Edited version of private ruling

Authorisation Number: 1011673702572

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Ruling

Subject: Goods and services tax (GST) and services supplied to non-residents

Question

Is GST payable on your supplies of the investment management services to non-residents?

Answer

GST is not payable on your supplies of services to non-residents in return for the X Fees or Y Fees.

GST is not payable on your supplies of services to non-residents in return for the Z Fees where the non-residents acquire the services in carrying on their enterprises and they are not registered, or required to be registered, for GST.

GST is payable on your supplies of services to non-residents in return for the Z Fees where the non-residents do not acquire the services in carrying on their enterprises and/or they are registered, or required to be registered, for GST.

Relevant facts and circumstances

You are a Company (Company A).

You are registered for GST.

You perform many commercial roles in respect of private capital investments, including as the trustee of several investment trusts including the B Fund. The B Fund is an Australian unlisted wholesale property fund.

You have recently been offering the opportunity for investors interested in such Australian property investments (including non-residents investors) to invest funds through subscription of units in the B Fund.

You enter into binding agreements with the investors pursuant to the terms of a certain document and as foreshadowed in a certain document. These agreements are being entered into by you in your corporate capacity; not in your capacity as trustee for the B Fund. The investors contract for the services you provide, and are liable to pay for those services.

Investors are required to sign and return a certain document, which details the fee arrangements for the services which you provide to the investors. These confirm the direct fee arrangements between you and investors.

The arrangement between you and the investor is governed by the terms of a certain document. As referred to in a certain document, you are agreeing to manage the funds invested by the investor in accordance with the objectives and strategies of the B Fund as outlined in a certain document. The fees you charge investors are remuneration for these services.

The fees you charge are as follows:

· X Fee

The X Fee is to apply. It will be calculated in a certain way.

· Y Fee

The Manager is entitled to an annual Y Fee, which will be calculated in a certain way.

· Z Fee

A Z Fee is to apply to certain things. This fee is to be calculated in a certain way.

For the purposes of this ruling, the investors are non-residents who are not in Australia when the things supplied are done.

Reasons for decision

Summary

GST is not payable on your supplies of services to non-residents in return for the X Fees or Y Fees, as they are GST-free supplies under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

GST is not payable on your supplies of services to non-residents in return for the Z Fees where the non-residents acquire the services in carrying on their enterprises and they are not registered, or required to be registered, for GST, as they are GST-free supplies under item 2 in the table in subsection 38-190(1) of the GST Act under such circumstances.

Where the non-residents acquire the services supplied in return for the Z Fees and:

· the non-residents do not acquire these services in carrying on their enterprises; and/or

· the non-residents are registered, or required to be registered, for GST,

GST is payable on your supplies of these services to the non-residents, as all of the requirements of section 9-5 of the GST Act are satisfied.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy 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 Australia; 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)

In your case, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, you make the supplies of the investment management services to non-residents for consideration and in the course or furtherance of an enterprise that you carry on. Additionally, these supplies are connected with Australia and you are registered for GST.

There are no provisions in the GST Act under which your supplies of the investment management services to non-residents are input taxed supplies.

Therefore, what remains to be determined is whether your supplies of the investment management services to non-residents are GST-free supplies.

A supply of something other than goods or real property may be a GST-free supply under subsection 38-190(1) of the GST Act.

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done is a GST-free supply where:

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.

However, these supplies are not GST-free supplies under Item 2 in the table in subsection 38-190(1) of the GST Act to the extent that they are supplies of goods or real property.

In your case, you make supplies of investment management services to non-residents and these supplies are not of goods or real property.

You supply the investment management services to non-residents who are not in Australia when the things supplied are done. This is a question of fact to be determined on a case by case basis. Guidance on this matter can be found in Goods and Services Tax Ruling GSTR 2004/7.

Your supplies of investment management services to non-residents are not supplies of work physically performed on goods situated in Australia.

Paragraphs 32 and 33 of Goods and Services Tax Ruling GSTR 2003/7 discuss the 'directly connected with real property' concept. They 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.

There is not a close link or association between your supplies of services for which you charge the X Fees and Y Fees to non-residents and particular real property situated in Australia.

Your supplies of these services to non-residents do not fit within the examples in paragraph 33 of GSTR 2003/7.

Hence, your supplies of these services to non-residents are not directly connected with real property situated in Australia.

As your supplies of these services to non-residents are not supplies of work physically performed on goods situated in Australia and they are not directly connected with real property situated in Australia, the requirements of paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act are satisfied.

Therefore, your supplies of these services are GST-free supplies under item 2 in the table in subsection 38-190(1) of the GST Act as all of the requirements of that item are satisfied. Hence, as not all of the requirements of section 9-5 of the GST Act are satisfied, your supplies of these services are not taxable supplies, and therefore, GST is not payable on these supplies.

However, your supplies of services in return for the Z Fees are directly connected with real property situated in Australia. Therefore, the requirements of paragraph (a) of item 2 in the table in subsection 38-190(1) of the GST Act are not satisfied.

Hence, your supplies of services in return for the Z Fees only satisfy the requirements of item 2 in the table in subsection 38-190(1) of the GST Act where the requirements of paragraph (b) of that item are satisfied, that is, the non-residents acquire the services in carrying on the non-residents' enterprises, but they are not registered, or required to be registered, for GST. In such cases, your supplies of these services are GST-free supplies under item 2 in the table in subsection 38-190(1) of the GST Act. Under such circumstances, as not all of the requirements of section 9-5 of the GST Act are satisfied, these supplies are not taxable supplies, and therefore, GST is not payable on these supplies.

Where the non-residents do not acquire these services in carrying on their enterprises, the non-residents are registered for GST or the non-residents are required to be registered for GST, the supplies of these services do not satisfy the requirements of paragraph (a) or (b) of item 2 in the table in subsection 38-190(1) of the GST Act. Under such circumstances, your supplies of these services are not GST-free supplies under item 2 in the table in subsection 38-190(1) of the GST Act or under any provision in the GST Act. Under such circumstances, as all of the requirements of section 9-5 of the GST Act are satisfied, your supplies of these services are taxable supplies, and therefore, GST is payable on these supplies.

Note: This ruling does not address the tax consequences (other than GST) of the arrangements with non-residents, specifically the extent to which distributions are subject to withholding tax and/or give rise to tax obligations of the unit holder.