Edited version of private ruling

Authorisation Number: 1011698642320

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Ruling

Subject: GST and supply of services

Question

Is the supply of your services to entity A GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answer

Yes. The supply of your services to entity A is GST-free under section 38-190 of the GST Act.

Relevant facts

You are a company incorporated in Australia. You have been engaged by entity A to provide the services of one of your personnel as a public officer for tax purposes. The duties of the public officer include the signing of an application for tax accounting matters, signing income tax return for entity A in future and liaison with entity A's appointed tax agent in Australia. You are also required to supply ancillary legal services under the agreement you entered into with entity A.

Entity A is a company incorporated in overseas. Its activities in Australia are limited to an area not deemed to be part of Australia for GST purposes. It has not derived any trading income yet.

Entity A does not have any agent, office or place of business in Australia. It does not own any assets in Australia, including any investment, property or bank accounts. It does not have any employees in Australia except it engages an Australian consultant who travels overseas to perform the majority of his work. It does not supply or have an agreement to supply any goods to any person within Australia.

Entity A has an Australian tax file number (TFN.) It has an Australian business number but has not registered for GST. It declared itself as a non-resident when applied for TFN.

Reasons for decision

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

Taxable supply

Section 9-5 of the GST Act 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 defined term in section 195-1 of the GST Act)

From the information provided, the supply of your services to entity A meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, as:

(a) you receive consideration from entity A for the supply of your services

(b) the supply of your services to entity A is in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia as the services are performed in Australia, and

(d) you are registered for GST.

Furthermore, the supply of your services is not input taxed under the GST Act or the provision of another Act. Therefore, what is left to determine is whether the supply is GST-free.

GST-free

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. As the supply of the services to entity A is neither a supply of goods nor a supply of real property, item 2 in the table in subsection 38-190(1) of the GST Act (item 2) is relevant in this circumstance.

Item 2

A supply is GST-free under item 2 where it is:

a supply that is made to a non-resident who 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.

A supply that is made to a non-resident who is not in Australia

A non-resident for GST purposes is an entity that is not an Australian resident for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

Based on the facts provided, entity A is a non-resident for GST purposes.

In order for a supply to be GST-free under Item 2, entity A must not be in Australia when your services are performed. 

Paragraph 37 of Goods and Services Tax Ruling GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

Further, paragraph 38 of GSTR 2004/7 provides that a non-resident company is in Australia if the company is registered with ASIC, or if the company has a permanent establishment in Australia for income tax purposes.

Based on the information provided, entity A's activities are limited to the area that deemed not part of Australia for GST purposes and it does not have any other presence in Australia. Therefore, entity A is not in Australia when the supply of your services is made.

Where a non-resident entity is not in Australia when the supply is done, the supply must still meet the requirements in either paragraph (a) or (b) of Item 2.

Paragraphs (a) and/or (b) of Item 2

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in

Australia when the thing supplied is done, is GST-free, if the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

Your supply of service of a personnel as the public officer and ancillary legal service to entity A is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the requirements in paragraph (a) of Item 2 have been met.

You advised that entity A is not registered or required to be registered for GST as it has not yet made any supplies nor derived any trading income in Australia. Therefore, the requirements in paragraph (b) of Item 2 have also been met.

However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations to Item 2

Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident, and

(b) the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Goods and Services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. This ruling provides that subsection 38-190(3) only applies if there is a supply of something, being a supply that is made to a non-resident and is covered by Item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is the contractual flow of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia.

You have entered into the agreement to supply your services to entity A, who is a non-resident. You have not provided and the agreement does not require you to provide your services to other entities in Australia. Hence, the contractual and actual flow of the services is to entity A.

Therefore, subsection 38-190(3) of the GST Act does not exclude the supply of your services to entity A from being GST-free under Item 2.

Accordingly, the supply of your services to entity A is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.