Edited version of your private ruling

Authorisation Number: 1012305135239

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Subject: GST and international services

Question 1

Are you required to be registered for GST?

Answer

Yes.

Question 2

Is GST payable on the supply of your services?

Answer

No.

Relevant facts

You provide services from your home office in Australia. You are not registered for GST.

You provided a copy of the service agreement (Agreement) between you and X Corp which contains the following information:

The Agreement is effective late 2012 and continues until the earlier of the final completion of the services or termination of the Agreement.

You have been retained as an independent contractor to perform services for X Corp.

Your compensation for providing the services is over $75,000 per year, invoiced monthly.

X Corp will own all right, title and interest in any Work Product, including concepts, works, inventions, information, drawings, designs, programs or software, delivered or required to be delivered in connection with the services. You assign to X Corp all right, title and interest in and to the Work Product, including all proprietary rights embodied in the Work Product. To the extent that any Work Product is not assignable, you grant to X Corp an exclusive, worldwide, perpetual, irrevocable, fully paid, royalty free licence.

The parties to the Agreement are independent contractors and nothing in the Agreement shall be deemed or construed to create, or have been intended to create a partnership, joint venture, employment or agency relationship between the parties.

X Corp is a company based outside Australia. X Corp is not a resident of Australia for income tax purposes. X Corp does not carry on its business in Australia either on its own or through an agent. X Corp does not have any presence or agent in Australia. X Corp acquires your services in carrying on its enterprise and the use and enjoyment of your services occurs outside Australia. X Corp is not registered with the Australian Securities & Investments Commission (ASIC) and is neither registered nor required to be registered for GST.

Your services are provided to X Corp outside Australia and there is no agreement that requires you to provide your services to an entity in Australia.

All your dealings with X Corp are via phone or the internet. All Work Products created are delivered to X Corp electronically.

The provision of your services under the Agreement with X Corp is your only enterprise.

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 9-20.

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 25-1.

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 Section 188-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 188-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 188-20.

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question 1

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must register for GST in Australia if:

· you are carrying on an enterprise and

· your GST turnover meets the registration turnover threshold of $75,000 (or $150,000 for non-profit organisations).

'Enterprise' is defined in the GST Act to include, among other things, activities or series of activities done in the form of a business.

In your case, you are carrying on an enterprise of providing services. Therefore, you meet the requirements of paragraph 23-5(a) of the GST Act.

You are required to be registered for GST if you also satisfy the requirements of paragraph 23-5(b) of the GST Act, that is, if your GST turnover meets the registration turnover threshold of $75,000.

Your GST turnover meets the registration turnover threshold if either:

· your current GST turnover is $75,000 or more (excluding GST) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or

· your projected GST turnover is $75,000 or more (excluding GST).

Your 'current GST turnover' at a time during a particular month is the value of all the supplies that you make, or are likely to make in that month, plus all the supplies that you have made in the previous 11 months. Your 'projected GST turnover' at a time during a particular month is the value of all the supplies that you have made, or are likely to make in that month, plus all the supplies that you are likely to make in the next 11 months.

When calculating your current and projected GST turnovers, certain supplies are excluded including supplies that are not connected with Australia.

As you are providing your services to a non-resident entity, we need to determine if you are making supplies that are connected with Australia.

Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if, among others:

· the thing is done in Australia or

· the supplier makes the supply through an enterprise that the supplier carries on in Australia.

Goods and Services Tax Ruling GSTR 2000/31 explains when a supply is connected with Australia.

Paragraph 65 of GSTR 2000/31 provides that if the thing being supplied is a service, the supply of that service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia. This is the case even if the recipient of the supply is outside Australia.

In your case, your services are done in Australia. Hence, the supply is connected with Australia.

Accordingly, the fee that you receive from X Corp is included in working out your current and projected GST turnovers regardless of whether the supply of your services is GST-free or not.

The Agreement provides that your annual fee commencing late 2012 is greater than $75,000. Hence, as your current and projected GST turnovers are more than $75,000, you are required to register for GST.

You should note that under section 25-1 of the GST Act you are required to apply for GST registration within 21 days after becoming required to be registered.

The publication GST for small business, which is available from our website www.ato.gov.au, explains what you must do to meet your GST obligations.

Question 2

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

Section 9-5 of the GST Act provides 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.

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

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

· you supply the services for consideration

· the supply is made in the course or furtherance of your enterprise

· as outlined in question 1 above, the supply is connected with Australia and you are required to be registered for GST.

The supply of your services is not input taxed. It remains to be determined if your supply of services is GST-free.

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

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if the non-resident 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.

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.

You have advised that X Corp is not a resident of Australia for income tax purposes.

The meaning of 'not in Australia'

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

At paragraph 37 of GSTR 2004/7, we established a test where we consider that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

· at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

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

You advised that X Corp is not physically in Australia, does not have any business of its own in Australia nor carry on business through an agent in Australia. Based on the information provided, we consider that X Corp is not in Australia in relation to your supply of services when such supplies are made.

The supply of your 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) and/or (b) 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.

Paragraph 21 of GSTR 2003/7 provides that under item 2 it is only where the connection between the supply and the goods is a direct one that the location of goods is regarded as the place where consumption occurs. The inference is that the supply is so closely aligned with goods that it is appropriate to treat the location of the goods as the place where consumption occurs.

Paragraph 23 of GSTR 2003/7 provides that the goods or real property must be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one.

Based on the information provided, the supply of your services is not a supply of work physically performed on goods situated in Australia nor is it a supply directly connected with real property situated in Australia. As such, your supply of services to X Corp satisfies the requirements of paragraph (a) of item 2.

As the requirements of paragraph (a) of item 2 are satisfied, there is no need to consider if the requirements of paragraph (b) of item 2 are met.

Exclusion

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 view on the operation of subsection 38-190(3) of the GST Act. The ruling explains 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 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 and the actual flow of the supply is to another entity in Australia.

In this case, your arrangement is to supply services to X Corp and you will not provide and are not required to provide your services to other entities in Australia. Hence, the contractual and actual flow of the services is to X Corp.

Therefore, subsection 38-190(3) of the GST Act does not exclude your supply of services from being GST-free under item 2 as the supply of the services is made and provided to X Corp, a non-resident entity that is outside Australia when the supply is made.

Accordingly, your supply of services to X Corp is GST-free. Hence, GST is not payable on this supply.