| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. 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: 1051319853636
Date of advice: 13 December 2017
Ruling
Subject: Goods and services tax (GST) and the supply of consultancy services to an overseas company.
Question
Is GST payable on your supply of engineering and consultancy services to company X relating to the project at a particular site overseas?
Answer
No. GST is not payable on any amounts you receive from company X under the specified arrangement.
Relevant facts and circumstances
You are registered for GST.
You provide engineering and consultancy services in return for payment.
Your customer is an overseas company (company X), based overseas. You provide engineering and consultancy services to company X for a project overseas.
You provide your services from Australia but do from time to time travel to the overseas country to meet with your client and third parties as well as visit the site of the project. Company X is a multinational company and also has offices in Australia. Company X allows you to use their Australian office when you need to work on this project.
You invoice your client in the overseas country on a periodic basis, based on an hourly rate and timesheet. Your client pays directly for some of your expenses while you travel to the overseas country (e.g flight, hotel, car rental) and you invoice, at cost, the expenses you incur for meals (capped allowance) and other expenses (petrol, taxi, etc) while travelling.
The contract specifies the scope of services to be supplied by you under the contract as follows:
● In conjunction with the Principal’s Representative you will provide technical engineering services to enable the specification and procurement of a suitable particular type of machinery and associated plant and equipment for a specified site.
● To proactively work with company X, company X’s consultants and company X’s client to ensure all information required to complete the project is accurate and timely.
● Any other opportunities identified by the Principal’s Representative.
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
Summary
Your supply of the engineering and consultancy services is GST-free under item 1 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as these services are directly connected with real property situated outside Australia.
Detailed reasoning
GST is payable on taxable supplies.
You make a taxable supply where you meet the requirements of section 9-5 of the GST Act, which 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 in section 195-1 of the GST Act)
The indirect tax zone is Australia.
In your case, you meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is:
● you are supplying engineering and consultancy services for consideration (paragraph 9-5(a) of the GST Act)
● you are supplying these services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act)
● your supply of the services is connected with Australia as you supply the services through an enterprise that you carry on in Australia (paragraph 9-5(c) of the GST Act); and
● you are registered for GST (paragraph 9-5(d) of the GST Act).
There are no provisions of the GST Act under which your supply of the services to company X would be input taxed. Therefore, what remains to be determined is whether your supply of the services is GST-free.
Item 1 in the table in subsection 38-190(1) of the GST Act provides that a supply that is directly connected with goods or real property situated outside Australia is GST-free (except to the extent that the supply is a supply of goods or real property).
Goods and Services Tax Ruling GSTR 2003/7 provides guidance on determining whether a supply is directly connected with real property. Paragraphs 32 to 35 state:
32. As explained above, we consider that the expression 'directly connected with' contemplates a very close link or association between the supply and particular goods or real property.
33. We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:
● the supply changes or affects the goods or real property in a physical way; or
● there is a physical interaction with the goods or real property but without changing the goods or real property; or
● the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or
● the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or
● the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.
34. This is not an exhaustive list of the situations where, in our view, a direct connection exists. There may be some supplies that are directly connected with goods or real property that do not readily fit into one of these categories.
35. Some supplies may also be covered by more than one category of supply. The categories are not mutually exclusive.
There is a very close link between your supply of the engineering and consultancy services and particular real property located in the overseas country, as your engineering and consultancy services will be integral to the development of a facility at a particular overseas site and that is the specific purpose of these services. The direct object of your supply of the engineering and consultancy services is that real property. Therefore, your supply of the engineering and consultancy services to company X under the contract in question is a supply directly connected with real property situated outside Australia.
Additionally, your supply of the engineering and consultancy services is not a supply of goods or real property.
Hence, your supply of these engineering and consultancy services is GST-free. Therefore, GST is not payable on your supply of these services to company X under the arrangement in question.
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).
