Edited version of your written advice

Authorisation Number: 1012866371113

Date of advice: 26 August 2015

Ruling

Subject: GST and supply of services to non-resident

Questions

1) Is the supply of services that you make to non-resident individuals under the Agency Agreement GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2) Is the supply of services that you make to non-resident companies under the Agency Agreement GST-free under section 38-190 of the GST Act?

3) Is the supply of consulting services that you make to non-resident individuals GST-free under section 38-190 of the GST Act?

Advice

1) Purchase of commercial property

Yes. Based on the information received, your supply of buying agent services is GST-free under paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act where the non-resident individual is not in the indirect tax zone when the supply is done.

However, your supply of buying agent services is a taxable supply under section 9-5 of the GST Act where the non-resident individual is in the indirect tax zone in relation to your supply.

Purchase of residential property

No. Based on the information received, when the acquired residential property is for private use or rental purposes, your supply of buying agent services is a taxable supply under section 9-5 of the GST Act.

2) Purchase of commercial property

Yes. Based on the information received, when the acquired property is a commercial property, your supply of buying agent services is GST-free under paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act where the non-resident company is not in the indirect tax zone when the supply is done.

Purchase of residential property

No. Based on the information received, when the acquired property is a residential property, your supply of buying agent services is a taxable supply under section 9-5 of the GST Act.

3) Yes. Based on the information received, your supply of consulting services to non-residents individuals are GST-free under item 2 in the table in subsection 38-190(1) of the GST Act where the individuals are not in the indirect tax zone when the supply is done.

Relevant facts

You carry on your business in Australia and are registered for the goods and services tax (GST).

You provide assistance and services in relation to property purchased by clients including non-resident individuals and companies. You supply your services to non-resident clients by entering into an Agency Agreement (Agreement) with them. You have provided us with a copy of the Agreement.

You also provide consulting services to non-resident individuals located outside Australia who are considering visiting, relocating or in the case of expatriates, returning to Australia. You anticipate these services could include organising removal services, assisting with applying for children’s schools, car purchases, recommending restaurants, referrals to professional services. There is no contract available for the provision of the consulting services as these services will not be one of your core activities.

Purchase of properties in Australia

You advised that the assistance and services you make to the non-resident clients include:

1. To provide advice in relation to and assist buyers to select a property to purchase.

2. Act as a general consultant to buyers on all matters concerning the purchase of property.

3. Provide advice to the buyer of the best property fitting the buyers’ requirements.

4. Negotiate on behalf of the buyers for the purchase of property.

5. Bid on behalf of the buyers at the auction of a prospective property.

6. Obtain such warranties as to the nature, quality and suitability of the property as the buyer may require.

Non-resident individual

a) Most individuals will purchase the property as an investment or holiday house/apartment. The commercial property that has been purchased for investment purposes will be rented after the purchase. When the residential property is purchased as a holiday house/apartment, the property will be used partly by the individual investor when on holiday in Australia (most likely 2 weeks per year on average) and will be rented as short term holiday stay to third parties.

b) When supplying the services to the non-resident, the individual is expected to be overseas though some exceptions could apply. Lawyers will be involved when contracts are exchanged and at settlement of the property. The lawyers will be appointed by you based on the Agency Agreement to represent the overseas investor. Your interaction with the lawyers will be to provide them with details of the clients, property details, request them to review and amend the contracts as required and so on in order to complete the property purchase.

c) The individual does not own any other property in Australia, does not carry on any business activity in Australia and is not registered or required to be registered for GST.

d) The individual does not require you to provide your services to another entity in Australia.

Non-resident company

a) Most companies will purchase the property as an investment. The property may be commercial and/or residential properties and will be rented after the purchase.

b) When supplying the services to the non-resident, lawyers will be involved when contracts are exchanged and at settlement of the property. The lawyers will be appointed by you based on the Agency Agreement to represent the overseas investor. Your interaction with the lawyers will be to provide them with details of the clients, property details, request them to review and amend the contracts as required and so on in order to complete the property purchase.

c) The company is a foreign company with no operations or involvement in Australia. It will not have employees or representative in Australia when you supply your services and lawyers will be involved when contracts are exchanged and at settlement.

d) The company does not carry on any business activity through a subsidiary or agent in Australia and is not registered or required to be registered for GST.

e) The company does not own any other Australian properties and does not require you to provide your services to another entity in Australia.

