Edited version of your written advice

Authorisation Number: 1051288124533

Date of advice: 27 September 2017

Ruling

Subject: GST and the supply of legal services

Question

Is the supply of legal services you make under the cost agreement you have with an Australian solicitor a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, the supply of legal services you make under the cost agreement you have with an Australian solicitor is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST where the non-resident individual is located outside Australia at the time of the supply.

Relevant facts

You are a legal services professional and registered for the goods and services tax (GST).

You have entered into a cost agreement with an Australian solicitor. Under the agreement you are to act for the solicitor’s client an individual who is a respondent to legal proceedings in an Australian court. The legal proceedings do not relate to residential property in Australia.

The individual is a non-resident of Australia and is not in Australia in relation to your supply at any time when you provide your supply to the individual.

You receive instructions from the Australian solicitor in regard to the legal services and you invoice the solicitor for your legal services. From time to time you will go overseas to attend meetings with the individual.

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

Note: Where the term ‘Australia’ is used in this document, it is referring to the ‘indirect tax zone’ as defined in section 195-1 of the GST Act.

Summary

Your supply of legal services under the cost agreement is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Detailed reasoning

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a) The supplier makes the supply for consideration; and

b) The supply is made in the course or furtherance of an enterprise that the supplier carries on; and

c) The supply is connected with Australia; and

d) The supplier is 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 must be satisfied for your supply of legal services to be a taxable supply.

From the information given, your supply of legal services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you make your supply for consideration; and

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

c) your supply is connected with Australia as it is made 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.

GST-free supply

Relevant to your supply of legal services is item 2 in the table in subsection 38-190(1) of 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 that 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.

Only one of the paragraphs in item 2 needs to be satisfied.

Precondition of item 2 – non-resident is 'not in Australia'

Goods and Services Tax Ruling GSTR 2004/7 (available at ato.gov.au) provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

From the facts given under the cost agreement you represent the solicitor’s client the individual who is a non-resident of Australia in legal proceedings in Australia. You receive instructions from the solicitor and invoice the solicitor for your services. You will go overseas for meetings with the individual.

In regard to a non-resident having a representative in Australia to act on their behalf, GSTR 2004/7 provides the following guidance:

Representative in Australia of a non-resident individual

204. As the focus is on the whereabouts of the individual to whom the supply is made, the location of a representative (including an agent) of that individual is not relevant. The presence of a representative in Australia does not alter the fact that the individual is not physically in Australia. In this regard, item 2 uses the words 'the non-resident who' indicating that it is only the whereabouts of the individual to whom the supply is made that is in question.

205. This means that if a non-resident sole trader carries on business or other activities in Australia through an agent and a supply is made to that non-resident but through an agent in Australia acting on behalf of the individual sole trader who is not physically in Australia when the thing supplied is done, the sole trader is not in Australia. The supply is GST-free under item 2 provided the other requirements of the item are met.

206. There is no distinction made, for the purposes of determining whether an individual recipient of a supply is in Australia, between supplies made to an individual acting in a private capacity and supplies made to an individual carrying on a business. In each case presence in Australia is established by identifying where the individual recipient is located at the relevant time.

Example 2 - representative in Australia acting on behalf of a non-resident individual

207. A non-resident tourist is injured while visiting Australia and initiates a claim for damages after returning home. The presence of a solicitor in Australia acting on behalf of the injured individual does not mean that the individual is in Australia for the purposes of item 2.

Example 4 - presence in Australia of an agent of a non-resident individual

209. A non-resident sole trader engages a Melbourne solicitor to represent him in an action arising out of a patent infringement in Australia. The solicitor, as agent for the sole trader, briefs a barrister to litigate the matter in an Australian court. The sole trader is not physically in Australia when the legal services of the barrister are performed. The sole trader is not in Australia for the purposes of item 2.

The supply of legal services that the solicitor acquires from you is for the purposes of the individual who is a respondent in the legal proceedings which you have to attend to. From the above, we consider that the solicitor is acting on behalf of the individual when the solicitor acquires your legal services. This means the supply of legal services you make through the individual’s solicitor in Australia is made to the individual and as the individual is not in Australia in relation to your supply at any time, the individual is ‘not in Australia in relation to your supply’ for the purposes of item 2.

The next step is to consider the paragraphs in item 2.

Paragraph (a) of item 2

From the fact given, your supply of legal services satisfy paragraph (a) of item 2 as your supply of legal 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

Your supply of legal services is GST-free under paragraph (a) of item 2 to the extent that it is not negated by subsection 38-190(3) of the GST Act.

As paragraph (a) is satisfied there is no need to consider paragraph (b) of item 2.

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; and

c) for a supply other than an input taxed supply – none of the following applies:

i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;

ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient’s acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.

From the facts given, subsection 38-190(3) of the GST Act does not apply to your supply of legal services as you are not required to provide your supply of legal services to another entity in Australia. Your supply of legal services is therefore GST-free under item 2.

However, if at any time the individual comes to Australia in relation to the legal services, the individual will not satisfy the requirement of ‘not in Australia in relation to your supply’ for the period the individual will be in Australia. That part of the supply will be a taxable supply under section 9-5 of the GST Act. You will need to apportion the consideration you receive in a fair and reasonable manner between the taxable and GST-free part of your supply of legal services.

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