Edited version of your written advice

Authorisation Number: 1012813146479

Ruling

Subject: GST and supply of licence

Question 1

Will your supply of licences) to non-residents be GST-free where:

• the effective use of the licences takes place outside Australia; and

• the non-residents acquire the licences in carrying on their enterprises; and

• the non-residents are not registered or required to be registered; and

• the licences are not provided to entities in Australia?

Answer

Yes. Your supply of licences to non-residents will be GST-free under the circumstances described

above provided the non-residents are not in Australia at the time of supply.

Question 2

Will your supply of licences to residents be GST-free where the licences are for use outside Australia?

Answer

Yes. Your supply of licences to residents will be GST-free where the effective use of licences takes place outside Australia.

Question 3

Will your supply of bitcoin, as payments for your acquisitions from the non-residents, be taxable?

Answer

No. Your supply of bitcoin, as payments for your acquisitions from the non-residents, will not be taxable provided the non-residents are not in Australia at the time of supply.

Question 4

Will your supply of bitcoin, as payments for your acquisitions from the residents in Australia, be taxable?

Answer

Yes. Your supply of bitcoin, as payments for your acquisitions from the residents in Australia, will be taxable

Question 5

Will your acquisitions from the non-residents be subject to reverse charging provisions of the GST Act?

Answer

No. Your acquisitions from the non-residents will not be subject to reverse charging provision of the GST Act as the acquisitions will be solely for creditable purpose

Relevant facts and circumstances

You are carrying on an enterprise in Australia and are registered for GST.

You have discovered tools which software engineers can use to develop software.

You will supply licences to the software engineers in Australia and overseas.

The payment for the supply of licence will be in Bitcoin.

You will obtain information from the software engineers on whether:

• they are residents of Australia;

• the licences will be used outside Australia;

• they are registered or required to be registered for GST in Australia;

• the licences are acquired in carrying on their business; and

• the licences will be provided to another entity in Australia.

The software engineers will be parts of a global supply chain where they can provide services to each other and to you.

Where you acquire services from the software engineers, the payment for those services will be in Bitcoin. All acquisitions will be solely for creditable purpose

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

A New Tax System (Goods and Services Tax) Act 1999 section 84-5

Reasons for decisions

Question 1

GST is payable on 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:

(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.

You make the supply of the licences for consideration and in the course of carrying on your enterprise. The supply is connected with Australia as you make the supply through an enterprise that you carry on in Australia. You are registered for GST. The requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied. Therefore, your supply of the licences will be a taxable supply unless the supply is GST-free or input taxed.

There is no provision in the GST Act under which your supply of the licences will be input taxed. Thus, what is left to determine is whether the supply will be GST-free.

Supplies of things, other than goods or real property, are GST-free if they are covered by any of the items in the table in subsection 38-190(1) of the GST Act.

Under item 4 in the table in subsection 38-190(1) of the GST Act (item 4), a supply in relation to rights is GST-free if:

(a) the rights are for use outside Australia; or

(b) the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

Your supply of licences is a supply of rights to use the tools for developing software. Where you supply the licences to non-residents, the supply will be GST-free provided the non-residents are not in Australia at the time of supply.

For the purpose of paragraph (b) of item 4, Goods and Services Tax Ruling GSTR 2004/7 provides guidance in determining whether an entity is in Australia.

A non-resident individual is in Australia if the individual is physically in Australia in relation to the supply. A non-resident company is in Australia if it carries on its business or its activities 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.

For a detailed explanation on how a particular entity is 'in Australia' for the purpose of paragraph (b) of item 4, refer to GSTR 2004/7 available to download from www.ato.gov.au

Question 2

A supply in relation to rights made to a resident is GST-free under item 4 if the rights are for use outside Australia.

Goods and Services Tax Ruling GSTR 2003/8 examines the meaning of 'rights are for use outside Australia' in paragraph (a) of item 4.

According to paragraph 36 of GSTR 2003/8, the requirement that 'the rights are for use outside Australia' in paragraph (a) of item 4 is an intention test.

