Edited version of your written advice

Authorisation Number: 1012728886768

Ruling

Subject: GST and supply of installation and commissioning of power transformers

Question

Is the supply of installing and commissioning the power transformers in Australia by the Australian company to the non-resident company a GST-free supply?

Advice

No, based on the information received the supply of installing and commissioning the power transformers in Australia by the Australian company to the non-resident company is not a GST-free supply. The supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant fact

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

You enter into a contract with a non-resident company to complete the installation and commissioning of power transformers in Australia.

You advised that the non-resident company has sold the transformers to an overseas Company. The non-resident company is responsible for the delivery of the transformers from their overseas factory to the site of an Australian company located in Australia. The non-resident company used an international shipping company who then subcontracted an Australian transport company to take the transformers from the Australian Customs to the site.

The non-resident company is based overseas and manufactures the transformers mainly for overseas customers. They are not registered for GST and do not carry on an enterprise in Australia. They do not have a fixed and definite place in Australia nor do they have an agent with a fixed and definite place in Australia. They are not registered with ASIC.

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. You make a taxable supply under section 9-5 of the GST Act 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 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 paragraphs 9-5(a) and 9-5(d) of the GST Act when you complete the installation and commissioning of the power transformers in Australia as:

a) you make the supply for consideration; and

b) the supply is made in the course of a business that you carry on; and

c) the supply is connected with Australia as the supply is done in Australia and made through a business that you carry on in Australia; and

d) you are registered for GST.

However your supply is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision in the GST Act that makes your supply input taxed.

We will now consider whether your supply is GST-free since your contract is with a non-resident company.

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 your supply 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 company is a non-resident and 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 your supply to be GST-free.

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 does not satisfy the requirements in paragraph (a) of item 2 because when you install and commission the power transformers in Australia, your supply is a supply of work physically performed on goods situated in Australia when the work is done. Further your supply is directly connected with real property in Australia as the power transformers are installed on property located in Australia.

Your supply 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.

From the information received the non-resident company is requesting you to install and commission the power transformers they sold in Australia. In this instance the supply of the power transformers by the non-resident company is connected with Australia under paragraph 9-25(3)(b) of the GST Act as the power transformers are brought to Australia and the non-resident company installs them in Australia with your assistance. Under sections 188-15 and 188-20 of the GST Act supplies that are connected with Australia are included when considering whether an entity is required to be registered for GST and calculating the annual GST annual turnover.

Where the GST annual turnover of the supply and installation of the transformers made by the non-resident company is above $A75,000, the non-resident company will be required to be registered for GST. In this instance your supply will not be GST-free under paragraph (b) of item 2.

Where the non-resident company is not required to be registered for GST, your supply will satisfy paragraph (b) of item 2 as they acquire your services for their business purposes. However, your supply will only be GST-free to the extent that it is 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 something), 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 you install and commission the power transformers on the Australian site advised by the Australian company. In this instance it is the Australian company who is receiving your services at the request of the non-resident company. Subsection 38-190(3) of the GST Act therefore applies and your supply is no longer GST-free even if the requirements in paragraph (b) of item 2 have been satisfied.

Summary

When you complete the installation and commissioning of the power transformers in Australia, your supply is not GST-free under paragraph (a) of Item 2. Further, your supply is not GST-free under subsection 38-190(3) of the GST Act even if the non-resident company is not required to be registered for GST.

Accordingly, your supply to the non-resident company is a taxable supply under section 9-5 of the GST Act.