Edited version of your written advice

Authorisation Number: 1012784836877

Ruling

Subject: Goods and services tax (GST) and supply of legal services to non-resident

Question

Is GST payable on your supply of legal services to X?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You carry on a legal services business in Australia.

You are supplying legal services to X, a non-resident individual who lives permanently in an overseas country. X is not registered for GST.

X was granted a mining tenement in Australia. X sinks a significant amount of money each year into the mining tenement area, but does not earn any income from mining the tenement area at this stage.

All of the services you provide to X are to do with the mining tenement, mainly compliance with the requirements of the tenement. If there was a claim for forfeiture of the mining tenement, you would defend X in this matter.

X does not visit Australia and make contact with you while in Australia to discuss legal matters. You instead communicate with X while they are overseas.

You believe that X does not receive Australian source income from business or enterprise activities as they have not advised you that they earn such income, and they would have told you if they earn such income.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision

Summary

You make GST-free supplies of services to X 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:

• you are supplying something other than goods or real property

• you are making supplies to a non-resident who is not in Australia, and

• X acquires your services in carrying on their enterprise and they are not registered or required to be registered for GST.

Detailed reasoning

GST is payable on taxable supplies.

You make a taxable supply if you meet 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

(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 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. This is because:

• you are supplying legal services for consideration

• these supplies are made 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 legal services are input taxed.

Therefore, what remains to be determined is whether you make GST-free supplies to X.

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 is GST-free if the supply 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.

You are supplying legal services to X. Services are not goods or real property.

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 35 of GSTR 2004/7 states:

35. A non-resident individual is in Australia if that individual is physically in Australia. If a non-resident individual is physically in Australia and in contact (other than contact which is only of a minor nature) with the supplier, that presence is in relation to the supply.

X is an individual and he does not visit Australia and make contact with you while in Australia to discuss legal matters. Therefore, the recipient of your supply is not in Australia in relation to the supply when the thing supplied is done.

Paragraphs 21 and 22 of Goods and Services Tax Ruling GSTR 2003/7 discuss the 'directly connected with real property' concept. They state:

21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs.

22. We consider, therefore, that the expression 'directly connected with' contemplates a very close link or association between the supply and goods or real property. (This is discussed further at paragraphs 113 to 134 of the Explanations section of the Ruling.)

All of the services you provide to X are to do with the mining tenement, mainly compliance with the requirements of the tenement. If there was a claim for forfeiture of the mining tenement, you would defend X in this matter. Additionally, the mining tenement is an interest in real property. We consider that the type of legal services you provide to X are such that there is a very close link between your supply of legal services and real property and the supply of the legal services is so closely aligned with the real property that it is appropriate to treat the location of the real property as the place where consumption occurs. Additionally, the tenement area is located in Australia. Therefore, the services you supply to X are directly connected with real property situated in Australia.

However, X acquires your services in carrying on an enterprise (the activities carried on on the mining tenement area) and they are not registered or required to be registered for GST (they are not required to be registered for GST because they do not earn $75,000 or more in Australian sourced income).

Therefore, your supplies of legal services to X are GST-free under item 2.

Hence, GST is not payable on your supply of these legal services.

Additional information

If X becomes registered or required to be registered for GST at some point in the future, your supply of legal services to them on or after the date they register or become required to be registered for GST will not be GST-free.