Paragraph 11 of GSTR 2003/8 explains that it is the intended use of the rights at the time they are created, granted, transferred, assigned or surrendered that determines whether the rights are 'for use outside Australia' and therefore the extent to which the supply is GST-free. The extent to which the supply is taxable or GST-free is not affected by the actual use of the rights, other than as potential evidence of the intended use.

Therefore, your supply of licences to residents will be GST-free where they intend to use the licences outside Australia.

In many cases, it is the recipient of the supply who will have the best information available to it to determine the extent to which the rights are for use outside Australia. It is expected that, in these circumstances, the supplier will consult with the recipient to obtain that information or to be satisfied that the recipient has made a genuine attempt to determine the extent to which the rights are for use outside Australia.

Question 3

Bitcoin is not 'money' for the purposes of the GST Act. Thus, where the recipient of a supply uses bitcoin as payment for its acquisition, the recipient is in turn making a supply of bitcoin.

A supply of bitcoin is not a supply of goods. It will be taxable if all the requirements of section 9-5 of the GST Act are met, unless the supply is GST-free or input taxed.

The supply of bitcoin is not a financial supply and therefore not input taxed.

Under item 2 in the table in subsection 38-190(1) of the GST Act (item 2), a supply 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:

(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.

The supply of bitcoin is neither a supply of work physically performed on goods nor a supply connected with real property. Therefore, your supply of bitcoin to the non-resident as payment for your acquisition will be GST-free provided the non-resident is not in Australia at the time of supply.

Similarly, where the non-resident acquires the bitcoin in carrying on its enterprise but is not registered or required to be registered for GST, your supply of bitcoin will be GST-free provided the non-resident is not in Australia at the time of supply.

Question 4

Under item 3 in the table in subsection 38-190(1) of the GST Act (item 3), a supply is GST-free if it is a supply:

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

(b) 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.

As stated above, the supply of bitcoin is not a supply of work physically performed on goods or a supply directly connected with real property. Therefore, your supply of the bitcoin will be GST-free under item 3 if you make the supply to a recipient, whether resident or non-resident, who is not in Australia at the time of supply and the effective use or enjoyment of the supply takes place outside Australia.

Accordingly, your supply of bitcoin, as payment for your acquisition from the resident in Australia, will not be GST-free. It will be a taxable supply under section 9-5 of the GST Act.

The fact that the supply to you by a resident in Australia and your supply of bitcoin as payment will both be taxable supplies does not negate the taxing provisions of the GST Act.

Goods and Services Tax Ruling GSTR 2006/9 discusses the concept of 'supply' in the GST Act and examines the characteristics of 'supply' in the context of a two party transaction.

According to paragraph 68 of GSTR 2006/9, the provision of non-monetary consideration is itself a separate supply. There are two supplies in a transaction of this kind between two entities, one going each way. Each party to the transaction needs to account for any GST on the supply it makes, and each party needs to account for any input tax credit entitlement for the acquisition it makes.

Therefore, you will account for GST on your supply of bitcoin and the input tax credit entitlement for your acquisition. The resident in Australia will account for GST on its supply to you and the input tax credit on its acquisition of bitcoin that you will provide as payment.

Question 5

Under section 84-5 of the GST Act, a supply of anything other than goods or real property that is:

• a supply not connected with Australia; or

• a supply connected with Australia because of paragraph 9-25(5)(c) of the GST Act;

is a taxable supply if:

(a) the recipient of the supply acquires the thing supplied solely or partly for the purpose of an enterprise that the recipient carries on in Australia, but not solely for a creditable purpose; and

(b) the supply is for consideration; and

(c) the recipient is registered or required to be registered for GST.

Section 84-10 of the GST Act provides that the GST on a supply that is a taxable supply under section 84-5 is payable by the recipient and is not payable by the supplier. This is the 'reverse charging' provision

While the acquisitions that you make from the non-residents are for consideration and you are registered for GST, you acquisitions are solely for creditable purpose. Therefore, your acquisitions will not be taxable supplies under section 84-5 of the GST Act does and thus, the 'reverse charging' provision will not apply.

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