 11-5 of the GST Act, you are entitled to an input tax credit on your purchase of the barrister's advice.

Supply to you of the service of preparing the statement of claim

The supply to you of the service of preparing the statement of claim is GST-free under item 3 because:

Therefore, the barrister's supply of the service of preparing the statement of claim is not a taxable supply. Hence, you do not meet the requirement of paragraph 11-5(b) of the GST Act. As you do not meet all of the requirements of section 11-5 of the GST Act, you are not entitled to an input tax credit on your purchase of this service.

Supply to you of the service of the barrister representing your client in court

The supply to you of the service of the barrister representing your client in court is a supply made under an agreement with a resident - you. The supply is provided by the barrister to 'another entity' - your client.

The supply to you of the service of the barrister representing your client in court is not GST-free under item 3 because:

There are no provisions in the GST Act under which the barrister's supply of the service of representing your client in court is GST-free. This supply is a taxable supply because all of the requirements of section 9-5 of the GST Act are met. Hence, you meet the requirement of paragraph 11-5(b) of the GST Act. As you meet all of the requirements of section 11-5 of the GST Act, you are entitled to an input tax credit on your purchase of the barrister's service of representing your client in court.

The barrister makes a mixed supply to you.

Supply of other solicitor's/agent's services to you

The supply of the other solicitor's/agent's services to you is GST-free because:

Therefore, the supply of the other solicitor's/agent's services to you is not a taxable supply. Hence, you do not meet the requirement of paragraph 11-5(b) of the GST Act. As you do not meet all of the requirements of section 11-5 of the GST Act, you are not entitled to an input tax credit on your purchase of these services.

The on-charge of the process server's fees to you forms part of the consideration for the GST-free supply the other solicitor/agent makes to you.

Supply of law stationery to you

The supply of the law stationery to you is not GST-free. Where the law stationer is registered or required to be registered for GST, all of the requirements of section 9-5 of the GST Act would be met. Therefore, under such circumstances, the supply would be taxable. Hence, the requirement of paragraph 11-5(b) of the GST Act would be met. Therefore, where the supplier is registered or required to be registered for GST, you make a creditable acquisition because all of the requirements of section 11-5 of the GST Act would be met. Hence, under such circumstances, you are entitled to an input tax credit.

Supply of search services to you

The supply of the service to you of searching for relevant information such as searches of the ASIC database in respect of the company that employed your client is not GST-free. Where the search business owner is registered or required to be registered for GST, all of the requirements of section 9-5 of the GST Act would be met. Therefore, under such circumstances, the supply would be taxable. Hence, the requirement of paragraph 11-5(b) of the GST Act would be met. Therefore, where the supplier is registered or required to be registered for GST, you make a creditable acquisition because all of the requirements of section 11-5 of the GST Act would be met. Hence, under such circumstances, you are entitled to an input tax credit.


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