Edited version of private advice

Authorisation Number: 1051532472439

Date of advice: 19 June 2019

Ruling

Subject: GST and the supply of legal services

Question

In relation to the deceased estate, is the supply of legal services made by the Australian entity from 1 January 2019 GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes,in relation to the deceased estate, the supply of legal services made by the Australian entity from 1 January 2019 is GST-free under item 2 in the table in subsection 38-190 of the GST Act.

Relevant facts

You are an Australian entity who is registered for GST.

You have provided legal services in relation to the trustee of the deceased estate (Estate). The deceased lived overseas for most of their life. However, the deceased was a citizen of Australia and was a resident in XXX at the time of their death.

The deceased died overseas and left a will (Will) that was made outside Australia and the terms of the Will which was made outside Australia are the subject of legal proceedings. The beneficiaries are located in various countries including Australia.

The executor of the Estate is not a beneficiary of the Estate and lives outside Australia. The Executor is a citizen of Australia, and is not a resident of Australia. As Executor of the Estate, the responsibility of the Executor was to 'call in' estate assets and distribute the proceeds (after payment of liabilities) in accordance with the will of the deceased. The Executor is not carrying on any business activities in Australia with respect to the Estate.

Your costs agreement for the supply of legal services is with the Executor. Income tax returns for the Estate have been submitted on the basis the Estate is a non-resident trust for income tax purposes. There is no separate trust or trustee.

For the purpose of administering the Estate, the Executor has established an office outside Australia; and engaged professional advisers and certain persons including entity D to assist in the administration of the Estate. The office is a physical office located outside Australia and is not an established company. Given the size and complexity of the Estate, the Executor took the view that the most efficient and appropriate way of administering the Estate would be to address all matters through an office dedicated to Estate administration.

The Executor established the 'Estate office' as a central processing and contact point for all matters concerning the administration of the Estate. The Estate office has been manned and managed by entity D throughout the administration of the Estate. Your tax invoices are addressed to the Executor and sent by email to entity D.

Entity D is not employed by the Executor. The Executor with another overseas company engaged Company X which is an overseas company under a consultancy agreement to conduct various duties. Entity D is the individual who performs the duties under the consultancy agreement on behalf of Company X.

While the Executor has legal responsibility for the Estate, entity D deals with the day to day administration of the Estate and the conduct of the overseas legal proceedings on behalf of the Executor. You have authority to take your instructions with respect to the Estate from entity D.

The primary means of contact with entity D is by email and telephone. Your lawyers have also met with entity D on numerous occasions outside Australia with respect to the conduct of the Estate.

Entity D has travelled to Australia on occasion for meetings associated with the Estate and GST is charged for the days on which legal services are provided to entity D when you aware entity D is in the country (for example when your lawyers have meeting with entity D. You understand that entity D has also travelled to Australia not associated with the Estate but you are not instructed in these respects.

The Estate is currently not deriving any rental income from any real property in Australia as all Estate real property in Australia has been sold.

The law firm ABC located overseas are the solicitors on the record for legal proceedings with respect to the Estate being conducted outside Australia This was necessary as the law requires that where proceedings are taking place in a country, the solicitors for a party to the proceedings must have an office in that jurisdiction. You do not have an office in that jurisdiction.

The law firm ABC is engaged by the Executor but take its instructions with respect to the conduct of the proceeding from you. You do not supply or provide legal services to ABC as you did some years ago.

Initially you dealt directly with the Executor or entity D with respect to the administration of the Estate. Now instructions and advice in relation to the Estate are primarily received by and provided to entity D outside Australia rather than the executor while you assist the Executor with certain personal and business matters. Your solicitor frequently travels overseas with other solicitors assisting for the purpose of meetings and court proceedings in relation to the Estate.

Due to health reason the Executor is not much in contact with you and would travel to Australia numerously for health treatment. While there is no set timetable or pattern to the Executor's travel at the moment, your principal point of contacts in relation to the Estate matters remains with entity D outside Australia with you having only very limited direct involvement with the Executor with respect to the Estate while the Executor is in Australia.

For the foreseeable future you do not expect that the Executor will be attending any Estate meeting or court proceedings while he is in Australia. For this reason you think it is unlikely that the Executor would be considered to be in Australia in relation to the supply of legal services though GST would be charged to the Estate and remitted to the ATO if the Executor did attend any meetings or court proceedings while in Australia.

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.

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

1. the supplier makes the supply for consideration; and
2. the supply is made in the course or furtherance of an enterprise that the supplier carries on; and
3. the supply is connected with Australia; and
4. 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 received, your supply of legal services satisfies paragraphs (a) to (d) in 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 of legal services is connected with Australia as it is done in Australia and 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 in relation to the Estate that is located overseas 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 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.

