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Ruling

Subject: GST and migration services

Question 1

Is GST payable on the supply of your migration services to a non-resident individual where the agreement is entered into outside Australia?

Answer

No.

Question 2

Is GST payable on the supply of your migration services to Australian-based entity where the agreement is entered into in Australia?

Answer

Yes.

Question 3

Are you entitled to input tax credits on acquisitions in Australia?

Answer

Yes.

Question 4

Are you entitled to input tax credits on acquisitions from outside Australia?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

Your business activities include registered migration services.

The migration business entails bringing into Australia suitable qualified overseas individuals (overseas entity) who meet the migration criteria. The business model requires part of the migration business to be conducted overseas. As the majority of clients are based overseas, you are required to travel overseas to hold seminars, conferences and meetings. Subsequent to the presentations held overseas, the advisory work and the engagement/appointment agreements and letters are signed overseas. In most cases, the visa applications have to be submitted outside Australia. At times you may lodge the visa applications in Australia.

In most instances, you enter into agreement overseas with an overseas entity (mainly individuals) for the provision of migration services to that overseas entity. The services you provide include advisory, consultation and lodgement of visa applications. The overseas entity is not a resident of Australia for income tax purposes and is not registered for GST. Normally, the overseas entity is not in Australia for the entire duration of your supply. You do not have an agreement with the overseas entity which requires you to provide your services to an entity in Australia. Your interaction with the overseas entity is restricted to telephone calls and emails.

You provided a copy of a representation agreement signed overseas with an overseas entity. You have not included GST on the fees you charged.

You also enter into agreement in Australia with an Australian-based entity for the provision of migration services. The scope of your services include advisory, lodgement, consultation of work visa sponsorship and application for approval as business sponsors. You may be required to communicate and coordinate processes with sponsored individuals from time to time as prescribed in your agreement with the Australian-based entity.

You provided a copy of a representation agreement signed in Australia with an Australian-based entity. The agreement is for the purpose of obtaining a sponsorship visa for the entity. You have included GST on the fees you charged.

You incur various expenses in Australia including accounting fees, stationery and office equipment. GST is payable on these expenses.

You also incur various overseas expenses for which no GST is payable. These include commissions paid to overseas referral agents.

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 Subsection 38-190(1).
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3).
A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(4).
A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question 1

Summary

GST is not payable where you supply migration services which are made and provided to an overseas entity outside Australia. The supply is GST-free.

Detailed reasoning

GST is payable on the supply of your migration services if you are making a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provided that you make a taxable supply if:

· you make the supply for consideration

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

· the supply is connected with Australia and

· 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.

Based on the information provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

· you supply your migration services for consideration

· the supply of your migration services is in the course or furtherance of your enterprise

· the supply of your migration services is connected with Australia as the services are made through an enterprise that you carry on in Australia, and

· you are registered for GST.

The supply of your migration services is not input taxed under the GST Act. It remains to be determined whether the supply is GST-free.

The supply of your migration services is not considered to be a supply of goods or real property. Hence, the GST status of this supply is appropriately considered under section 38-190 of the GST Act, which provides that certain supplies of things other than goods or real property, for consumption outside Australia, are GST-free. Of relevance, is Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that is made to a non-resident who is not in Australia when the thing supplied is done, and:

· 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

· the *non-resident acquires the thing in *carrying on the non-resident's *enterprise, but is not *registered or *required to be registered for GST.

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

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a supply is made to a non-resident who is not in Australia for the purposes of Item 2.

'Not in Australia'

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. If a supply is made to a non-resident individual who is physically in Australia when the thing supplied is done, the individual is in Australia.

A non-resident individual may be physically in Australia when the thing supplied is done, but that presence may be unrelated to the supply. For example the non-resident individual is in Australia on holidays only. Thus, if the non-resident individual is in Australia and has no contact with the supplier, we consider that the presence of the non-resident individual in Australia when the thing supplied is done is not in relation to the supply.

If a non-resident individual recipient of a supply is physically in Australia and in contact with the supplier (other than contact which is only of a minor nature) we consider that presence is in relation to the supply.

