Edited version of your private ruling

Authorisation Number: 1012601173033

Ruling

Subject: GST and non-resident entity's acquisitions in Australia

Questions

1. Is a non-resident entity (NR) entitled to a GST refund for the acquisition of handling services in Australia from an Australian supplier (AUS 1)'s two invoices? If yes, how does NR claim back the GST paid?

2. Is NR entitled to a GST refund for the acquisition of fuel for international flights from another Australian supplier (AUS 2)'s two invoices? If yes, how does NR claim back the GST paid?

(Please note that while answering these questions we will also address the issue of whether the supply to NR is a GST-free supply).

Answers

1. No, NR is not entitled to a GST refund for the acquisition of handling services in Australia from AUS 1.

2. Yes, NR is entitled to a GST refund for the acquisition of fuel for international flight from GST-registered businesses. Please see Reasoning for the Decisions to find out how to claim back the GST paid.

Relevant facts

Your ruling is based on the following facts:

NR is a company incorporated overseas.

NR is an international flight operator with an Air Operator Certificate from the overseas authority.

NR does not carry on their business in Australia. NR is not registered with ASIC, and it does not have a permanent establishment in Australia for income tax purposes. It does not carry on its business at a fixed and definite place of its own for a substantial period of time. Nor does it do so through an agent at a fixed and definite place for a substantial period of time.

NR does not have an ABN. NR is not registered for GST in Australia.

NR is not permitted to operate an ambulance service under a State or Territory law in Australia.

NR does not supply first aid or emergency treatment or transport sick and injured persons in Australia.

The reason NR incurs expenses in Australia is for stopover purposes. On long flights, NR's aircrafts have to stop in Australia for refuelling.

Local agents organise the handling/landing/parking of NR's aircraft. NR also bought fuel for international flights from fuel suppliers in Australia.

NR provides two invoices from AUS 1 in relation to arrival movement fee and toilet service at an Australian airport and transport of crew to hotel and pick up crew from hotel

NR provides two invoices from AUS 2' supply of fuel for NR's international flights.

AUS 1 and AUS 2 are registered for GST in Australia.

Reasons for decisions

Summary:

1. In relation to AUS1's invoices, since NR is not entitled to an ABN and GST registration in Australia, NR is not able to claim back the GST paid for these expenses.

2. In relation to AUS2's invoices, NR is not able to claim back the GST paid for these expenses because the supply of fuel for NR's international flights is a GST-free supply.

In case where the supplier incorrectly treated a wholly GST-free sale as being subject to GST, the recipient (NR) should approach the supplier for a refund of the GST paid. The supplier then will be entitled to claim a refund from the Australian Taxation Office (ATO) in the supplier's BAS. Generally, the supplier will only be entitled to claim a refund from the ATO if the recipient is not registered for GST and the supplier has refunded the recipient the amount of any GST the supplier has overpaid to the ATO.

Detailed reasoning:

Question 1: In relation to the invoices from AUS1's supply of services

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act 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.

Paragraphs 11-5 (a) and (c) of the GST Act

Whether you are entitled to the full input tax credit on the acquisition made by you from AUS 1 depends on whether you acquire AUS 1's supply of services for a creditable purpose. Section 11-15 of the GST Act, which explains the meaning of 'creditable purpose', provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that:

n the acquisition relates to making supplies that would be input taxed; or

n the acquisition is of a private or domestic nature.

From the facts, NR acquired AUS 1's supply of services for NR's aircraft and flight crew. NR's aircraft had a stopover in Australia while carrying on an enterprise of transportation. Hence the acquisition satisfies paragraph 11-5(a) of the GST Act. NR also satisfies paragraph (c) of section 11-5 of the GST Act because NR paid AUS 1 for the supply.

The next step is to consider paragraph 11-5(b) of the GST Act.

Paragraph 11-5(b) of the GST Act - is the supply of AUS 1's services to NR a taxable supply?

Taxable supply is defined under section 9-5 of the GST Act. For a supply to be taxable under paragraph 11-5(b) of the GST Act, all the requirements of section 9-5 of the GST Act must be satisfied.