Consulting services

No other entity is involved when you supply your consulting services to the individual.

The individual does not request you to provide your services to another entity in Australia.

The non-resident individuals are neither registered for GST nor required to be registered for GST.

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 subsection 38-190

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decisions

Questions 1 and 2

Characterisation of supply

From the information received, you enter into an Agency Agreement (Agreement) with non-resident clients (individuals and companies) who wish to purchase commercial and/or residential properties in Australia. Your fees for your supplies are based on the property’s purchase price.

By entering into the Agreement you are authorised to:

● identify and recommend potential properties to the buyer pursuant to the terms and conditions;

● negotiate on behalf of the buyer for the purchase of the property pursuant to the terms and conditions;

● bid on behalf of the buyer at the auction of a prospective property approved by the buyer in writing,

Before we determine the GST treatment of your supply it is necessary to establish the character of the supply that you are making.

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on the characterisation of supplies that comprise a bundle of features.

Where a supply contains a dominant part and the supply includes something that is an integral, ancillary or incidental part, then the supply is a composite supply. A composite supply is treated as a supply of a single thing.

Taking into consideration all the facts given, we consider that you are making a supply of buying agent services under the Agency Agreement, with the dominant part being to act on behalf of the non-resident clients in purchasing Australian properties. The various components of services that you make, such as identifying and recommending potential properties to the non-resident buyer by providing information about real property prices or property markets are merely integral, ancillary or incidental to the dominant part of the supply, which is purchasing the Australian property. Accordingly, your supply under the Agreement is a composite supply and is treated as a supply of one thing, being a supply of buying agent services.

GST status of the buying agent services

GST is payable on a taxable supply. Under section 9-5 of the GST Act 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 the indirect tax zone; 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.

The requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied when you supply your buying agent services to your non-resident clients as:

a) you supply the buying agent services for consideration; and

b) the supply is made in the course of carrying on your enterprise; and

c) the supply of buying agent services is connected with the indirect tax zone as the supply is made through an enterprise that you carry on in the indirect tax zone; and

d) you are registered for GST.

Your supply of buying agent services to the non-resident clients is a taxable supply unless it is GST-free or input taxed.

There is no provision in the GST Act under which your supply of buying agent services is input taxed.

GST-free supply

Relevant to the supply of buying agent services to the non-resident clients is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Item 2

Under item 2 a supply of a things (other than goods or real property) to a non-resident is GST-free if the supply is made to a non-resident who is not in the indirect tax zone when the thing supplied is done and:

a) the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone, 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.

Where the requirements in item 2 are met, the supply of buying agent services is GST-free provided subsections 38-190(2), 38-190(2A) or 38-190(3) do not negate that GST-free status.

Question 1 – applying facts to item 2

Goods and Services Tax Ruling GSTR 2004/7 examines when a supply is made to a non-resident who is not in Australia when the thing supplied is done for the purposes of item 2.

Not in the indirect tax zone

The precondition in item 2 is that the supply is made to a non-resident who is not in the indirect tax zone in relation to the supply.

With respect to a non-resident individual, a non-resident individual is in the indirect tax zone if that individual is physically in the indirect tax zone. If a non-resident individual is physically in the indirect tax zone and in contact (other than contact which is only of a minor nature) with the supplier, that presence is in relation to the supply.

You advised that the non-resident individuals are expected to be overseas when you supply your buying agent services to them and some exceptions could apply.

Where the non-resident individual is not in the indirect tax zone in relation to your supply, the precondition that the non-resident is not in the indirect tax zone for item 2 is satisfied.

Where the non-resident individual is in the indirect tax zone in relation to the supply, the precondition for item 2 that the non-resident is not in the indirect tax zone is not met and therefore, item 2 does not apply when the supply is made to the individual at that time. The supply in this instance is a taxable supply under section 9-5 of the GST Act.

Paragraph (a) of item 2

A supply will not satisfy the requirements of paragraph (a) of item 2 if they represent a supply that is directly connected with real property situated in the indirect tax zone.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is directly connected with real property.

