Edited version of your private ruling

Authorisation Number: 1012609113020

Ruling

Subject: Goods and services tax (GST) and supplies of bus drivers

Question

Is GST payable on your supplies of bus drivers to the non-resident company?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST

You carry on a business of supplying buses and bus drivers to tour operators.

You are based in Australia.

You sub-lease buses and supply bus drivers to a non-resident company, which uses them to conduct tours around Australia. You charge for these supplies.

You payroll the drivers and pay all PAYG and superannuation. You bill the non-resident company for your total cost of labour and charge a service fee for doing this.

The non-resident company has offices overseas.

Ticket sales for the Australian tours are made through the non-resident company's overseas offices.

The non-resident company also has a branch in Australia, (the Australian branch), which has an office in Australia with a number of staff.

The Australian branch constructs, markets and manages the Australian tours. The Australian branch arranges the Australian tour itineraries; pays the suppliers used in relation to the Australian tours and arranges accommodation and meals for the bus drivers.

The Australian branch does not sell tickets to the Australian tours.

The Australian branch is also an outbound tour operator.

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 38-190

Reasons for decision

Summary

Your supplies of the service of bus drivers' labour are not GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because the non-resident company is in Australia in relation to this supply.

GST is payable on your supplies of the service of bus driver's labour to the non-resident company because:

• you supply the bus drivers for consideration;

• you supply the bus drivers in the course or furtherance of an enterprise that you carry on;

• these supplies are connected with Australia;

• you are registered for GST; and

• these supplies are not GST-free or input taxed.

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

(a) the supply is *connected with Australia; and

(b) 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 paragraphs 9-5(a) to 9-5(d) of the GST Act because:

• you supply the bus drivers for consideration;

• you supply the bus drivers 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 in the GST Act under which your supplies of the bus drivers are input taxed.

Therefore what remains to be determined is whether your supplies of the bus drivers are GST-free.

GST-free supplies to non-residents

In accordance with subsection 38-190(1) of the GST Act, supplies of things other than goods or real property to entities which are outside Australia may be GST-free.

Item 2 in the table in subsection 38-190(1) of the GST Act (item 2) provides that a supply of something other than goods or real property to a non-resident who is not in Australia when the thing supplied is done is GST-free if:

(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.

Paragraph 31 of Goods and Services Tax Ruling 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.

Paragraph 37 of GSTR 2004/7 explains when a non-resident company is in Australia. It 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 41 of GSTR 2004/7 explains when a non-resident company is in Australia in relation to a supply. It states:

41. A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor.

Paragraphs 362 and 363 of GSTR 2004/7 give an example where the Australian branch of a non-resident company is involved with a supply made by an Australian company and this involvement is of more than a minor nature. They state:

362. A United Kingdom company ('UK Co') has a representative office in Australia at which it carries on business. UK Co engages Aus Finance, an Australian company, to give advice on the possible acquisition of shares in an Australian company. UK Co instructs its representative office in Australia to give responses to the questions posed by Aus Finance and any other information that may be of assistance to Aus Finance. Some information is supplied in writing, and at other times the information is supplied at meetings held between Aus Finance and the Australian representative office of UK Co .

363. The role of the representative office in Australia is not limited to administrative tasks of a minor nature. UK Co is in Australia in relation to the supply. Therefore, the supply is not GST-free under item 2 or item 3 .

You are supplying the service of the bus drivers' labour to a non-resident. Services are not goods or real property.

The non-resident company is based overseas.

If the Australian branch is part of the non-resident company, we would consider that the non-resident company is in Australia by virtue of the Australian branch's office in Australia.

In accordance with GSTR 2004/7, where an entity based in Australia carries on a material part of a non-residents business in Australia and they are separate entities, we consider that the non-resident carries on business in Australia through an agent.

If the Australian branch is a different entity to the non-resident company, we would consider that the non-resident company carries on business in Australia through an agent (the Australian branch). This is because the Australian branch is based in Australia and it carries on a material part of the non-resident company's business in Australia. The Australian branch constructs, markets and manages the Australian tours; it arranges the itineraries; it pays the suppliers related to these tours and it arranges food and accommodation for the drivers. The Australian branch has an office in Australia.

Therefore, the non-resident company is in Australia.

Your supply of the service of the bus drivers' labour is for the purposes of the Australian presence of the non-resident company (the Australian branch), as the non-resident company supplies tours through this Australian presence and the bus drivers are used in these tours.

Additionally, the Australian presence of the non-resident company is involved with the supply of the service of the drivers' labour and this involvement is more than of a minor nature. The Australian branch arranges the itineraries of, and meals and accommodation for, the bus drivers.

Therefore, the non-resident company is in Australia in relation to your supply of the service of bus drivers' labour.

Hence, the requirements of item 2 are not met. Therefore, your supply of the service of the drivers' labour is not GST-free under item 2.

There are no provisions of the GST Act under which your supplies of the service of the drivers' labour are GST-free.

Therefore, as all of the requirements of section 9-5 of the GST Act are met, you make taxable supplies of the service of the drivers' labour. Hence, GST is payable on your supplies of these services.