Edited version of your written advice

Authorisation Number: 1012700475974

Ruling

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

Question:

Is the supply of project management services by Mr X (you) to a non-resident company (NRCo) subject to goods and services tax (GST)?

Advice:

No, your supply of the project management services to NRCo (a non-resident company which is outside Australia when the services are performed) is not a taxable supply.

Relevant facts:

Mr X (you) is currently employed by NRCo, a non-resident company based overseas.

You lived overseas for several years, and are employed as a project manager by NRCo. NRCo is involved in designing and manufacturing equipment for a certain industry.

Your work is for projects based in a certain region (mainly some overseas countries).

Recently, you moved back to Australia as the time zone is more preferable. You estimate that you will work from home for a certain per cent of the time and travel to site (when required) for the remaining per cent of the time.

You are now considering working for NRCo as a sole trader on a contract basis, rather than as an employee.

You will have a single contract with NRCo, who will pay you more than AUD$75,000. Your contract will be for work involving your skills, knowledge, expertise or efforts (labour) and not for any materials or equipment to complete the job. You will be invoicing for a daily rate every two weeks.

You are currently not registered for GST.

Additional information provided:

NRCo is involved in the design and manufacturing of certain equipment for a particular industry. NRCo has offices in various locations worldwide.

You advised that you are unaware of NRCo having a branch in Australia, regardless you do not have any contact or involvement with representatives of NRCo in Australia. For your project management services, you report to your manager in the overseas country (and ultimately the head office in another overseas country). You do not report or provide your services to another entity in Australia.

As the project manager for NRCo, you are responsible for the planning and delivery of the projects. You are assigned engineering resources (staff) from the overseas teams to address the projects. After the initial factory build and tests done overseas, your team would fly to the client's site for site installation and testing prior to operational hand over and sign off. You clarified that you are responsible for the change management and overall management of the team. You also attend meetings as requested by clients and your own management as required, often electronically due to the nature of your travel and client base.

You clarified that your project management services do not involve you physically performing work on goods in Australia (nor related to real property in Australia). You are not involved in the installation of the equipment/hardware. Your project management services involve managing the project and the team (for example, you managed an overseas team and a group of engineers from NRCo), and your work involves the management of the software (that is, various programming of the software used by the hardware) rather than the actual hardware (which is done by someone else).

Your projects have been for NRCo's overseas clients.

Your project management services do not involve you providing training, reporting or services to NRCo's clients in Australia. You do not provide, and do not have an agreement to provide your project management services, to another entity in Australia.

Your understanding is that NRCo (based in overseas) is not registered for GST in Australia. NRCo does have an engineer in Australia (also a contractor) and a distributor/re-seller in Australia, AusCo. This is because NRCo supplied hardware to a particular Australian customer (AusC), which deals with this engineer and AusCo when required. However, you only had limited interactions with AusCo and the contract engineer in relation to your project management services to NRCo.

NRCo has several international distributors of its branded equipment/products, located worldwide. AusCo is a distributor/re-seller of NRCo brand products in Australia, as well as a supplier of other brands.

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. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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.

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

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

From the facts provided, your supply of the project management services to NRCo will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act where: 

(a) you make the supply in return for consideration by way of payments; and

(b) you make the supply in the course of an enterprise (such as where the services are provided by your own business as a contractor and not as an employee); and

(c) the supply is either performed/provided in Australia or made through a business that you carry on in Australia (and therefore is connected with Australia); and

(d) although you are not currently registered for GST in Australia, you will be required to register for GST if your GST turnover is more than AUD$75,000. Note that you will only be required to register for GST if you are carrying on your own business (and not as an employee) and your GST turnover is $75,000 or more.

Any supply that you make that does not satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act will not be subject to GST.

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

Your supply of the project management services is not input taxed. It remains to be determined if the supply is GST-free.

Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia, is GST-free. Of particular relevance to your supply is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if 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 for GST.

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done (that is, when the services are performed).

Precondition of item 2 - recipient is 'not in Australia'

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of Item 2.

Under paragraph 37 of GSTR 2004/7, we consider that 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.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is also necessary to determine if the company is in Australia in relation to the supply when the supply is done (that is, when the services are performed).

From the facts provided, NRCo is a non-resident company based overseas. Your understanding is that NRCo does not carry on a business of its own in Australia (at a fixed and definite place, for a substantial period). You will not have (or have limited) interactions with representatives of NRCo in Australia in relation to your project management services. For your work, you report to your manager overseas, and will not report or provide your services to another entity in Australia.

NRCo may have an engineer (also a contractor) and a distributor/re-seller (AusCo) in Australia in relation to its supply of hardware to an existing client (AusC). However, you had limited interactions with these entities. Further, it is considered that the engineer and AusCo are carrying on their own businesses (with NRCo being one of its customers) rather than them carrying on NRCo's business. Your work as a project manager is to and for the purposes of NRCo and not for another entity in Australia.

Accordingly, the precondition that NRCo is not in Australia in relation to your supply, when the services are performed is satisfied.

Other information

We note that if NRCo is carrying on an enterprise (business) through an agent in Australia at a fixed and definite place for a substantial period of time (that is, the agent is carrying on NRCo's business, rather than its own business, in Australia), and your supply is for the purposes of that agent or that agent has significant involvement with you in relation to your supply, the precondition that NRCo is not in Australia in relation to your supply, when the things supplied are done is not satisfied. In this circumstance, the supply may not be GST-free.

Paragraphs (a) and (b) of Item 2

Paragraph (a) of Item 2 requires that the supply is neither a supply of work physically performed on goods situated in Australia nor directly connected with real property situated in Australia when the work is done.

The expression 'directly connected with' contemplates a very close link or association between the supply and goods or real property. However, paragraphs 57 to 59 of Goods and Services Tax Ruling GSTR 2003/7 state:

57. The range of supplies that are directly connected with goods includes supplies of work physically performed on goods. That is, a supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods: it requires a physical intervention with the goods...

58. A supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods.

59. In contrast, where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods…

We consider that your supply of the project management services to NRCo is not a supply of work physically performed on goods, nor directly connected with real property, situated in Australia, for the purposes of paragraph (a) of Item 2. Accordingly, your supply to NRCo satisfies the requirement in paragraph (a) of Item 2 and is GST-free.

For completeness, your supply will also be GST-free under paragraph (b) of Item 2 if NRCo acquires your services in carrying on its business and NRCo is neither registered nor required to be registered for GST in Australia.

Limitations - subsections 38-190(2), (2A) and (3)

Having met the requirements of Item 2, it is necessary to consider the exclusions in subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act. Subsections 38-190(2) and 38-190(2A) of the GST Act are not applicable in your circumstances.

Subsection 38-190(3) of the GST Act states that a supply covered by Item 2 is not GST-free if it is a supply under an agreement entered into, 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.

The facts indicate that your project management services are made and provided to NRCo (a
non-resident company outside Australia). You do not provide, and have no agreement with NRCo which requires your services to be provided, to another entity in Australia. Accordingly, subsection 38-190(3) of the GST Act will not preclude your supply from being GST-free.

Summary

In summary, your supply of the project management services to NRCo (a non-resident company which is outside Australia) is GST-free if the supply is made through your own business (as a contractor) and you are registered or required to be registered for GST in Australia.