We consider a supply will be directly connected with real property where:

● the supply changes or affects the real property in a physical way;

● there is a physical interaction with the real property but without changing the real property;

● the supply establishes the quantity, size, other physical attributes or the value of the real property;

● the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the real property;

● the supply affects, or is proposed to affect, the ownership of the real property including any interest in, or right in or over real property

Under the Agreement you assist the buyer in selecting a property to purchase, are authorised to negotiate and complete on behalf of the non-resident buyer the purchase of the property pursuant to the terms and conditions and bid on behalf of the non-resident buyer for the purchase of the property (if applicable). In this instance, your supply is directly connected with the acquisition of an interest in land situated in the indirect tax zone on behalf of the non-resident.

In this instance, your supply of buying agent services is directly connected with real property that is situated in the indirect tax zone. Paragraph (a) of item 2 is therefore not satisfied.

Paragraph (b) of item 2

A supply that does not satisfy paragraph (a) of item 2 may nevertheless satisfy item 2 where paragraph (b) of item 2 is met.

A supply will satisfy paragraph (b) of item 2 when the non-resident recipient acquires the thing in carrying on their enterprise and is not registered or 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 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 to be satisfied, if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only acceptable where the supplier has no reason to believe the statement is not accurate.

You advised the non-resident individuals are neither registered and nor required to be registered for GST; they purchase the property either for investment purposes or to be used as a holiday house/apartment.

Where the non-resident is purchasing the property to be used wholly for their private use (for example as their holiday house) paragraph (b) of item 2 will not be satisfied as the non-resident will not be acquiring the property in the course of an enterprise that they are carrying on. Your supply of buying agent services is a taxable supply under section 9-5 of the GST Act in this circumstance.

Where the non-resident individual purchases the property for rental purposes, the requirements of paragraph (b) of item 2 are satisfied as:

● the acquisition of the property by the non-resident is in the course of the leasing enterprise that will be carried on in the indirect tax zone since the leasing of a property is an activity that constitutes carrying on an enterprise for GST purposes; and

● the non-resident individual is neither registered nor required to be registered for GST.

In this case, your supply of buying agent services will be GST-free where the requirements in paragraph (b) of item 2 are met provided the supply is not negated by subsections 38-190(3), 38-190(2) and 38-190(2A) of the GST Act.

Limitations

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

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

b) the supply is provided, or the agreement requires it to be provided, to another entity in the indirect tax zone.

You advised that you are not required to provide your buying agent services to another entity in the indirect tax zone. Further when you interact with the lawyers you are acquiring the lawyers’ services on behalf of the non-resident in order to complete the purchase of the property and not providing your services to the lawyers. In this instance subsection 38-190(3) of the GST Act is not applicable to your supply.

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with the indirect tax zone and would not be GST-free.

Subsection 38-190(2) of the GST Act is not applicable as your supply of buying agent services is not a supply of a right or option to acquire something the supply of which would be connected with the indirect tax zone and would not be GST-free.

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of a real property situated in the indirect tax zone that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

Subsection 38-190(2A) of the GST Act will apply regardless of whether an acquisition may either relate directly or indirectly to the making of those input taxed supplies of real property. In addition, where only part of the supply relates to the real property activities, the entire supply will be caught under subsection 38-190(2A) of the GST Act. Equally, where only part of the real property is used to make supplies that would be input taxed under Subdivisions 40-B or 40-C of the GST Act, the entire acquisition will not be GST-free under section 38-190 of the GST Act.

In general, the supply of residential premises, by way of lease, hire or licence, will be input taxed under Subdivision 40-B of the GST Act. This commonly includes renting out of residential premises situated in the indirect tax zone. Also the sale of residential premises, other than sale of new residential premises, will be input taxed by virtue of Subdivision 40-C of the GST Act.

When the purchased property is a commercial property, subsection 38-190(2A) is not applicable to your supply of buying agent services because the supply of a commercial property in the indirect tax zone is not an input taxed supply under the GST Act. Your supply of buying agent services is GST-free under paragraph (b) of item 2 in this instance.

When the purchased residential property is for investment purposes, subsection 38-190(2A) is applicable to your supply as the buying agent services you supply to the non-resident relates to the purchase of residential property which will be used to make an input taxed supply under Subdivision 40-B of the GST Act. Your supply of buying agent services in this case is not GST-free by virtue of subsection 38-190(2A) of the GST Act.

Summary

Purchase of commercial property

When the acquired property is a commercial property, your supply of buying agent services is GST-free under paragraph (b) of item 2 where the non-resident individual is not in the indirect tax zone when the supply is done.