Contact is minor if it is limited to contact of a simple administrative nature, such as checking on the progress of the supply or a courtesy call on the supplier. If this is the only contact between the non-resident individual and the supplier we consider that the individual is not in Australia in relation to the supply.

You have advised that the overseas entity is not in Australia for the entire duration of your supply of migration services. Hence the 'not in Australia' requirement is satisfied.

The supply of your migration services must also satisfy the requirements of either paragraph (a) or paragraph (b) of Item 2 for the supply to be GST-free.

Paragraph (a) of Item 2

Goods an Services Tax Ruling GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

On the information provided, the supply of your migration services 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. As such, the supply of your migration services to the overseas entity satisfies the requirements of paragraph (a) of Item 2.

As paragraph (a) of Item 2 is satisfied, it is not necessary to consider whether the requirements of paragraph (b) of Item 2 are satisfied.

You should note that if at any time the non-resident individual is in Australia and their contact with you is not minor, that part of the supply is no longer GST-free under paragraph (a) of Item 2. This is because the non-resident individual is considered to be in Australia at the time of the supply and Item 2 is not applicable.

Accordingly if the non-resident individual is partly outside Australia and partly in Australia when you provide your migration services, your supply will be a mixed supply and you will need to apportion the consideration between the taxable and GST-free parts.

For further information on apportionment refer to Goods and Services Tax GSTR 2001/8 which provides guidance on apportioning the consideration for a supply that includes taxable and non-taxable parts.

Subsection 38-190(3) of the GST Act

However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if:

· it is a supply 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.

Goods and Services Tax Ruling GSTR 2005/6 provides the Tax Office's view on the scope of subsection 38-190(3) of the GST Act and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under Item 2.

Another entity is an entity other than the non-resident entity to which the supply is made.

The term 'provided' is used in subsection 38-190(3) of the GST Act to differentiate from the term 'made; in Item 2. The word 'provided' focuses on the doing of the thing to be supplied and the flow of the actual services or thing required to be supplied under the contractual arrangements.

Subsection 38-190(3) of the GST Act only applies to a supply covered under Item 2. Where the agreement between the supplier and the non-resident requires the supply to be provided to another entity in Australia, subsection 38-190(3) clearly applies and the supply will not be GST-free under Item 2.

Where the agreement between the non-resident and the supplier does not explicitly so require, it is necessary to determine if the supply is actually provided to another entity in Australia. If the supply is provided to another entity this is not in itself sufficient for subsection 38-190(3) of the GST Act to negate the GST-free status of a supply covered by Item 2. The supply must be provided to that other entity in Australia. It is therefore relevant to determine when provision of the supply occurs and whether that provision is to that other entity in Australia.

However, if the nature of the supply is such that the supply is only provided to an entity outside Australia, subsection 38-190(3) of the GST Act does not apply.

From the information provided, subsection 38-190(3) of the GST Act does not apply to deny the GST-free status in paragraph (a) of Item 2 as the supply of migration services is made and provided to the overseas entity outside Australia and you are not required to provide the services to another entity in Australia.

You should note that if at any time the overseas entity requests you to provide your migration services to another entity located in Australia your supply will no longer be GST-free under subsection 38-190(3) of the GST Act.

As you have made a supply, this should be recorded in label G1 (Total sales) in your activity statement. However, because the supply is GST-free, it should also be included in label G3 (Other GST-free sales). The amount in label 1A (GST on Sales) is then 0.

Question 2

Summary

GST is payable where you supply migration services which is made and provided to an entity in Australia.

Detailed reasoning

You also enter into agreement in Australia with an Australian-based entity for the provision of migration services. The agreement is for the purpose of obtaining a standard business sponsorship visa for the entity.

As discussed in question 1 your supply of migration services satisfies paragraphs 9-5(a) to 9-5(d)of the GST Act and is not considered to be an input taxed supply under the GST Act. The next step is to determine whether your supply of migration services to the Australian-based entity (company or individual) is GST-free under section 38-190 of the GST Act.

Relevant to this supply of migration services to the Australian-based entity is Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3).

Item 3 provides that a supply of a thing (other than goods or real property) is GST-free if it is a supply:

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

· 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.

