Disclaimer
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: 1051247901009

Date of advice: 24 July 2017

Ruling

Subject: GST and supply of software development consulting work for a non-resident company (NR)

Question

Are you making a GST-free supply of software development services under the agreement with NR?

Answer

Yes, your supply of software development services to NR is a GST-free supply under item 2 in the table in subsection 38-190(1) (Item 2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

Relevant facts and circumstances

You are registered for GST.

Background:

NR develops software and sells software licences to Oz Co.

Oz Co is a completely separate company from NR.

Oz Co acts like a dealership. The personnel of Oz Co go to business owners in Australia and find out the requirements for computer application software (software) and sign contracts with them to supply the software, install the hardware, support services, configuration, etc.

Oz Co contracts NZ to buy software licences.

NR contracts you and others to develop software (which is different from a license to use the software). The software you develop is “general purpose” for an industry, and the local dealers buy the licence to configure the software for the specific businesses that the software is being installed at.

Your role is a developer helping to build software. You are not involved with the actual licensing– who should be sold what license and at what cost.

Consultancy Agreement (Agreement) between you and NR

According to the Agreement, you supply software development services to NR. You are not an employee, worker, agent or partner of NR. You are paid a fee per hour.

You state that you are a software developer/computer programmer by trade. You design, develop, test and implement software according to the functional specifications and related information provided to you by NR. You conduct your supply of software development services as follows:

Oz Co does not attend these planning meetings, nor do they have the ability to dictate to NR what software to develop.

You agree to travel overseas at the request of NR, with associated expenses paid by NR.

All the software /intellectual property which you create will be solely owned by NR who sell licenses to use the software to Oz Co, but NR retains all Intellectual Property rights/ownership of the software.

You give NR written or oral advice or information in relation to your software development services. You also give advice on what functionality will improve and what functionality will hinder the software owned by NR.

You report to XY of NR, who is based overseas.

You submit your invoices to NR, and XY of NR chooses whether to pay you and whether to continue offering you more work.

Your understanding is that NR is a foreign resident entity that is not required to register for GST in Australia.

Oz Co is not owned/related to NR through subsidiary or otherwise. If Oz Co ever wanted to use your services, they would have to contract with you directly and you would invoice Oz Co separately.

You work at Oz Co’s workstation (using their facilities) on a full time basis on Oz Co’s premises. NR supplies you with the computer and tools used to develop NR's software.

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 195-1

Reasons for decision

GST is payable on a taxable supply under section 9-5 of the GST Act, which states:

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

The supply of software development services by you to NR satisfies the requirements under paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) because:

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

From the facts provided, your supply of software development services is not input taxed. We need to determine whether the supply satisfies the GST-free provisions.

GST-free supply

Section 38-190 specifies the circumstances where the supply of things other than goods or real property for consumption outside Australia is GST-free. Of relevance to the facts provided is item 2 in the table in subsection 38-190(1) (Item 2).

Goods and Services Tax Ruling GSTR 2000/31, Goods and Services Tax Ruling GSTR 2003/7, Goods and Services Tax Ruling GSTR 2004/7, and Goods and Services Tax Ruling GSTR 2005/6 address the operation of Section 38-190.

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 that is not in Australia when the thing supplied is done, and:

Goods and Services Tax Ruling GSTR 2004/7 (available on the legal database of www.ato.gov.au) provides guidance on Item 2.

Following the above, we do not consider that NR carries on business/activities in Australia. Nor do we consider that Oz Co is a representative/agent of NR in Australia. NR supplies software licences, while Oz Co installs, configures and gives support services to business owners to enable the use of the licence.

The fact that you use a workstation and relevant facilities from Oz Co does not mean that NR carries on business in Australia 'at or through a fixed and definite place of its own for a sufficiently substantial period of time.'

On the basis of the facts provided, the supply of software development services by you to NR will satisfy the precondition and paragraph (a) of Item 2 because:

We note that since you state that NR acquires your software development services in carrying on its enterprise of supplying software licences, and is neither registered nor required to be registered for GST in Australia, hence the requirements of paragraph (b) of Item 2 would also be satisfied.

Having met the requirements of either paragraph (a) or (b) of Item 2, the supply of software development services made by you to NR is GST-free under item 2 to the extent that the supply is not negated by subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

From the information received, subsections 38-190(2) and 38-190(2A) of the GST Act are not applicable to your supply of software development services because:

The next step is to consider whether subsection 38-190(3) of the GST Act will apply to your supply of software development services to NR.

Subsection 38-190(3) of the GST Act

The issue is: According to your arrangements with NR, are you required to provide your software development services to another entity in Australia?

Subsection 38-190(3) of the GST Act has been amended with the addition of paragraph (c). The application date of the amendment is 1 October 2016. 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:

From the information received, your supply will satisfy paragraph (a) of subsection 38-190(3) as your supply is under an agreement with a non-resident.

In respect of paragraph (b) of subsection 38-190(3), paragraphs 277 and 285 of GSTR 2005/6 state:

From the fact provided, NR decides which software to develop and what features the software will have, gives you functional specifications and related information to enable you to design the software. NR has planning meetings with you, decides the exact extent of the work, how it should be done and the timelines for completing the work; and pays you directly.

Therefore, following the above view, you supply to NR. We do not consider that your supply is provided to another entity in Australia. Nor does the agreement with NR require your supply to be provided to another entity in Australia.

Since paragraph (b) of subsection 38-190(3) of the GST Act is not satisfied, there is no need to discuss paragraph (c) of subsection 38-190(3) of the GST Act.

Hence subsection 38-190(3) of the GST Act will not negate the GST-free status of your supply under Item 2.

Accordingly, your supply of software development services to NR will be GST-free under paragraph (a) or (b) of Item 2.

For more information on subsection 38-190(3) of the GST Act please refer to Goods and Services Tax Ruling GSTR 2005/6.


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).