Section 9-5 of the GST Act 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

From the information received, AUS 1's supply of services satisfies paragraphs 9-5(a), 9-5(b),9-5(c) and 9-5(d) of the GST Act as:

(a) AUS 1 makes a supply of services to NR for consideration;

(b) AUS 1 makes the supply in the course or furtherance of AUS 1's enterprise

(c) AUS 1 makes the supply through an enterprise that AUS 1 carries on in Australia and therefore the supply is connected with Australia.

(d) AUS 1 is registered for GST in Australia

Hence, AUS 1's supply of services to NR is taxable to the extent that it is not GST-free or input taxed.

AUS 1's supply of services to NR does not satisfy the input taxed provisions under the GST Act. The GST-free provisions should also be taken into consideration.

GST-free

Of most relevance to this situation are items 2 and 3 in the table in subsection 38-190(1) of the GST Act (Items 2 and 3) which allow certain supplies to be made GST-free.

Under Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free where it is:

a supply that 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.

Under Item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is:

a supply:

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

(b) 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 2 is applicable to supplies made to non-resident recipients. Item 3 is applicable irrespective of the residency of the recipient.

Based on the facts provided, NR is a non-resident and AUS 1's supply of services to NR is neither a supply of work physically performed on goods situated in Australia nor is it directly connected with real property situated in Australia.

However, in order for a supply to be GST-free under items 2 and 3 of subsection

38-190(1) of the GST Act, NR must not be in Australia when AUS 1's services are performed. 

In accordance with the Goods and Services Tax Ruling GSTR 2004/7, the pre-condition that the non-resident is not in Australia when the thing supplied is done requires that neither the non-resident, nor a representative acting on behalf of the non-resident if the non-resident is a company, is in Australia in relation to the supply.

Is NR "in Australia" and if yes, is it "in Australia in relation to AUS 1's supply"?

Paragraph 38 of GSTR 2004/7 provides that a non-resident company is in Australia if the company is registered with ASIC, or if the company has a permanent establishment in Australia for income tax purposes.

Pursuant to the information provided, NR is not registered with ASIC, and it does not have a permanent establishment in Australia for income tax purposes. It does not carry on its business at a fixed and definite place of its own for a substantial period of time. Nor does it do so through an agent at a fixed and definite place for a substantial period of time.

Therefore, according to paragraph 37 to 38 of GSTR 2004/7, NR is not in Australia for the purposes of Item 2 and Item 3(a). We do not need to discuss whether NR is in Australia in relation to AUS 1's supply or not. We do not need to discuss paragraph (b) of Item 2.

Limitation of Item 2

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:

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 another entity in Australia.

Pursuant to the information provided, paragraph 38-190(3) (a) of the GST Act is satisfied because AUS 1's supply of services to NR is a supply under an agreement entered into with a non-resident company, NR.

The next step is to consider paragraph 38-190(3) (b) of the GST Act.

Is AUS 1's supply provided to another entity, and if yes, is AUS 1's supply provided to that other entity in Australia?

Paragraphs 59 and 61 of GSTR 2005/6 provide guidance in relation to the expression "provided to another entity". Generally a supply is made to whoever AUS 1 is contractually liable to perform the services for, in this instance, AUS 1's supply is made to NR. However, a supply is provided to whoever obtains the actual effective use or enjoyment of the supply, that is, the actual beneficiary.

Paragraph 509 of GSTR 2005/6 provides that for the purposes of applying subsection 38-190(3), the focus is on the nature of the supply and the actual flow of that supply.

NR's flight crew and aircraft are in Australia at the time AUS 1's supply of services is done. Paragraph 332 to 336 of GSTR 2005/6 provide that if a non-resident individual's presence in Australia is integral to the provision of the supply, then the supply is provided to the non-resident individual in Australia. Paragraphs 347 and 348 of GSTR 2005/6 state:

347. A supply is provided to an entity at a particular location (that is, in Australia, if a non-resident, or outside Australia, if a resident) if the facts and circumstances of the supply show that the individual's presence at that location is integral to, as distinct from being merely coincidental with, the provision of the supply.

348. Determining whether an individual's presence at a particular location is integral to the provision of the supply and not merely coincidental requires an examination of the facts and circumstances of the supply. Indicators that an individual's presence at a particular location is integral to the provision of the supply include:

• the need for the supply arises from the individual's presence at that location (see Example 6 at paragraphs 350 to 356); or

• the presence of the individual at a particular location is integral to the performance, receipt or delivery of the supply (see Example 7 at paragraphs 358 to 363).

