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Ruling

Subject: GST and supply of consulting services

Questions

1. Do you need to charge goods and services tax (GST) when you make your supply of consulting services to the non-resident company?

2. Are you required to be registered for GST when you make your supply of consulting services to an Australian company either as an employee or as part of your business activity?

Advice

1. No, you do not need to charge GST when you make your supply to the non-resident company.

2. Where the GST turnover (current and projected) of your business is $75,000 or more you will be required to register for GST when you supply consulting services as part of your business activity in Australia to Australian and non-resident companies.

Further, where you are employed as an employee of a company you do not include the income as an employee when calculating the GST turnover of your business.

Relevant facts

You are a sole trader and do consulting work. Your business is not registered for GST.

You have a contract with a non-resident company (client) to provide your consulting services. You do most of the work over internet and you connect to the client's server in order to access information that you would need for your work. You do not supply any physical goods. The non-resident company does not have a subsidiary or agent in Australia.

Your work with the non-resident company is in its final stage and you will start applying for consulting work in Australia. It will be up to the Australian company to decide whether you are to work in their office or not and as their employee or as a contractor.

Your business income for the last financial year was below $75,000. You consider that your income for this financial year to be less than $75,000. However this amount may change if you are able to obtain work in Australia.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 23-10

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-20(1)

Reasons for decisions

Question 1

An entity (you) is liable to pay GST for taxable supplies that you make. Under section 9-5 of the GST Act, a supply is a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course 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.

For a supply to be a taxable supply all the conditions in section 9-5 of the GST Act needs to be satisfied.

From the information received, you are neither registered for GST nor required to be registered for GST. Accordingly the requirement in paragraph 9-5(d) of the GST Act is not satisfied.

As all the requirements in section 9-5 of the GST Act are not satisfied, GST is not applicable to your supply of consulting services to the non-resident company. You therefore do not charge GST on your supply of consulting services to the non-resident company.

Question 2

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

· you are carrying on an enterprise; and

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

Where your GST turnover is less than $75,000 you may choose to register for GST under section 23-10 of the GST Act. The decision to voluntarily register for GST should be made based on the administrative needs of your business. Further once registered for GST, you must stay registered for at least 12 months.

Whether your GST turnover meets the GST registration turnover threshold is determined in accordance with subsection 188-10(1) of the GST Act which states:

(1) You have a GST turnover that meets a particular *turnover threshold if:

(a) your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

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

Current GST turnover is defined in subsection 188-15(1) of the GST Act. It provides that your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

· supplies that are input taxed;

· supplies that are not made for consideration;

· supplies that are not made in connection with an enterprise that you carry on.

Projected GST turnover is defined in subsection 188-20(1) of the GST Act. It provides that your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

· supplies that are input taxed;

· supplies that are not made for consideration;

· supplies that are not made in connection with an enterprise that you carry on.

Accordingly, the GST turnover of your business is the gross income excluding all of the following:

· GST included in supplies;

· Input taxed supplies

· Supplies not connected with a business that you carry on;

· Supplies not connected with Australia

From the facts given, your GST current and projected annual turnover of your business is less than $75,000. Accordingly, you are not required to be registered for GST when you make supplies to Australian and non-resident companies while carrying on your business in Australia.

However, you will need to look at your GST turnover regularly to make sure it is not going to be $75,000 or more. Where the projected annual turnover of your business is going to be $75,000 or more, you must register for GST within 21 days of the GST turnover meeting the $75,000 registration threshold. You can register for GST online at the Australian Business Register website www.abr.gov.au

Please note where you are employed as an employee by an Australian company the income you earn as employee will not form part of your business income and therefore should not be included when calculating the turnover of your business.

For more information on GST turnover please refer to Goods and Services Tax Ruling GSTR 2001/7 which is available from the legal database of the ATO's website www.ato.gov.au