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Ruling

Subject: GST and brokerage services to a non-resident individual

Question:

Is a non-resident individual (you) entitled to claim an input tax credit in relation to the acquisition of brokerage services?

Advice:

No. There is no entitlement to claim an input tax credit in relation to the acquisition of brokerage services where you are not registered and not required to be registered for GST, and also when no GST is payable to the extent that the supply is GST-free.

Relevant facts:

An individual (you) is an Australian citizen who lives overseas. You have been a non-resident of Australia for several years.

You conduct a lot of share trading through an Australian entity.

You advised that you settle your trades via an Australian address as you are not able to use an overseas address for this bank account (due to money laundering law).

The Australian entity has been charging you goods and services tax (GST) on their brokerage services. You advise that the Australian entity has charged you GST because the bank account used to settle the trades has an Australian address.

You are an individual who is not registered for GST.

You provided the following additional information:

Regarding your residency status, you confirm that you have set up a permanent place of abode outside Australia (and own your own place overseas); you have not been in Australia, continuously or intermittently during more than one-half of an income year (and have only spent less than six months in Australia since you became a non-resident); and that the relevant superannuation provisions are not applicable to you. Our records indicate that you are treated as a non-resident of Australia for income tax purposes.

During your visits to Australia, you had some interactions/dealings with the Australian entity. You did enter into transactions to buy and sell shares through the Australian entity while in Australia.

You do not carry out any other commercial activities which require you to register for GST in Australia.

The Australian entity is registered for GST.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, Section 9-5

A New Tax System (Goods and Services Tax) Act 1999, Section 11-5

A New Tax System (Goods and Services Tax) Act 1999, Section 11-20

A New Tax System (Goods and Services Tax) Act 1999, Section 38-190

A New Tax System (Goods and Services Tax) Act 1999, Section 40-5

A New Tax System (Goods and Services Tax) Regulations 1999

Reasons for decision

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you are entitled to claim an input tax credit (ITC) on any creditable acquisition you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide or are liable to provide consideration for the supply; and

(d) you are registered or required to be registered for GST.

You acquire a thing for a creditable purpose to the extent that you acquire the thing in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making input taxed supplies (such as financial supplies) or is of a private or domestic nature.

One of the requirements of a creditable acquisition is that the supply of the thing (in this case the brokerage services) to you is a taxable supply (as per paragraph 11-5(b) of the GST Act).

Is there a taxable supply to you?

GST is payable on a taxable supply. In order for a taxable supply to be made, all the requirements listed in section 9-5 of the GST Act must be satisfied.

An entity (that is, the supplier) satisfies all the requirements under paragraphs 9-5(a) to 9-5(d) of the GST Act if:

(a) the entity makes the supply for consideration;

(b) the supply is made in the course or furtherance of its enterprise that it carries on;

(c) the supply is connected with Australia; and

(d) the entity is registered for GST.

From the facts provided, and for the purposes of this private ruling, it is accepted that the supplier makes the supply of the brokerage services for consideration, the supply is made in the course of their enterprise (business), the supply of the services is performed in Australia (and is connected with Australia), and the supplier is registered for GST.

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

Input taxed supply

Financial supplies will be input taxed under subsection 40-5 of GST Act.

A brokerage service is not a financial supply under A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), and hence would be a taxable supply if all the requirements of section 9-5 of the GST Act are satisfied.

GST-free supply

Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside Australia are GST-free. The GST status of a supply of brokerage services is appropriately considered under section 38-190 of the GST Act. Of particular relevance are items 2 and 3 in the table in subsection 38-190(1) of the GST Act (Items 2 and 3).

Under item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free 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-residents *enterprise, but is not *registered or *required to be registered.

However, a supply is not GST-free pursuant to item 2 if it is made under an agreement entered into, whether directly or indirectly, with a non-resident, and the supply is provided, or the agreement requires it to be provided, to another entity in Australia (subsection 38-190(3) of the GST Act).

Under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is:

a supply:

(a) that is made to a *recipient who is not in Australia when the thing supplied is done; and

(b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia.

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

Item 2 is applicable to supplies made to non-resident recipients. Item 3 is applicable irrespective of the residency of the recipient. A supply is GST-free if it satisfies the requirements of either Item 2 or 3.

Regarding your residency status, our records indicate that you are treated as a non-resident of Australia for income tax purposes. You also confirm that you have set up a permanent place of abode outside Australia; you have not been in Australia, continuously or intermittently, during more than one-half of an income year (and have spent less than six months in Australia since you became a non-resident); and that the relevant superannuation provisions are not applicable to you. Accordingly, it is accepted that you are a non-resident of Australia for the purposes of applying Items 2 and 3.

Recipient who is not in Australia in relation to the supply

For the supply of services to be GST-free under either Items 2 and/or 3, there is a condition that the supply is made to an entity that must not be in Australia in relation to the supply when it is provided/performed. A supply is provided as and when the thing supplied is done.

Goods and Services Tax Ruling GSTR 2004/7 covers when a non-resident, or other recipient of a supply, is not in Australia when the thing supplied is done.