The presence of NR's aircraft and flight crew in Australia is integral to AUS 1's supply of services of arrival movement fee, toilet service and transport crew to and from the hotels. Hence AUS 1's supply is provided to another entity, NR's flight crew, who are in Australia at the time AUS 1's supply of services is performed. This is similar to example 7 of GSTR 2005/6.

Example 7 - a non-resident individual working in Australia - the non-resident employer purchases a ticket for the employee to attend a football game in Australia - the supply is provided to the individual in Australia

358. A UK non-resident employer purchases a ticket from a supplier in Australia for his employee in Australia to attend an Aussie rules football match in Melbourne.

Item 2

359. The supply of entertainment services is made to a non-resident, the employer, who is not in Australia when the entertainment services are performed. The supply satisfies the requirements of item 2 and is, therefore, a supply covered by item 2.

Subsection 38-190(3)

360. The supply of entertainment services by the supplier in Australia to the non-resident employer is a supply under an agreement entered into with a non-resident. Paragraph 38-190(3)(a) is therefore satisfied.

(i) Provided to another entity

361. What is being supplied is entertainment and the employee is the entity that attends the football match and who is entertained. The supply although made to the employer is provided to the employee.

(ii) Provided to that other entity in Australia

362. The employee attends the football match in Australia and is involved with the supply while in Australia. The employee is the entity that is entertained. Therefore, the supply is provided to another entity, the employee, in Australia.

363. Subsection 38-190(3) negates the GST-free status of the supply covered by item 2.

Therefore, subsection 38-190(3) applies and AUS 1's supply of services to NR is not GST-free under Item 2. It is a taxable supply.

Item 3

Paragraph (a) of Item 3 has already been addressed above.

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). We take a two-step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. Firstly, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia. 

As paragraph (b) of Item 3 refers to the effective use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply. According to paragraph 41 in GSTR 2007/2, a supply is made to a recipient and provided to another entity if in the performance of the service (or in the doing of something) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity.

In this case, where AUS 1 makes the supply of services to NR, but AUS 1 deals with NR's aircraft and flight crew in Australia, then the flight crew is the providee entity. We consider that in all circumstances the flight crew has the actual use or enjoyment of AUS 1's supply. Please see above mentioned arguments in relation to whether your supply is provided to NR or to the flight crew, that is who the actual beneficiary is. Our conclusion is that the actual flow of your supply is to the flight crew, not NR.

The next step is to determine whether the effective use or enjoyment of the supply takes place outside Australia. Effective use or enjoyment of a supply only takes place outside Australia if there is provision of the supply to the providee entity outside Australia.

In relation to when the supply of AUS 1's supply of services are made to and provided to the flight crew, the flight crew is in Australia when AUS 1 provides their supply of services. In this circumstance the use and enjoyment of AUS 1's supply is in Australia.

It is noted, as discussed above, that AUS 1's supply of services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia.

Therefore, AUS 1's supply to NR is not GST-free under Item 3.

In summary, AUS 1's supply of services to NR is a taxable supply. Hence AUS 1's supply to NR satisfies paragraph 11-5(b) of the GST Act. We will now consider paragraph 11-5(d) of the GST Act.

Paragraph 11-5(d) of the GST Act: is NR registered, or required to be registered for GST in Australia?

NR is not registered for GST.

As NR is not registered for GST, it needs to be established whether or not NR is required to be registered for GST in Australia.

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

a) your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

b) your projected GST turnover is at or above $75,000.

Your current GST turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. Your projected GST turnover is the sum of the values of all supplies made in a particular month plus the next 11 months.

In calculating current GST turnover and projected GST turnover, the following supplies (amongst others) are not included in the calculation:

a) supplies that are input taxed (which includes financial supplies, residential rent and sale of residential premises).

b) supplies that are not for consideration.

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

d) supplies that are not connected with Australia.

NR does not make any input taxed supply or supply not for consideration. NR carries on an enterprise of transportation in the overseas country. "Supplies connected with Australia" is defined in section 9-25 of the GST Act.

