Edited version of your private ruling

Authorisation Number: 1012500483658

Ruling

Subject: Goods and services tax (GST) and management fees

Question

Is GST payable on the management fee that you receive in respect of the services provided to foreign students?

Answer

GST is not payable by you to the extent that the management fee relates to the services you provide to the students before they arrive in Australia.

GST is payable by you on your management fee to the extent that it relates the services you perform while the student is in Australia.

GST is payable on your supplies of the service of collecting and forwarding on the tuition fee and rent.

Relevant facts and circumstances

You are registered for GST.

You specialise in providing quality services to non-resident high school students who want a good, fun and safe experience in Australia while attending a high school.

You operate your business in Australia.

The non-resident parent and student receive a complete package, which is invoiced and paid for before the student arrives in Australia. The student stays in Australia generally for two or the four school terms in a calendar year.

The complete package includes the organisation and management of the school enrolment. You welcome the overseas students from the overseas country upon their arrival in Australia. Your staff members meet every student on their arrival and keep in frequent contact with the students, their schools and their host parents to ensure the students reach their goals, and are safe and happy in their High School Programs. Contact is also maintained with the students' parents and school report cards together with regular reports are sent to the overseas parents.

The Australian government agency organises the home-stay for the students and you collect the payment from the overseas parents for the tuition costs and for the home-stay cost, which is then forwarded directly to the relevant Australian agency.

Your invoice to the non-resident overseas families includes the cost of the homestay, the cost of the tuition and your fee for all the work you do under your contract with the parent, including organising the enrolment, managing the enrolment and collecting and forwarding on the tuition fee and rent. The fee you charge parents (the management fee) is not broken down into components for each service.

The Australian government agency pays you a commission for the number of students you bring to the school.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

Reasons for decision

Summary

Detailed reasoning

Your supplies of services to parents before the student arrives in Australia are GST-free under item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Your supplies of services performed while the student is in Australia, other than collecting and forwarding on the tuition fee and rent, are not GST-free under item 2 because you supply these services to a non-resident and the supply is provided to another entity in Australia.

Your supplies of the service of collecting and forwarding on the tuition fee and rent are not GST-free under item 2 because you do not make these supplies to a non-resident.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

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.

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

You meet the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act. This is because:

· you are supplying management services for consideration

· you supply these services in the course or furtherance of an enterprise that you carry on

· these supplies are connected with Australia, and

· you are registered for GST.

There are no provisions of the GST Act under which your supplies are input taxed.

Therefore, what remains to be determined is whether your supplies are GST-free.

Subsection 38-190(1) of the GST Act specifies circumstances where the supply of things other than goods or real property, for consumption outside Australia is GST-free. The arranging and managing services supplied by you are not tangible personal property and are neither goods nor real property. As such, the supply of such services is appropriately considered under subsection 38-190(1) of the GST Act.

Item 2

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 (item 2) if 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-residents enterprise, but is not registered or required to be registered for GST.

Paragraphs 31 and 35 of Goods and Services Tax Ruling GSTR 2004/7 provide guidance on the 'non-resident is not in Australia' requirement of item 2 and 'recipient is not in Australia' requirement of item 3. They state:

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.

35. A non-resident individual is in Australia if that individual is physically 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.

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

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

(b) the supply is provided, or the agreement requires it to be provided, to an

other entity in Australia.

Paragraphs 59 to 61and 94 of Goods and Services Tax Ruling GSTR 2005/6 provide guidance on determining whether a supply is provided to another entity in Australia for the purposes of subsection 38-190(3) of the GST Act. They state:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

60. The example in the Explanatory Memorandum accompanying the Bill that introduced subsection 38-190(3) illustrates this. In that example, non-resident parents contract for the supply of education services to be provided to their children in Australia. The contractual flow of the services is to the parents, while the actual flow of the services is to the children. The supply is made to the parents (non-residents) and provided to another entity, each child, in Australia.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

94. If a supply is provided (or is required to be provided) to a non-resident individual who is not physically in Australia when the thing supplied is done, the supply is not provided to that individual in Australia.

The services you perform before the student arrives in Australia

You supply certain services, such as the organisation of the school enrolment, to the parents of the students before the students arrive in Australia. You are supplying these services to a non-resident individual (the parent of the student) who is not in Australia when you perform these services. The supply is neither work physically performed on goods nor directly related to real property. The supply therefore satisfies the requirements of Item 2 and will be GST-free.

The services you perform while the student is in Australia

Your staff members meet the students on their arrival into Australia and keep in frequent contact with the students to ensure that they reach their goals, and are safe and happy in their high school programs. Contact is also maintained with the students' parents while the students are present in Australia. You are supplying these contact services to the parent of the student, who is not in Australia when you perform these services. These services will be GST-free as they satisfy the requirements of Item 2.

However, as per the example in paragraph 60 of GSTR 2005/6, the non-resident parents have also contracted with you for the supply of these arranging and managing services to be provided to their children in Australia. The contractual flow of the services is to the parents but the actual flow is to the students when they are located in Australia.

The supply of the services that are provided to the students after they arrive in Australia will be excluded by subsection 38-190(3) of the GST Act from being GST-free under item 2. There are no provisions of the GST Act under which these supplies are GST-free. Therefore, these are taxable supplies.

Collection and forwarding services

These entities that you provide these services to are residents of Australia. You do not provide the supplies of the service of collecting and forwarding on the tuition fee and rent to other entities outside Australia. You provide the supplies of these services to the relevant Australian agency.

Your supplies of the service of collecting and forwarding on the tuition fee and rent are supplies you make to a resident of Australia (the relevant Australian agency). Therefore, your supplies of these services are not GST-free under item 2. There are no provisions of the GST Act under which such supplies are GST-free. Therefore, these supplies are taxable supplies.

Mixed supplies

Paragraphs 16 and 19B of GSTR 2001/8 discuss mixed supplies. They state:

16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

Paragraphs 25 and 29 of GSTR 2001/8 discuss how to calculate GST on a mixed supply. They state:

25. GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for a mixed supply between the taxable and non-taxable parts to find the consideration for the taxable part.

29. To work out the value of the taxable part of a supply you identify the parts of the supply and apportion the consideration to each of the parts on some reasonable basis. The value of the taxable part of a supply that does not have GST-free or input taxed parts is determined under section 9-75. The value of the taxable part of the supply is 10/11 of the consideration for the taxable part, and the GST payable is equivalent to 1/11 of that consideration.

You are making a mixed supply to the parent, rather than a composite supply because the supply you make to the parent contains separately identifiable taxable and non-taxable parts that need to be individually recognised. The taxable component of your supply to the parent is not integral, ancillary or incidental to the GST-free part of your supply to the parent and vice versa.

The GST payable on a supply that you make to the parent is 1/11^th of the part of the total price that the parent pays for the supply you make to the parent (this excludes the part of the total price that relates to the service of collecting and forwarding on the tuition fee and rent) that relates to the taxable part of the supply.

The GST payable on your supplies of tuition fee and rent collection services is 1/11^th of the part of the total price that the parent pays that relates to these services.

Conclusion

You must apportion the fee you collect in respect of the overseas student between the GST-free and taxable parts of the supply you make to the parent and the taxable supply you make to the relevant Australian agency on a fair and reasonable basis.

Further exemption may possibly be conferred by item 3 in the table in subsection 38-190(1) of the GST Act (item 3). However, as item 2 is satisfied, we do not need to examine eligibility under item 3.