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Ruling

Subject: GST and supply of services to a non-resident

Question

Is the supply of metallurgical services made by an Australian company to a non-resident company GST-free?

Advice

Yes, the supply of metallurgical services made by the Australian company to the non-resident company is GST-free.

Relevant facts and circumstances

You are an Australian company and are registered for the goods and services tax (GST). Your business activity is metallurgical consultant.

You have a written contract with a non-resident company to provide metallurgical services to them.

The non-resident carries on its business activities on a site located outside Australia. The metallurgical services are for the purposes of this overseas business activity.

You review and interpret metallurgical test work results that are forwarded to you on a required basis. This work is done from your office in Australia. The non-resident forwards the data to their Australian representative who then forwards the information to you. After the work is done, you forward the result to the representative who will forward the information to the non-resident company.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5; and

A New Tax System (Goods and Services Tax) Act 1999 section 38-190.

Reasons for decision

GST is payable on taxable supplies. 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;

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

(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.

All the requirements in section 9-5 of the GST Act need to be satisfied for the supply to be a taxable supply.

From the information received, your supply satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply your metallurgical services to the non-resident company as:

· you make the supply for consideration;

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

· the supply is connected with Australia as the supply is made from a business that you carry on in Australia; and

· you are registered for GST.

However, the supply 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 metallurgical services to the non-resident company input taxed. The next step is to determine whether your supply is GST-free.

GST-free

Section 38-190 of the GST Act specifies circumstances where supplies of things other than goods or real property, for consumption outside Australia are GST-free.

Relevant to your supply of metallurgical services is item 1 in the table in subsection 38-190(1) of the GST Act (Item 1).

Item 1 provides that a supply of things, other than goods or real property (such as services), for consumption outside Australia is GST-free if it is a supply that is directly connected with goods or real property situated outside Australia.

Goods and Services Tax Ruling GSTR 2003/7 (available at www.ato.gov.au) provides guidance on what the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the GST Act.

In many cases, the description of the supply is likely to be clear enough in itself to establish whether or not the supply is directly connected with goods or real property. However, in other cases, in order to establish whether there is a direct connection between the supply and the goods or real property, a close analysis of the supply is necessary to reveal the exact nature of the actual supply.

Thus, there will be cases where the arrangement between the supplier and the recipient must be examined to establish what the supply is for. It is also important to understand the exact nature of what the supplier is supplying to the recipient so that in assessing whether there is a direct connection between that supply and particular goods or real property the transaction is analysed correctly.

If a supply is directly connected with goods or real property, it is treated for the purposes of Item 1 as being consumed where the goods or real property are located. The place of consumption is in effect determined by the location of the goods or real property.

The location of the recipient of the supply is not relevant in deciding whether the supply is directly connected with goods or real property outside Australia under Item 1. Rather, the issue is one of determining whether the relationship between the supply and the goods or real property is sufficiently close to be directly connected, that is, the supply is so closely aligned with goods or real property.

The expression 'directly connected with' contemplates a very close link or association between the supply and the goods or real property. The goods or real property, must in our view, be particular goods or real property for this very close connection to exist.

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 affect, 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.

Paragraphs 37 to 43 of GSTR 2003/7 provide examples of the kinds of supplies that we consider to fall within one of the above categories and which are supplies directly connected with goods or real property, and include testing and analysing of goods and examination of goods to establish a value.

In your case, the metallurgical reports that are created are for goods located at a specific site outside Australia and are therefore considered to be directly connected with real property and goods located outside Australia. The location of the recipient in regard to the provision of the report is irrelevant as the supply of metallurgical services is directly connected with property and goods situated outside Australia.

Accordingly, your supply of metallurgical services to the non-resident company satisfies the requirements in Item 1 and is GST-free.

Summary

Your supply of metallurgical services is a GST-free supply under item 1 in the table in subsection 38-190(1) of the GST Act where the site is located outside Australia and the metallurgical report is prepared in Australia and delivered to an Australian company in Australia.