Edited version of private ruling

Authorisation Number: 1011697438102

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Ruling

Subject: GST and supply of consulting services performed outside Australia

Question:

Is the supply of consulting services by an Australian company (you) to another Australian entity taxable and subject to goods and services tax (GST), when the services undertaken by you were conducted on an Australian external territory?

Answer:

No. The supply of your consulting services relating to a particular property to the Australian entity is GST-free.

Relevant facts:

You are a consulting business that is based in Australia. You are registered for GST.

You are requested by an Australian entity to undertake a field/site survey relating to a property on an Australian external territory.

You performed the site survey on the external territory, and then completed some laboratory analysis on the samples collected (at relevant sites) and report writing in Australia. The report (outcome of the survey) is delivered to the Australian entity.

You provided the documentation between you and the Australian entity in relation to the supply.

You supply consulting services relating to the property on the Australian external territory operated by the Australian entity, and you provide related assessment of conditions at particular sites.

Reasons for decision

We first need to characterise the supply before we can determine the GST status of the supply.

Characterisation of the supply

A supply may be characterised as consisting of one or more things or parts. Where parts are separately identifiable, distinct or have an aim in themselves, you need to consider how the GST Act applies to each part. A mixed supply has to be separated or unbundled and needs to be individually recognised, whereas a composite supply is treated as a supply of a single thing.

Goods and Services Tax Ruling GSTR 2001/8 covers and distinguishes between a mixed supply (which contains separately identifiable parts), and a composite supply (which has one dominant part with other parts that are not treated as having a separate identity because they are integral, ancillary or incidental to the dominant part).

Paragraphs 55 to 63 of GSTR 2001/8 provides further guidance on determining whether a part is integral, ancillary or incidental to a dominant part of a supply. In particular, while no single factor (by itself) will provide the sole test you use, the indicators that a part is integral, ancillary or incidental (having regard to all the circumstances) include where:

§ you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting an aim in itself; or

§ it represents a marginal proportion of the total value of the package compared with the dominant part; or

§ it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

§ it contributes to the proper performance of the contract to supply the dominant part.

It is a question of fact and degree whether a supply is mixed or composite.

From the facts provided, you are requested by the Australian entity for your consulting services in relation to a property and the impact on its surroundings. Your consulting services involve performing the field/site survey, the laboratory analysis on samples collected at the relevant sites, and providing a report of the outcome of the survey to the Australian entity.

We consider that you are making a single composite supply of consulting services for the field/site survey on the Australian external territory, with the laboratory analysis of the samples and report writing being integral, ancillary or incidental to these services. The laboratory analysis and report writing contributes to the supply as a whole (but is not the dominant part), and contribute to the proper performance of the contract to supply the consulting services for the field/site survey on the Australian external territory.

Taxable supply

GST is payable on a taxable supply. The supply must meet the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to be a taxable supply.

From the facts provided, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a) you supply the services in return for consideration by way of payments;

b) the supply is made in the course of an enterprise (business) that you carry on;

c) the supply is connected with Australia as you are carrying on your enterprise (business) in Australia; and

d) you are registered for GST.

However, the supply of your consulting services to the Australian entity is not taxable to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that makes your supply of consulting services input taxed. The next step is to determine whether the supply is GST-free.

GST-free supply

Under section 38-190 of the GST Act, certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free.

From the facts provided, as part of your consulting services, you are required to perform some laboratory analysis of samples collected from the relevant sites, and provide a report to the Australian entity.

Paragraph 69 of the Goods and Services Tax Ruling GSTR 2000/31 provides that sometimes a service may involve both work being done and the creation of a product (for example, a report) for the recipient. However, this does not alter the nature of the supply as one for the performance of a service.

The supply of your consulting services (includes the laboratory analysis and report) is not considered to be a supply of goods or real property, and therefore its GST status is appropriately considered under section 38-190 of the GST Act. Of particular relevance to the facts provided is item 1 in the table in subsection 38-190(1) of the GST Act (Item 1).

Under Item 1, a supply that is directly connected with goods or real property situated outside Australia is GST-free.

In relation to the meaning of Australia, the Australian external territory is not part of Australia for GST purposes as defined under section 195-1 of the GST Act.

The supply must then be analysed to determine whether it is properly characterised as a supply directly connected with goods or real property situated outside Australia. This is examined in Goods and Services Tax Ruling GSTR 2003/7.

At paragraphs 32 and 33 of GSTR 2003/7, we consider that the expression directly connected with contemplates a very close link or association between the supply and particular goods or real property. This includes where 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.

Examples of supply that establishes the quantity, size, other physical attributes or value of the goods and real property includes testing and analysing goods, surveying services that are physically carried out on particular land (such as to determine its boundaries or topography), exploration services (such as seismic survey, aeromagnetic survey or drilling services); and the examination of goods or real property to establish a value (paragraph 40 of GSTR 2003/7).

In relation to your activities of analysing samples collected from the relevant sites and report writing, when the part is only integral, ancillary, or incidental to another dominant part of a supply, it is not necessary to consider whether the incidental part is directly connected with goods or real property.

Further, paragraph 31 of GSTR 2003/7 provides that in determining whether there is a direct connection between a supply and particular goods or real property, the location of the recipient of a supply is not relevant. Rather, the issue is one of determining whether the relationship between the supply and the goods or the real property is sufficiently close to be directly connected.

From the facts provided, you provide consulting services relating to the property on the Australian external territory operated by the Australian entity, and provide an assessment of conditions at particular sites (outside Australia). Based on your investigations, you prepare a report which is provided to the Australian entity. Your services (other than the laboratory analysis and report writing which are incidental to the services performed on the Australian external territory) are carried out in relation to the property located outside Australia. There is a close link or association between the supply of your consulting services and the particular real property (being the property and/or sites), and therefore the supply is considered to be directly connected with particular real property (and/or any goods) situated outside Australia.

Accordingly, the supply of your consulting services (including the incidental supply of the laboratory analysis and report) performed on the Australian external territory, to the Australian entity satisfies the requirements under Item 1 and is GST-free.