Edited version of private advice

Authorisation Number: 1012651396537

Ruling

Subject: GST and supply of repair services to a non-resident

Question

Is the supply of repair services by the Australian company to the non-resident company a taxable supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, the supply of repair services by the Australian company to the non-resident company is a taxable supply under section 9-5 of the GST Act.

Relevant fact

You are an Australian company and registered for the goods and services tax (GST).

You have been engaged by a non-resident company to do repair work on some goods which they had shipped to Australia for their Australian customer.

You have collected the goods from a warehouse located in Australia, made the repairs and returned the repaired goods to the warehouse.

You have invoiced the non-resident company for the repair work.

The non-resident company has provided us with the following information:

• The ownership of goods they sell remains with them until the goods are paid in full. From the date of delivery they give a general 12 months warranty on their goods for workmanship and material quality.

• In Australia the Australian customer has entered the goods under their name and paid customs duties and GST when clearing the goods at Customs. The Australian customer has stored the goods in a hired warehouse in Australia.

• The Australian customer has noticed that some of the goods received are in a rusted condition and notified the non-resident company. The non-resident company agreed to have the goods repaired because the goods are covered by warranty.

• The non-resident company is not registered for GST and is of the view they are not required to be registered for GST because the Australian customer is responsible for the importation of the goods into Australia.

• The non-resident company does not use a subsidiary company or agent in Australia for the sale of their goods. They deal directly with the Australian customers.

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 38-190

Reasons for decision

GST is payable on a taxable supply. An entity makes a taxable supply under section 9-5 of the GST Act if:

a) the entity makes the supply for consideration; and

b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and

c) the supply is connected with Australia; and

d) the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act.

From the information received, you satisfy all paragraphs in section 9-5 of the GST Act when you supply the online course as:

a) you make the supply for consideration; and

b) the supply is made in the course of an enterprise that you carry on;

c) the supply is connected with Australia as the supply is made through an enterprise that you carry on in Australia; and

d) you are registered for GST.

However, the supply of repair services is not a taxable supply to the extent that it is GST-free or input taxed.

Your supply of repair services is not input taxed under any provision in the GST Act. The next step is to consider whether your supply of repair services is GST-free as it is made to a non-resident of Australia.

GST-free

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free.

Of particular relevance to the supply of repair services is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Under item 2, a supply that is made 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 a supply to be within the scope of item 2, the supply must be made to a non-resident who is not in Australia when the thing supplied is done. The expression 'not in Australia' requires that the non-resident is not in Australia in relation to the supply.

From the facts given, the non-resident company is not in Australia at the time you make your supply. The requirement for the non-resident 'not to be in Australia in relation to the supply' is therefore satisfied.

We will now consider the other requirements in paragraphs (a) and (b) of item 2. Only one of the paragraphs needs to be satisfied for the supply of repair services to be GST-free under item 2.

Paragraph (a) of item 2

Under paragraph (a) of item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done, is not GST-free if the supply is connected with real property situated in Australia or is a supply of work physically performed on goods situated in Australia when the work is done.

Your supply of repair services does not satisfy the requirements in paragraph (a) of item 2 because your supply of repair services is a supply of work physically performed on goods situated in Australia when the work is done.

Your supply of repair services is therefore not GST-free under paragraph (a) of item 2.

Paragraph (b) of item 2

Under paragraph (b) of item 2, a supply of a thing other than goods or real property is GST-free if the non-resident acquires the services in carrying on their business and is neither registered nor required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of item 2. The supplier can check the GST registration status of an entity that they deal with by checking the Australian business register at www.abr.gov.au

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that reasonable grounds are satisfied if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reason to believe the statement is not accurate.

Your supply of repair services satisfies paragraph (b) of item 2 as the non-resident company, who is currently not registered for GST, has advised that they are not required to be registered for GST and they acquire the repair services for their business purposes.

Accordingly your supply of repair services is GST-free under paragraph (b) of item 2 to the extent that they are not negated by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act

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

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

• the supply is provided or the agreement requires it to be provided to another entity in Australia.

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 of GSTR 2005/6 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.

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.

From the facts given the repaired goods are owned by the Australian customer and are being repaired under a warranty given by the non-resident company. In this instance it is the Australian customer who is receiving the repair services at the request of the non-resident company. Subsection 38-190(3) of the GST Act therefore applies and your supply of repair services is no longer GST-free under paragraph (b) of item 2. This view is consistent with example 1 given in Goods and Services Tax Determination GSTD 2006/2 (which is about supply of repair services under a warranty given by a non-resident manufacturer).

Summary

Your supply of repair services to the non-resident company is a taxable supply under section 9-5 of the GST Act.