Paragraphs 202 and 204 of GSTR 2004/7 state:

202. In the case of supplies made to an individual, we consider that the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done.

204. As the focus is on the whereabouts of the individual to whom the supply is made, the location of a representative (including an agent) of that individual is not relevant. The presence of a representative in Australia does not alter the fact that the individual is not physically in Australia…

For the purposes of Item 2, a non-resident individual is in Australia if that individual is physically in Australia. A non-resident individual is in Australia in relation to the supply if the non-resident is involved with the supply while in Australia. If a non-resident individual is physically in Australia and in contact (other than contact which is only of a minor nature) with the supplier, that presence is in relation to the supply.

For the purposes of Item 3, an individual is in Australia if that individual is physically in Australia. An individual is in Australia in relation to the supply if the individual is involved with the supply while in Australia.

A non-resident individual is involved with the supply where the non-resident individual is in contact with the supplier while in Australia and that contact is not minor (for example, a courtesy call or checking on the progress of the supply). If a non-resident individual is in Australia for a purpose that is not related to the supply (for example, on holiday in Australia and has no contact with the supplier or only has minor contact), the non-resident individual is not considered to be involved with the supply and is therefore not in Australia in relation to the supply.

You may obtain the brokerage services from the Australian entity during periods that you are overseas and in Australia. You advised that during your visits to Australia, you did have some interactions/dealings with the Australian entity in that you made some transactions to buy and sell shares through the Australian entity while in Australia.

Where you acquire the brokerage services and provided instructions to the Australian entity to enter into transactions or contracts to buy and sell shares while you were/are physically in Australia, we do not consider that these interactions are minor contacts. In such circumstance, you (as the recipient) is in Australia in relation to the supply, and the condition that the recipient is not in Australia in relation to the supply is not satisfied. During the periods that you are physically in Australia in relation to the supply, both Items 2 and 3 are not satisfied and the supply of the brokerage services is taxable.

Where you acquire the brokerage services and provided instructions to the Australian entity to enter into transactions or contracts to buy and sell shares while you were/are physically outside Australia, the condition that the recipient is not in Australia in relation to the supply is satisfied. During the periods that you are physically outside Australia, the supply of the brokerage services may be GST-free under Items 2 and/or 3 where the other requirements are satisfied.

Items 2 and/or 3

The following only applies for the supply of brokerage services provided/performed during the periods that you were/are physically outside Australia.

Paragraph (a) of Item 2 is satisfied because the supply of brokerage services is neither a supply of work physically performed on goods situated in Australia when the thing supplied is done, nor a supply directly connected with real property situated in Australia. Further, you acquire the brokerage services in carrying on your enterprise (of share trading), but are not registered or required to be registered for GST in Australia. Hence, paragraph (b) of Item 2 is also satisfied. Subsection 38-190(3) of the GST Act is not applicable to exclude the supply from being GST-free under Item 2 as the supply is not provided (nor under an agreement to be provided) to another entity in Australia. Accordingly, the supply of the brokerage services provided/performed during the periods that you were/are physically outside Australia is GST-free under Item 2.

For the supply of brokerage services provided/performed during the periods that you were/are physically outside Australia, the effective use and enjoyment of these services takes place outside Australia. Further, the supply of brokerage services is neither a supply of work physically performed on goods situated in Australia when the thing supplied is done, nor a supply directly connected with real property situated in Australia. Accordingly, the supply of the brokerage services provided/performed during the periods that you were/are physically outside Australia is GST-free under Item 3.

You may need to provide substantiation to the supplier when acquiring their brokerage services, before they may treat the transaction(s) as GST-free.

While 'address' information provided by the recipient of a supply may be indicative that the recipient is an Australian resident, it is not determinative. Whether a supply is GST-free under Items 2 and/or 3 is not dependent on the address/location of the bank account of the recipient of the supply.

Summary

In summary, the supply of brokerage services by the Australian entity to you may be partly taxable and partly GST-free. You would not be entitled to claim ITCs in relation to the GST-free supply.

Furthermore, as the acquisition is not for a creditable purpose (as the brokerage services relate to making input taxed supplies, that is, sale of shares), and you are not registered for GST, all the requirements of section 11-5 of the GST Act are not satisfied. Therefore, you are not entitled to claim ITCs in relation to the acquisition of the brokerage services.

Additional information

An entity (which is registered for GST) that makes financial supplies in the course of conducting their enterprise without exceeding the financial acquisitions threshold is entitled to input tax credits for acquisitions that relate to making those financial supplies. For further information, refer to Goods and Services Tax Rulings GSTR 2002/2 and GSTR 2003/9, and question 7 'Financial acquisitions threshold' of the 'Financial services - questions and answers', which are available at the ATO website

Even if an entity (which is registered for GST) exceeds the financial acquisitions threshold, a reduced input tax credit may still be available to the extent that the acquisition is a reduced credit acquisition. For further information, refer to Goods and Services Tax Ruling GSTR 2004/1, which is available at the ATO website at www.ato.gov.au