However, where the non-resident individual is in the indirect tax zone in relation to the supply, your supply of buying agent services is a taxable supply under section 9-5 of the GST Act.

Purchase of residential property

When the acquired residential property is wholly for private use, your supply of buying agent services is a taxable supply under section 9-5 of the GST Act.

When the acquired residential property is for rental purposes, your supply of buying agent services is a taxable under section 9-5 of the GST Act by virtue of subsection 38-190(2A) of the GST Act.

Question 2 – applying facts to item 2

Not in the indirect tax zone

A non-resident company is in the indirect tax zone if the company carries on business (or in the case of a company that does not carry on business, carries on its activities) in the indirect tax zone:

● at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

● through an agent at a fixed and definite place for a sufficiently substantial period of time.

A non-resident company is in the indirect tax zone in relation to a supply if:

● the supply is for the purposes of the indirect tax zone presence of the company; or

● the presence of the company in the indirect tax zone is involved in the supply unless the only involvement is minor.

From the facts received the non-resident companies are not in the indirect tax zone and do not carry on any business activity through an agent or subsidiary company in the indirect tax zone. In this instance the precondition for item 2 that the non-resident not to be in the indirect tax zone is met.

Paragraph (a) of item 2

We have determined in question 1 that your supply of buying agent services is directly connected with real property that is situated in the indirect tax zone.

Paragraph (a) of item 2 is therefore not satisfied.

Paragraph (b) of item 2

Based on the information received, the requirements of paragraph (b) of item 2 are satisfied as:

● the acquisition of the property by the non-resident company is in the course of the leasing enterprise that will be carried on in the indirect tax zone since the leasing of a property is an activity that constitutes carrying on an enterprise for GST purposes; and

● the non-resident company is neither registered nor required to be registered for GST.

Accordingly, your supply of buying agent services is GST-free where the requirements in paragraph (b) of item 2 are met provided the supply is not negated by subsections 38-190(3), 38-190(2) and 38-190(2A) of the GST Act.

Limitations

Based on the information received, subsections 38-190(3) and 38-190(2) of the GST Act are not applicable to your supply.

When the purchased property is a commercial property subsection 38-190(2A) is not applicable to your supply of buying agent services because the supply of a rental commercial property is not input taxed. Your supply of buying agent services is GST-free under paragraph (b) of item 2 in this case.

When the purchased property is a residential property to be used for rental purposes, subsection 38-190(2A) is applicable to your supply as the buying agent services you supply to the non-resident company relates to the purchased residential property which will be used to make input taxed supply under subdivision 40-B of the GST Act. Your supply of buying agency services is not GST-free by virtue of subsection 38-190(2A) of the GST Act.

Summary

When the acquired property is a commercial property, your supply of buying agent services is GST-free under paragraph (b) of item 2 where the non-resident company is not in the indirect tax zone when the supply is done.

When the acquired residential property is for rental purposes, your supply of buying agent services is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(2A) of the GST Act.

Question 3

When you supply the consulting services to the non-resident individuals, paragraphs 9-5(a) to 9-5(b) of the GST Act are met as:

a) you supply the consulting services for consideration; and

b) the supply is made in the course of carrying on your enterprise; and

c) the supply of consulting services is connected with the indirect tax zone as the supply is made through an enterprise that you carry on in the indirect tax zone; and

d) you are registered for GST.

Your supply of consulting services to the non-resident clients is a taxable supply unless it is GST-free or input taxed.

There is no provision in the GST Act under which your supply of consulting services is input taxed.

GST-free supply

Relevant to the supply of consulting services to the non-resident individuals is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Based on the information received, your supply satisfies the requirements in paragraph (a) of item 2 as:

● your supply of consulting services are made to individuals who are not located in the indirect tax zone at the time of the supply; and

● your supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone,

Accordingly, your supply of consulting services is GST-free under paragraph (a) of item 2 provided subsections 38-190(2), 38-190(2A) or 38-190(3) do not negate that GST-free status.

Based on the information received, subsections 38-190(2), 38-190(2A) or 38-190(3) of the GST Act are not applicable to your supply of consulting services.

Summary

Your supply of consulting services is GST-free under paragraph (a) of item 2.

However, if at any time the non-resident individual is in Australia in relation to your supply, the supply will not be GST-free under item 2 and will be a taxable supply.