Precondition of item 2

Item 2 applies to a supply of thing other than a supply of goods or real property which is made to a non-resident and the precondition for item 2 is that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is not in Australia when the thing supplied is done for the purposes of item 2.

According to paragraphs 23 and 24 in GSTR 2004/7, a supply is made to a non-resident for the purposes of item 2 if the supply is made to an entity that is a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). A non-resident includes a trust of which no trustee is a resident of Australia as defined in subsection 6(1) of the ITAA 1936 and the central management and control which is not located in Australia. In the case of a trust the supply is made to a non-resident if the trust is a non-resident irrespective of whether the supply is expressed as being made to the trust or the trustee of that trust.

From the information given the trust Estate is located outside Australia and is managed by an overseas company engaged by the Executor who is not a resident of Australia. In this instance the trust Estate is a non-resident for the purposes of item 2 since the trust's activities are not carried on in Australia. The precondition for item 2 is therefore satisfied since the trust Estate is not in Australia in relation to your supply when the legal services is done.

Next is to consider the paragraphs in item 2. Only one of the paragraphs in item 2 needs to be satisfied for the supply of legal services to be GST-free.

Paragraph (a) in item 2

From the information received, your supply of legal services in relation to the overseas trust Estate satisfy paragraph (a) of item 2 as:

·         your supply of legal services is made to a non-resident trust that is not in Australia in relation to your supply when the supply of your legal services is done; and

·         the 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 since the trust Estate does not have any real property in Australia.

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

There is no need to consider paragraph (b) of item 2 as paragraph (a) is satisfied.

Subsection 38-190(3) of the GST Act

From 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:

1. it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and
2. the supply is provided or the agreement requires it to be provided to another entity in Australia; and
3. for a supply other than an input taxed supply - none of the following applies:

1. 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.

Paragraph 38-190(3)(a) of the GST Act

You provide your legal services under a cost agreement you have entered with the Executor who is a non-resident of Australia. This paragraph is satisfied.

Paragraph 38-190(3)(b) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 (available at ato.gov.au) provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means in our view that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

When supplying your legal services, you provide legal advice and receive instruction from the representative of the Executor, entity D employee of company X and provide instructions to the lawyers for the law firm ABC regarding the conduct of the legal proceedings with respect to the Estate in XXX. In this instance your supply of legal services is provided to these entities under your agreement with the Executor.

Where you are to provide your legal services to entity D and lawyers for the law firm ABC outside Australia, paragraph 38-190(3)(b) of the GST Act is not satisfied.

Where entity D is in Australia for the purposes of the overseas Estate paragraph 38-190(3)(b) of the GST Act is satisfied as you are providing your services to an entity that is in Australia.

Paragraph 38-190(3)(c) of the GST Act.

Requirement (i) and (ii)

The term 'Australian based business recipient' in requirement (i) and (ii) describes the relationship that a recipient has with a particular supply. An entity is an 'Australian-based business recipient' of a supply that is made to it if:

·         the entity is registered for GST and carries on an enterprise in Australia; and

·         the acquisition of the thing supplied is not solely of a private or domestic nature.

Based on the information received, the requirements (i) and (ii) in paragraph 38-190(3)(c) of the GST Act do not apply to your supply of services as you are not required to provide your legal services to an Australian based business recipient.

Requirement (iii)

Requirement (iii) requires that the acquisition is solely for a creditable purpose and is not a non-deductible expense.

An acquisition is solely for a creditable purpose where the thing is acquired solely for business purposes and the acquisition does not relate to making supplies that would be input taxed.

Division 69 of the GST Act is about non-deductible expenses and lists supplies that are generally not creditable acquisitions for non-resident employers. These expenses include entertainment expenses that could be paid to the employees of a non-resident as part of their remuneration package.

From the information given entity D has been in Australia to attend meetings associated with the Estate. In this instance we do not consider that requirement (iii) applies when entity D is in Australia since entity D is attending the meetings on behalf of the Executor for the purposes of the overseas Estate and not for personal use.

Similarly where you provide your legal services to the Executor who is in Australia for the purposes of the overseas Estate requirement (iii) does not apply to your supply of services that is provided at that time.

However, where your legal services are for the personal use of the Executor, item 2 does not apply to your supply where the Executor is located in Australia at the time of the supply. Your supply of legal services for the private use of the Executor located in Australia at the time of the supply is a taxable supply in this instance.

To summarise, where entity D or the Executor is in Australia for the purposes of the overseas Estate, requirement (iii) in paragraph 38-190(3)(c) of the GST Act applies to your supply. In this instance, subsection 38-190(3) of the GST Act does not negate the GST-free status of your supply under item 2 since all the requirements in subsection 38-190(3) of the GST Act are not satisfied.

Accordingly, your supply of legal services in relation to the overseas Estate from 1 January 2019 is GST-free under paragraph (a) of item 2.

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