Edited version of private ruling

Authorisation Number: 1011697268248

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Ruling

Subject: GST and supply of goods and services

Questions

a) Will the supply of goods by the non-resident company be subject to the Australian goods and services tax (GST) as per draft contract they have in place with an Australian company?

b) Will the supply of services by the non-resident company be subject to the Australian GST as per draft contract they have in place with an Australian company?

Advice/Answers

1. Yes, the supply of goods by the non-resident company will be subject to the Australian GST as per draft contract they have in place with an Australian company where the non-resident company installs or assembles these goods in Australia.

2. Yes, the supply of services by the non-resident company will be subject to GST as per draft contract they have in place with an Australian company where these services are done in Australia.

Relevant facts

You are a company based outside Australia. Currently you are not registered for the Australian GST. The nature of your enterprise is high technology industry. And manufacturing equipment.

You have entered into a contract to export high tech goods to an Australian company, and to provide technical support in relation to the goods supplied. You have provided a copy of the draft contract and draft statement of work to us.

You advise the following:

§ the Australian company buy the goods from you and sell them to Australian customers.

§ some part of the goods you supply will be assembled or installed in Australia once imported.

§ the total value of the goods will be over $75,000 and assembly and installation fee is not separated but included in the total price of the goods.

§ you are responsible to do the assembly or installation of the goods and you will send your employees to Australia to perform the assembly or installation.

§ it is the Australian customer who will import the goods in Australia.

§ you will send one or two employees to Australia who will provide technical support directly to the Australian company and assist in the administration work between you and the Australian company or the product sold during the initial one year upon the settlement of the contract.

§ your employees will work at the office of the Australian company and provide their services upon requests by the Australian customer.

§ as the equipment is introduced to the Australian customer for the first time, your technicians or engineers will provide technical support in case of malfunction arises and/or repair is required when the Australian customer operates the equipment. The Australian customer is inexperienced in operating the equipment. Hence your technicians or engineers will provide the technical support so that the equipment can be properly operated.

§ the Australian company will pay for the support you will provide (technical support and administrative assistance provided by your employees) and you will issue an invoice to them.

§ you estimate your services to be performed in Australia will possibly exceed $75,000 per annum.

§ you do not have a physical establishment such as office/plant and permanent employees in Australia.

Reasons for decisions

Question 1

GST is a tax which is charged on the supply of goods and services in Australia ('taxable supplies') and on goods imported into Australia ('taxable importations').

A supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Accordingly, where all the requirements in section 9-5 of the GST Act are satisfied the supply will be a taxable supply and the supplier will be liable to pay GST on that supply.

We will now consider whether your supply of goods will satisfy the requirements of section 9-5 of the GST Act.

Paragraph 9-5(a) of the GST Act

From the facts given, this paragraph will be satisfied as you will receive consideration for the supply of goods you will make under the draft contract.

Paragraph 9-5(b) of the GST Act

You will be supplying the goods through a business that you carry on outside Australia. Paragraph 9-5(b) of the GST Act will be satisfied.

Paragraph 9-5(c) of the GST Act

Section 9-25 of the GST Act defines when a supply is connected with Australia.

Relevant to your supply of goods into Australia is subsection 9-25(3) of the GST Act.

Under subsection 9-25(3) of the GST Act a supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

a) imports the goods into Australia; or

b) installs or assembles the goods in Australia.

Accordingly, where either paragraph (a) or (b) of subsection 9-25(3) of the GST Act is satisfied your supply of goods will be connected with Australia.

However, where you supply goods that do not need assembly or installation and you do not import them into Australia, your supply will not be connected with Australia

Paragraph 9-25(3)(a) of the GST Act

You advise that you will not import the goods which you will supply under the draft contract. Paragraph 9-25(3)(a) of the GST Act is therefore not applicable to your supply.

For more information on importation of goods into Australia, please refer to the Goods and Services Tax Ruling GSTR 2003/15 which is available at www.ato.gov.au

Paragraph 9-25(3)(b) of the GST Act

Under this paragraph, if a supply of goods involves the goods being brought to Australia and the supplier installs or assembles the goods in Australia, the supply of the goods is connected with Australia. In the case of goods assembled in Australia, the unassembled goods and assembled goods are the same goods.

From the information received, you will assemble or install the goods once imported in Australia. Your supply of goods will therefore be connected with Australia as paragraph 9-25(3)(b) of the GST Act will be satisfied in this instance.

For more information on when a supply is connected with Australia please refer to the Goods and Services Tax Ruling GSTR 2000/31 which is available at www.ato.gov.au

Paragraph 9-5 (d) of the GST Act

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

§ you are carrying on an enterprise; and

§ your GST turnover meets the GST registration turnover threshold of $75.000.

Section 188-10 of the GST Act provides that your GST turnover meets the GST registration turnover threshold if:

§ your current GST turnover is at or above $75,000 and the commissioner is not satisfied that your projected GST turnover is below $75,000; or

§ your projected GST turnover is at or above $75,000.

Goods and Services Tax Ruling GSTR 2001/7 (available at www.ato.gov.au) provides guidance on the meaning of GST turnover, including the calculation of GST turnover.

Your current GST turnover is the value of all supplies that you make, or are likely to make in the current month, plus all the supplies that you have made in the previous 11 months.

Your projected GST turnover is the value of all supplies that you make or are likely to make in the current month, plus all the supplies that you are likely to make in the next 11 months.

In working out both your current and projected GST turnover you only include those supplies that are made for consideration, are connected with Australia and are not input taxed; you disregard all other supplies.

