Edited version of your written advice

Authorisation Number: 1012886477954

Date of advice: 29 September 2015

Ruling

Subject: GST and supply to a non-resident company

Question 1

Are the rectification works that you will undertake under the contract with the overseas company a GST-free supply under the A New Tax System (Goods and Services Act) Act 1999 (GST Act)?

Answer

No. Based on the information received, the rectification works that you will undertake under the contract with the overseas company will be a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.

Question 2

If your supply is a taxable supply, how can the overseas company claim back the goods and services tax (GST) paid on the acquisition?

Answer

Where the acquisition is a creditable acquisition under section 11-5 of the GST Act, the overseas company can register for GST with the Australian Taxation Office to claim back the GST paid on the acquisition.

Relevant facts and circumstances

You are an Australian company and registered for GST.

An overseas company has supplied goods to an Australian company. The goods were manufactured overseas, brought to Australia and imported by the Australian company.

The goods were delivered in Australia. The Australian company has informed the overseas company that the goods were defective.

You are about to enter into a written agreement with the overseas company. The work under the agreement will be predominantly rectification works required to be undertaken on the defective goods.

The overseas company does not have an office within Australia and is not 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 section 38-190

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

Reasons for decisions

Detailed reasoning

Note: Where the term ‘Australia’ is used in this document, it is referring to the ‘indirect tax zone’ as defined in subsection 195-1 of the GST Act.

Question 1

GST is payable on a taxable supply. Under section 9-5 of the GST Act, an entity makes a taxable supply if:

a) the supply is made 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 the indirect tax zone (Australia); and

d) the entity is registered for GST.

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

From the information received your supply of services to rectify the goods for the non-resident company will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a) you will make the supply for consideration; and

b) the supply will be made in the course of an enterprise that you carry on in Australia; and

c) the supply of services to rectify the goods will be connected with Australia as the services will be done in Australia; and through an enterprise that you carry on in Australia; and

d) you are registered for GST.

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

There is no provision under the GST Act that makes your supply of services to rectify the goods input taxed.

GST-free supply

Relevant to your supply of services to a non-resident 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 GST.

Accordingly where the requirements in item 2 are met, the supply is GST-free provided it is not negated by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table 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 Australia.

The rectification work will satisfy paragraph (b) of item 2 as the overseas company is a non-resident and will not be in Australia at the time of the supply; it is not registered for GST and will acquire your service while carrying on its business overseas. Paragraph (b) of item 2 will therefore be satisfied.

Under the agreement with the overseas company, you will perform rectification work on the goods that were sold to the Australian company. In this instance it will be the Australian company that is in receipt of the rectification work as it is the owner of the goods and not the overseas company. Accordingly your supply of services to rectify the goods will be made to the overseas company (since your agreement will be with the overseas company) and provided to the Australian company. Your supply in this instance will not be GST-free under subsection 38-190(3) of the GST Act.

Your supply of services to rectify the goods will be a taxable supply under section 9-5 of the GST Act.

More information on item 2 is available in the Goods and Serves Tax Rulings GSTR 2003/7, GSTR 2004/7 and 2005/6 which are available from the legal database of www.ato.gov.au

Question 2

GST refund

Under section 11-20 of the GST Act an entity is entitled to the input tax credit (GST refund) for any creditable acquisition that the entity makes.

Under section 11-5 of the GST Act an entity makes a creditable acquisition if:

a) the entity acquires anything solely or partly for a creditable purpose; and

b) the supply of the thing to the entity is a taxable supply; and

c) the entity provides or is liable to provide consideration for the supply; and the entity is registered or required to be registered for GST.

Under subsection 11-5(1) of the GST Act, the entity acquires a thing for a creditable purpose to the extent that it acquires it in carrying on its enterprise.

However, under subsection 11-5(2) of the GST Act, the entity does not acquire the thing for a creditable purpose to the extent that that:

a) the acquisition relates to making supplies that would be input taxed; or

b) the acquisition is of a private or domestic nature.

More information on ‘creditable purpose’ is available in Goods and Services Tax Ruling GSTR 2008/1.

Non-resident claiming GST refund

A non-resident can choose to register for GST if it is carrying on an enterprise (business) overseas. It will be required to provide certain documentation as evidence that it is carrying on the enterprise for which it is seeking GST registration. It may also be required to provide evidence of its identity.

Registering for GST enables the non-resident to claim GST credits for GST included in the price of acquisitions that it makes for its business. It must, however, ensure that it is entitled to claim those GST credits and hold valid tax invoices at the time it makes the claims. For more information on what it can claim back as GST refunds please refer to the guide ‘GST for small business’ which is available at www.ato.gov.au.

If the non-resident registers for GST and it make sales that are connected with Australia; it is also required to pay GST to the ATO on its taxable sales.

If the non-resident chooses to register it will be expected to stay registered for 12 months. It can register for GST online at www.ato.gov.au and use the same application form to apply for an Australian Business Number (ABN) to register for GST.

More information on how to register is available in the fact sheet ‘GST registration for non-resident’ which is available at www.ato.gov.au