Item 3 applies to a supply of a thing, other than a supply of goods or real property, and requires that the recipient is not in Australia when the thing supplied is done.

A recipient, in relation to a supply, is the entity to which the supply was made. It is not a requirement of Item 3 that the recipient is a non-resident.

If a supply is made to a recipient who fails the not in Australia requirement in paragraph (a) of Item 3, it is necessary to consider whether subsection 38-190(4) of the GST Act applies.

Subsection 38-190(4) extends the scope of Item 3. The subsection provides that a supply is taken for the purposes of Item 3, to be a supply made to a recipient who is not in Australia if:

· it is a supply under an agreement entered into, whether directly or indirectly, with an Australian resident; and

· the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

Accordingly, if the supply is made under an agreement with an Australian resident recipient but the thing supplied is provided, or the agreement requires it to be provided to another entity located outside Australia, subsection 38-190(4) applies and the 'not in Australia' requirement in Item 3 is satisfied.

From the information provided, the Australia-based entity contracts you to provide your migration services to them to enable them to obtain a visa for themselves. In this case your supply of migration services to the Australian-based entity is not GST-free under Item 3 by virtue of subsection 38-190(4) of the GST Act because:

· you have an agreement with an Australian resident and the agreement does not require you to provide your migration services to another entity outside Australia and

· your supply is made to the Australian-based entity who is in Australia when the thing supplied is done

The supply of your migration services in this instance is not GST-free under any other provision of the GST Act. Therefore, the supply of your migration services to the Australian-based entity is a taxable supply. Hence, GST is payable.

As you have made a supply, this should be recorded in label G1 (Total sales) in your activity statement. As you have made a taxable supply the amount in label 1A (GST on Sales) should show the GST payable on the supply.

Question 3

Summary

You are entitled to input tax credits on your acquisitions in Australia.

Detailed reasoning

Under section 11-20 of the GST Act you are entitled to an input tax credit for any creditable acquisition that you make.

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

· you acquire anything solely or partly for a creditable purpose

· the supply of the thing to you is a taxable supply

· you provide, or are liable to provide, consideration for the supply and

· you are registered, or required to be registered.

Section 11-15 of the GST Act defines the meaning of creditable purpose. Subsection 11-15(1) requires that you acquire a thing in carrying on your enterprise. However, paragraph 11-15(2)(a) of the GST Act provides that you do not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

You advised that you incur various expenses in Australia for which GST is payable.

Based on the information provided, you satisfy the requirements of paragraphs 11-5(a) to 11-5(d) of the GST Act because:

· you acquire the things for a creditable purpose

· the supply of the things to you are taxable supplies

· you provide or are liable to provide consideration for the supply, and

· you are registered for GST.

As all of the requirements in section 11-5 of the GST Act are satisfied, you are making creditable acquisitions when you acquire things for use in your business. Therefore, you are entitled to the input tax credits for the acquisitions.

The acquisitions should be recorded in either labels G10 (Capital purchases) or G11 (Non-capital purchases) of your activity statement. The GST paid on these acquisitions is recorded in label 1B (GST on purchases).

Question 4

Summary

You are not entitled to input tax credits on your acquisitions overseas.

Detailed reasoning

You advised that you also incur various expenses overseas for which no GST is payable.

Based on the information provided, you satisfy the requirements of paragraphs 11-5(a), 11-5(c) and 11-5(d) of the GST Act because:

you acquire the things for a creditable purpose

you provide or are liable to provide consideration for the supply, and

you are registered for GST.

However, the acquisition will not satisfy paragraph 11-5(b) of the GST Act if GST is not payable on the supply.

As not all of the requirements in section 11-5 of the GST Act are satisfied, you are not making creditable acquisitions when you acquire things overseas. Therefore, you are not entitled to the input tax credits for the acquisitions.

The acquisitions should be recorded in either labels G10 (Capital purchases) or G11 (Non-capital purchases) of your activity statement. However, as you are not entitled to claim an input tax credit on these acquisitions label 1B (GST on purchases) is 0.

All GST rulings referred to above are available at the ATO website www.ato.gov.au