Edited version of your written advice

Authorisation Number: 1012701842537

Ruling

Subject: GST and supply of legal services to a non-resident

Question

Will the goods and services tax (GST) apply to the supply of legal services you made to the non-resident individual who was not in Australia at the time of the supply?

Advice

No, GST will not apply to the supply of legal services you made to the non-resident individual who was not in Australia at the time of the supply because the supply of legal services is 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).

Relevant fact

You are a law practice in Australia and are registered for GST.

You were retained as a solicitor by a non-resident individual (client). The client was not in Australia at any time when you made your supply of legal services to them.

Your client was involved in a matrimonial dispute and at issue was the distribution of the family assets which essentially comprised of real property in Australia.

Your work involved the preparation of court documents and the giving of advice in relation to the client's matrimonial dispute being fought in the State Family Court.

The family assets were sold by order of the court. All conveyancing legal work was carried out by other lawyers and apart from the advice to the obtaining of court orders in relation to the sales and the application of the proceeds you had no involvement. In particular your fees do not relate to advices to the letting/management, marketing, terms of sale, or the legal process involved in the sale and transfer of the properties.

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 38-190

Reasons for decision

GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act 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 for GST.

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

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you made your supply of legal services to your client as:

a) you made the supply for consideration; and

b) the supply was made in the course or furtherance of a business that you carry on; and

c) the supply was connected with Australia as you make the supply through a business that you carry on in Australia; and

d) you are registered for GST.

However, your supply of legal services is not a taxable supply to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that makes your supply of legal services input taxed. We will now consider whether your supply of legal services is GST-free as it was made to a non-resident.

GST-free supply

Relevant to your supply to the client is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply that is made 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.

Not in Australia when the thing supplied is done

For the supply of legal services to be within the scope of Item 2, the supply must be made to a non-resident who is not in Australia when the thing supplied is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

In the case of supplies made to an individual, we consider that the physical location of the individual establishes whether the individual is in Australia when the thing supplied is done.

You advised your client was not in Australia when you supplied your legal services to them. In this instance the requirement for your client not to be in Australia when you supplied your legal services is satisfied.

The next step is consider paragraphs (a) and (b) of Item 2. Only one of the paragraphs needs to be satisfied.

Paragraph (a) of item 2

Your supply of legal services is not a supply of work physically performed on goods situated in Australia.

What needs to be determined is whether your supply of legal services is directly connected with real property situated in Australia as your client was involved in a matrimonial dispute and the issue was the distribution of the family assets which primarily comprised of residential properties in Australia.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on the expression 'directly connected with real property' for the purposes of subsection 38-190(1) of the GST Act. Paragraphs 33 and 43 of GSTR 2003/7 state:

33. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:

• the supply changes or affects the goods or real property in a physical way; or

• there is a physical interaction with the goods or real property; or

• the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

• the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

• the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

43. Supplies in this category are those that are directly connected with the sale, disposal, acquisition, transfer, surrender, etc of an interest in or right over land or goods. Examples of such supplies include:

• conveyancing services in respect of real property;

• services in preparing a lease agreement for a lease of goods or real property;

• services in preparing an instrument of mortgage over real property or a chattel mortgage, such as a bill of sale;

• legal services for the preparation of a contract to effect the sale of goods;

• legal services in respect of the enforcement of a contract of sale; and

• a supply of a right or an option to buy goods.

Each of these supplies is directly connected with goods or real property.

Based on the above and the information received, your supply of legal services is not directly connected with real property in Australia.

Accordingly, the requirements in paragraph (a) in Item 2 are satisfied and your supply of legal services is GST-free to the extent it is not negated by subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

Paragraph (b) of item 2

From the facts received your client acquired your legal services for private purposes. The requirements in paragraph (b) of item 2 are not satisfied.

Limitations

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

From the facts given, subsection 38-190(2) of the GST Act is not applicable as the supply of the legal services was not a supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

As discussed above, your supply of legal services is not directly connected with real property in Australia. We will now consider whether your supply of legal services is indirectly connected with real property in Australia.

Paragraph 173 in GSTR 2003/7 provides an example when a supply of legal services will be indirectly connected with Australia and states:

173. Example 14 - supply of legal services in the preparation of a will

In example 14, the purpose of the will was to deal with the real property and the legal services are provided to prepare the will. As the subject of the will is the real property, the supply of legal services is indirectly connected.

In your case, the facts indicated that the supply of legal services was to deal with the matrimonial dispute and did not relate to the supply of real property.

Accordingly subsection 38-190(2A) of the GST Act does not apply as the acquisition of legal services by your client does not relate to the making of input taxed supply by your client.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act 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.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable as you were not required to provide the legal services to another entity in Australia.

For more information on Item 2 and subsection 38-190(3) of the GST Act refer to Goods and Services Tax Rulings GSTR 2004/7 and 2005/6 (available at www.ato.gov.au).

Summary

Based on the information you provided your supply of legal services which you made to your non-resident client is GST-free under Item 2.

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