From the facts given, you will satisfy the requirements of section 23-5 of the GST Act and therefore will be required to be registered for GST as:

§ you are carrying on an enterprise and

§ you will make a supply of goods that will be connected with Australia under paragraph 9-25(3)(b) of the GST Act and the total value of these goods will be above $75,000. Further you estimate that the turnover of the supply of services you will do in Australia will be above $75,000. Accordingly, your projected GST turnover for your supply of goods and services will be above the GST registration turnover threshold of $75,000.

For information on how a non-resident registers for the Australian GST and what documents to provide when registering for GST, please refer to the published information GST registration information for a non-resident that is available from our website at http://www.ato.gov.au/businesses/content.asp?doc=/content/57758.htm

Summary

Based on the information received, your supply of goods will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act. However, your supply of goods will not be a taxable supply to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that will make your supply of goods into Australia GST-free or input taxed.

Accordingly, your supply of goods will be a taxable supply under section 9-5 of the GST Act and you will be liable to pay GST on that supply to the extent you do not have a reverse charge agreement with the Australian company.

Reverse charge agreement is discussed further in the ruling.

Question 2

Your supply of services under the draft contract will be a taxable supply where all the requirements in section 9-5 of the GST Act are satisfied. For information on section 9-5 of the GST Act please refer to question 1.

From the information received, you will satisfy paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you will make the supply of services for consideration;

b) you will make the supply of services through a business that you carry on in Korea;

c) a supply of services is connected with Australia under subsection 9-25(5) of the GST Act if:

I. the service is done in Australia; or

II. the supplier makes the supply through an enterprise that they carry on in Australia; or

III. the service is:

§ neither done in Australia nor made through an enterprise that the supplier carries on in Australia, and

§ a right or option to acquire another thing; and

§ the supply of the other thing would be connected with Australia.

For example a holiday package for Australia that is supplied overseas might be connected with Australia.

Only one of the above requirements needs to be satisfied for your supply of services to be connected with Australia.

From the facts given, you will perform the services (technical support, installation, training to use the equipment) in Australia. As these services will be done in Australia, paragraph 9-25(5)(a) of the GST Act is satisfied and these services will therefore be connected with Australia.

d) as discussed in question 1, you will be required to be registered for GST.

However, your supply of services will not be a taxable supply to the extent that they are GST-free or input taxed.

There is no provision under the GST Act that will make your supply of services GST-free or input taxed when you perform your services in Australia and provide them to an entity that is in Australia at the time of your supply.

Accordingly, your supply of services that will be done in Australia will be a taxable supply under section 9-5 of the GST Act and you will be liable to pay GST on the supply to the extent you do not have a reverse charge agreement with the Australian company.

Reverse charge agreement

Division 83 of the GST Act provides an alternative where a non-resident makes supplies that are connected with Australia and their supplies will be taxable supplies under section 9-5 of the GST Act.

Section 83-5 of the GST Act states:

83-5  `"Reverse charge'' on supplies made by non-residents  

(1)   The GST on a *taxable supply is payable by the *recipient of the supply, and is not payable by the supplier, if:

a) the supplier is a *non-resident and

b) the supplier does not make the supply through an *enterprise that the supplier *carries on in Australia; and

c) the recipient is *registered or *required to be registered; and

d) the supplier and the recipient agree that the GST on the supply be payable by the recipient.

(2)  However, this section does not apply to:

a) a supply that is a *taxable supply under Division 84 (which is about offshore supplies other than goods or real property); or

b) a taxable supply made by a *non-resident through a *resident agent; or

Note:GST on these taxable supplies is payable by the resident agent: see section 57-5

c) a supply that is disregarded under paragraph 188-15(3)(b) or (c) or 188-20(3)(b) or (c) (which are about supplies of rights or options offshore).

(3)  This section has effect despite section 9-40 (which is about liability for the GST).

(* denotes a defined term in section 195-1 of the GST Act)

Further section 83-25 of the GST Act states:

83-25  When non-residents must apply for registration

(1)  A non-resident need not apply to be *registered under this Act if the non-resident's *GST turnover would not meet the *registration turnover threshold but for the *taxable supplies of the non-resident that are taxable supplies to which section 83-5 applies.

(2)  It does not matter whether the *non-resident is *required to be registered.

(3)  This section has effect despite section 25-1 (which is about when entities must apply for registration).

Accordingly, the non-resident who does not have an agent or permanent establishment in Australia but has an annual turnover at or above the registration turnover threshold may use the 'reverse charge' provision of Division 83 of the GST Act.

The non-resident and the Australian recipient can agree for the GST payable on a taxable supply made by the non-resident to be paid by the Australian recipient under section 83-5 of the GST Act and the non-resident will not need to register for GST under section 83-25 of the GST Act.

From the information received, you will neither make the supply of goods and services through an enterprise (business) you carry on in Australia nor do you have an agent in Australia. You therefore may apply Division 83 of the GST Act provided that you and the Australian company agree to its application and the Australian company is registered or required to be registered for GST.

If you have a reverse charge agreement with the Australian company, you will not need to register for GST. As you will not be paying the GST, your price will not include GST. You will not be required to provide a tax invoice to the Australian company under section 83-35 of the GST Act.

The amount of the reverse charge is 10 per cent of the price of the supply (section 83-20 of the GST Act).

Summary

As discussed in questions 1 and 2, you will be required to be registered for GST as your projected turnover will be above the registration turnover threshold and your supplies will be taxable supplies under section 9-5 of the GST Act.

Alternatively, you and the Australian company can agree for the GST payable on a taxable supply made by you to be paid by the Australian company under Division 83 of the GST Act provided the Australian company is registered or required to be registered for GST. Subsequently you will not need to be registered for GST as per section 83-25 of the GST Act.