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Edited version of your written advice
Authorisation Number: 1012991246165
Date of advice: 31 March 2016
Ruling
Subject: GST and supply of software development services
Question
Is GST payable on the supply of software development services made by X, a partner of the partnership XYZ to the non-resident company?
Advice
No, GST is not payable on the supply of software development services made by X, a partner of the partnership XYZ to the non-resident company because the supply of software development 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).
Note: The partnership is required to be registered for GST under section 23-5 of the GST Act despite the fact that the supply made by its partner X is GST-free.
Relevant fact
X is a software developer and is a partner of the partnership XYZ, which currently is not registered for the goods and services tax (GST).
Partner X has entered into a Services Agreement with a non-resident company. In the Services Agreement, partner X shall provide the non-resident with software developments services. The non-resident shall pay partner X a service fee.
The partnership has advised that is estimated GST annual turnover is above $A75,000.
There is no third party in Australia involved with the supply made by partner X.
The non-resident does not do any business in Australia through any agents or representatives.
The non-resident is not required to be registered for GST in Australia.
Partner X is not required to provide its services to anyone else under the agreement.
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 23-5
A New Tax System (Goods and Services Tax) Act 1999 section 38-190
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Detailed reasoning
Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
A supply is a taxable supply under section 9-5 of the GST Act if:
(a) you make the supply for consideration;
(b) the supply is made in the course of an enterprise that you carry on;
(c) the supply is connected with the indirect tax zone (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.
The supply of software development services made by partner X satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:
(a) X as a partner of the partnership makes the supply of services for consideration; and
(b) the supply is made in the course of an enterprise that the partnership carries on in Australia; and
(c) the supply is connected with Australia as the supply is done through an enterprise that the partnership carries on in Australia; and
(d) the partnership is required to be registered for GST under section 23-5 of the GST Act as its annual turnover is above the GST registration threshold of $A75,000.
However, the supply of software development services made by partner X is not a taxable supply to the extent that it is a GST-free or input taxed supply.
There is no provision under the GST Act that makes a supply of software development services an input taxed supply.
GST-free supply
Relevant to the supply of software development services made by partner X to the non-resident is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).
Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident 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 for GST.
Goods and Services Tax Ruling GSTR 2004/7 (available from the legal database of www.ato.gov.au) provides guidance on item 2.
From the information received, the supply of software development services made by partner X satisfies the requirements in paragraph (a) of item 2 as:
• the supply of software development services is made to a non-resident who is not in Australia at the time of the supply;
• the supply software development services 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.
The requirements in paragraph (b) of item 2 is also satisfied as the non-resident acquires the services in carrying on its enterprise but is not registered or required to be registered for GST.
In this instance, the supply of software development services made by partner X to the non-resident is GST-free under item 2 to the extent that the supply is not negated by subsection 38-190(3) of the GST Act.
Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table 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.
Subsection 38-190(3) of the GST Act is not applicable as partner X is not required to provide the software development services to another entity in Australia.
Accordingly, the supply of software development services made by partner X to the non-resident is GST-free under item 2.
For more information on subsection 38-190(3) please refer to Goods and Services Tax Ruling GSTR 2005/6.
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