Subsections 9-25(5) and 9-25(6) of the GST Act states:

Supplies of anything else

An enterprise is carried on in Australia if the enterprise is carried on through:

(a) a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936); or

(b) a place that would be such a permanent establishment if paragraph (e),(f) or (g) of that definition did not apply.

NR does not make supplies of goods or supply of real property. When NR makes supplies of transportation, it does not supply this in Australia. Nor does NR do anything in connection with or through an enterprise in Australia and NR does not have a permanent establishment in Australia.

Hence NR's GST turnover would be nil and NR is not required to be registered for GST in Australia. Therefore paragraph 11-5(d) of the GST Act is not satisfied, and NR is not making a creditable acquisition. Hence NR is not eligible for a refund for the GST paid for AUS 1's taxable supplies.

Further information:

Can NR volunteer to register for ABN and GST in Australia if NR wishes to claim back the GST paid for AUS 1's supply of services?

If NR wishes to register for ABN and GST in Australia, NR needs to satisfy sub-section 8(1) of the A New Tax System (Australian Business Number) Act 1999 (the ABN Act), which states:

SECTION 8 : ARE YOU ENTITLED TO AN ABN?  

You are entitled to have an Australian Business Number (ABN) if:

(a) you are carrying on an enterprise in Australia; or

(b) in the course or furtherance of carrying on an enterprise, you make supplies that are connected with Australia.

As discussed above, NR does not satisfy sub-section 8(1) of the ABN Act, because NR does not carry on an enterprise in Australia, nor does NR make supplies that are connected with Australia. Hence NR is not entitled to apply for an ABN or GST registration in Australia. There is no recourse to NR to claim back the GST paid for AUS 1's supply of services.

Question 2: In relation to AUS 2's supply of fuel for NR's international flights

In relation to section 11-5 of the GST Act (as mentioned in the acquisition of AUS 1's services in question1 above), NR's acquisition of fuel from AUS 2 satisfies paragraphs 11-5(a) and (c) of the GST Act. NR does not satisfy subsection 11-5(d) of the GST Act. We will now discuss paragraph 11-5(b) of the GST Act.

Paragraph 11-5(b) of the GST Act - is WHS's supply of fuel to NR a taxable supply?

Section 38-185 of the GST Act, item 5 states:

38-185  Exports of goods  

Section 195-1 of the GST Act provides that "aircrafts' stores" has the meaning given by section 130C of the Customs Act 1901, which states:

"aircraft's stores" means stores for the use of the passengers or crew of an aircraft, or for the service of an aircraft.

NR bought the fuel for its international flights which originate outside Australia and have a destination outside Australia. NR has a stopover in Australia. Item 5 of section 38-185 of the GST Act allows for fuel for aircraft on a flight with destination outside Australia to be GST-free, because the fuel is for consumption outside Australia.

In summary, AUS2's supply of fuel to NR for NR's international flight is not a taxable supply and NR does not satisfy paragraph 11-5(b) of the GST Act. Hence NR is not making a creditable acquisition and NR is not eligible to apply for a refund of the GST paid from the Australian Taxation Office because NR does not satisfy paragraphs 11-5 (b) and (d) of the GST Act.

However, NR can request a refund of the GST paid. If the supplier has charged GST on a GST-free product, the supplier should return the GST to the recipient (NR), then the supplier amends the supplier's BAS and apply for refund of GST remitted to the ATO. Please refer to our Fact Sheet on "Time Limits on GST refunds"

In particular please note this paragraph in the Fact Sheet:

You may not be entitled to claim a refund if the reason for the refund is because you treated a sale as being subject to GST to a greater extent than it actually was subject to GST. For example, you may have incorrectly treated a wholly GST-free sale as being (partly or wholly) subject to GST. Generally, you will only be entitled to claim a refund if your customer is not registered for GST and you have refunded them the amount of any GST you have overpaid.

To avoid paying GST on a GST-free supply, NR should show the correct documentation (evidence of fuel bought for the purposes of international flights) to the fuel supplier prior to purchase.

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 sub-section 9-25(5).

A New Tax System (Goods and Services Tax) Act 1999 sub-section 9-25(6).

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5.

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

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 38-185.

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

A New Tax System (Australian Business Number) Act 1999 sub-section 8(1)

Income Tax Assessment Act 1936 subsection 6(1)

Customs Act 1901 section 130C