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Edited version of your written advice
Authorisation Number: 1051286058514
Date of advice: 6 October 2017
Ruling
Subject: GST and supply to a non-resident
Question
Is the fee charged by the entity for its supply of services to the non-resident subject to GST?
Answer
No, the fee charged by the entity for its supply of services to the non-resident is not subject to GST as the supply is GST-free.
Relevant facts and circumstances
The entity owns 100% of a company outside the indirect tax zone (the non-resident).
The entity and the non-resident carry on separate enterprises.
Currently, employees of the entity sell, market the business product of the non-resident, and do back office administration on behalf of the non-resident.
The director of the entity, who is also the director of the non-resident, and a senior member of the management staff travel overseas to build business relationships within the industry.
The non-resident does not have business premises. If its business grows, the non-resident will open an office outside the indirect tax zone but it will only be staffed by one individual. Other business activities of the non-resident will still be handled by the entity on behalf of the non-resident.
The entity charges a fee based on labour cost which is calculated by multiplying the time spent per month by all the employees involved in working on the non-resident’s business by the employees’ hourly rate.
The entity is registered for GST.
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 9-27
A New Tax System (Goods and Services Tax) Act 1999 section 38-190
Reasons for decision
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 the indirect tax zone; 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.
(* denotes a term defined under section 195-1 of the GST Act)
The entity supplies its services to the non-resident in exchange for fees. The entity makes the supply in the course of carrying on its enterprise. The supply is connected with the indirect tax zone as the entity makes it through an enterprise that it carries on in the indirect tax zone. The entity is registered for GST. All the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied. Therefore, the entity’s supply of services to the non-resident is a taxable supply unless the supply is GST-free or input taxed.
There is no provision in the GST Act under which the entity’s supply of its services to the non-resident would be input taxed.
Under subsection 38-190(1) of the GST Act certain supplies of things, other than goods or real property, for consumption outside the indirect tax zone are GST-free. Item 2 in the table in subsection 38-190(1) (item 2) provides that a supply that is made to a non-resident who is not in the indirect tax zone 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 the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone; 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.
Paragraph 34 of Goods and Services Tax Ruling GSTR 2004/7 provides that, for the purpose of item 2, we determine whether the ‘not in the indirect tax zone’ requirement is satisfied by determining whether the non-resident is in the indirect tax zone in relation to the supply.
A non-resident entity is in the indirect tax zone if it carries on its enterprise in the indirect tax zone.
For the purpose of item 2, a non-resident is in the indirect tax zone if it carries on its enterprise in the indirect tax zone.
Subsection 9-27(1) of the GST Act states:
(1) An *enterprise of an entity is carried on in the indirect tax zone if:
(a) the enterprise is *carried on by one or more individuals covered by subsection (3) who are in the indirect tax zone; and
(b) any of the following applies:
(i) the enterprise is carried on through a fixed place in the indirect tax zone;
(ii) the enterprise has been carried on through one or more fixed places in the indirect tax zone for more than 183 days in a 12 month period;
(iii) the entity intends to carry on the enterprise through one or more places in the indirect tax zone for more than 183 days in a 12 month period.
‘Individuals’ referred to in paragraph 9-27(1)(a) above include:
(a) if the entity is an individual – that individual;
(b) an employee or officer of the entity;
(c) an individual who is, or is employed by, an agent or other agent of independent status that is acting in the ordinary course of the agent’s business as such an agent.
An ‘officer’ is defined in section 195-1 of the GST Act as having the same meaning given by the Corporations Act 2001.
The Corporations Act 2001 defines an ‘officer’ of a corporation to include a director or secretary of the corporation; or a person:
a. who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
b. who has the capacity to affect significantly the corporation's financial standing; or
c. in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation); or
The director of the entity, who is also the director of the non-resident, is one of the individuals involved in managing the non-resident’s business. On this basis, and given that the non-resident does not have business premises or employees overseas, our view is that the non-resident’s enterprise is carried on through a fixed place in the indirect tax zone. Therefore, the non-resident is in the indirect tax zone. However, as the presence of the non-resident is not in relation to the supply of services by the entity, we consider that the non-resident is not in the indirect tax zone when the entity supplies its services.
As the entity’s supply of services is not a supply of work physically performed on goods or a supply directly connected with a real property situated in the indirect tax zone, the supply is GST-free under item 2.
Accordingly, the management fee charged to the non-resident is not subject to GST.
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