Edited version of your private ruling

Authorisation Number: 1012450305632

Ruling

Subject: GST and acquisitions made in Australia

Question 1

Is V's acquisition of a container inspection service a creditable acquisition?

Answer

No.

Question 2

Is V's acquisition of a courier service a creditable acquisition?

Answer

No.

Relevant facts and circumstances

V (you) are a non-resident entity registered in overseas. You asked an Australian registered company for an inspection service on the loading of goods into a container prior to shipping. The inspection takes place in Australia, the Australian registered company certifies:

· that the material inside the container is in accordance with the regulations set by a foreign authority; and

· the container does not contain any hazardous material.

The resultant certificate is used in clearing customs overseas. A package containing the original certificate documents will then be sent to your office. The Australian registered company wishes to impose GST on the service they have provided.

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 11-15

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

Reasons for decision

Summary

V cannot make a creditable acquisition where the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are not met. One of the requirements of this section is that the supply made to V is not a GST-free supply.

V's suppliers have responsibility for any GST liability arising from transactions with V. If V's suppliers are unsure of GST treatment they may seek advice from the Australian Taxation Office.

Detailed reasoning

For V to make a creditable acquisition of anything, the acquisition must meet the requirements of section 11-5 of the GST Act. The section states:

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.

We will discuss V's ability to meet each of the paragraphs listed above, V has indicated that it has a particular interest in paragraph (b) - 'the supply of the thing to you is a taxable supply'.

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

The term 'creditable purpose' is defined in section 11-15 of the GST Act which states:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

(3) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed to the extent that the supply is made through an *enterprise, or a part of an enterprise, that you *carry on outside Australia.

(4) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed if:

(a) the only reason it would (apart from this subsection) be so treated is because it relates to making *financial supplies; and

(b) you do not *exceed the financial acquisitions threshold.

(5) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed to the extent that:

(a) the acquisition relates to making a *financial supply consisting of a borrowing; and

(b) the borrowing relates to you making supplies that are not input taxed.

It is not known for what purpose V is acquiring the container inspection and courier services, we cannot give a definitive response to whether V's acquisitions meet the requirements of paragraph 11-5(a).

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

In order for a supplier to make a taxable supply to V, the supply must meet the requirements of section 9-5 of the GST Act:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance 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.

From the facts you have provided we can safely ascertain that the supplies acquired by V are:

· made for consideration;

· made in the course or furtherance of an enterprise that it carries on;

· connected with Australia.

We can also ascertain that the suppliers are registered for GST as they are charging V a GST inclusive price.

There are no provisions in the GST Act under which the supplies to V are input taxed. Therefore, what remains to be determined is whether the supplies are GST-free.

GST-free supplies of services to non-residents

A supply of something other than goods or real property is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act where the supply 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-resident's enterprise, but is not registered or required to be registered for GST.

The supplies you acquire are services rather than goods or real property. You have stated that you are a non-resident and indicated that you do not have a presence in Australia.

Goods and Services Tax Ruling GSTR 2004/7 states:

37. 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:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

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

Paragraph 31 of GSTR 2004/7 states:

31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done.

Further the supply of both the inspection services and courier services are not considered to be a supply of work physically performed on goods. Paragraphs 74 - 77 of the Goods and Services Tax Ruling GSTR 2003/7 provide an example analogous to the supply of inspection services:

Example 3 - provision of service - certification of goods

74. A manufacturer resident in Taiwan imports goods into Australia and engages a local Australian firm to certify that the goods comply with Australian safety standards before they are sold to the public. This certification involves the safety testing of the goods in Australia. The Taiwanese manufacturer is a non-resident and is not in Australia when the safety testing and certification is performed.

75. Is this supply of certification of goods a supply of work physically performed on goods situated in Australia?

76. No. The safety testing of the goods is ancillary to the supply of certification of the goods, this being a supply of advice or information

77. The supply is GST-free under paragraph (a) of item 2. Paragraph (a) of item 2 is satisfied because the supply does not fall within either of the exceptions in that paragraph.

Paragraphs 60 - 62 of GSTR 2003/7 provide an example analogous to the supply of courier services:

Example 1 - supply of transport services

60. An Australian based transport company supplies transport services within Australia to a non-resident shipping company. The non-resident shipping company is not in Australia when the services are performed and the services are not provided to another entity in Australia. Is the supply of transport services a supply of work physically performed on goods situated in Australia?

61. No. The supply of transport services is not a supply of work physically performed on goods. Although the goods are moved from one location to another, the supply does not have any physical effect on the goods themselves.

62. The supply is GST-free under paragraph (a) of item 2. Paragraph (a) of item 2 is satisfied because the supply does not fall within either of the exceptions in that paragraph. Subsection 38-190(3) does not apply because the services are not provided to another entity in Australia.

Based on the information provided, V is considered to be a recipient to whom a supplier can make a GST-free supply to pursuant to item 2(a) and possibly item 2(b) of subsection 38-190(1) of the GST Act.

The supplies of services are:

· made to a non-resident outside Australia; and

· neither a supply of work physically performed on goods situated in Australia, nor a supply directly connected with real property in Australia.

While it is not known whether V acquires the services in carrying on its enterprise, V (according to our records) is not registered for GST. It is not known whether V is required to be registered for GST.

Given that the supplies to you are likely to be GST-free supplies, V's acquisitions cannot meet the requirements of paragraph 11-5(b) of the GST Act.

Please note discussion on supplier's liability for GST below.

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

As you are in dispute with your suppliers on whether a price charged is GST inclusive or not, we accept that you are liable to provide consideration and meet the requirements of paragraph 11-5(c) of the GST Act.

(d) you are registered or required to be registered

Our records indicate that V is not registered for GST. We do not know whether V is required to be registered for GST. We cannot verify whether V's acquisitions meet the requirements of paragraph 11-5(d) of the GST Act.

Suppliers' liability for GST

Note that the GST law holds the supplier responsible for the GST liability that arises from any transaction. To that end it is the supplier rather than the recipient that must be satisfied that its supply can legally be made as a GST-free supply. If in doubt, suppliers will usually charge GST.

V may seek to negotiate with it's suppliers to press its claims for GST-free supplies; if not convinced, the suppliers may seek advice from the Australian Taxation Office. By all means, show V's suppliers this letter; be advised however that this ruling does not offer protection to V's suppliers.

V's supplier's must satisfy themselves that V is a non-resident who is not in Australia in relation to the supplies of services and that the other conditions of either item 2(a) or item 2(b) in subsection 38-190(1) of the GST Act are met.