Edited version of your written advice

Authorisation Number: 1012975687791

Date of advice: 24 February 2016

Ruling

Subject: GST and supply of eBooks

Question

Is your supply of eBooks to individuals located outside Australia a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, your supply of eBooks to individuals (resident and non-resident of Australia) located outside Australia is a GST-free supply under item 3 in the table in subsection 38-190(1) of the GST Act.

Relevant fact

You are registered for goods and services tax (GST) and run a business that sells eBooks.

You advised that since the eBook is marketed to individuals through direct marketing and from a website.

The eBooks are available to individuals globally and are distributed electronically.

Relevant legislative provisions

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

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.

GST is payable on a taxable supply. An entity makes a taxable supply under section 9-5 of the GST Act if:

a) the entity makes the supply 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 Australia; and

d) the entity is 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 supply the eBooks as:

a) you make the supply for consideration; and

b) the supply is made in the course of an enterprise that you carry on;

c) the supply is connected with Australia as the supply is made through an enterprise that you carry on in Australia; and

d) you are registered for GST.

There is no provision in the GST Act that makes the supply of eBooks input taxed.

We will now consider whether your supply of eBooks is GST-free.

GST-free supply

You advise that the eBook is available to individuals globally. Where the supply of eBooks is made to individuals located outside Australia it is relevant to consider item 3 in the table in subsection 38-190(1) of the GST Act (item 3).

Item 3 applies irrespective of whether the recipient is a resident or non-resident of Australia.

Under item 3, a supply of a thing other than a supply of work physically performed on goods situated in Australia when the thing supplied is done or a supply directly connected with real property situated in Australia is GST-free if:

a) the supply is made to a recipient who is not in Australia when the thing supplied is done; and

b) the effective use or enjoyment of which takes place outside Australia.

All the requirements in item 3 must be satisfied for the supply to be treated as GST-free under that item.

Paragraph (a) of item 3

'Recipient' is defined in section 195-1 of the GST Act and means 'in relation to a supply, the entity to which the supply was made'.

In regard to supply made to an individual, the requirement that 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 individual is not in Australia in relation to the supply when the thing supplied is done. If the recipient is in Australia in relation to the supply the recipient does not satisfy the 'not in Australia' requirement.

A resident individual who is physically in Australia when the thing supplied is done is in Australia in relation to the supply.

A non-resident individual who is physically in Australia when the thing supplied is done is in Australia in relation to the supply to the extent that the non-resident is in contact (other than contact which is only of a minor nature) with the supplier while in Australia.

Contact is minor if it is limited to contact of a simple administrative nature, such as checking on the progress of the supply or a courtesy call on the supplier. If this is the only contact between the non-resident individual and the supplier we consider that the individual is not in Australia in relation to the supply.

For more information on paragraph (a) of item 3 refer to Goods and Services Tax Ruling GSTR 2004/7 which is available from the legal database of www.ato.gov.au

In this case, the individuals (resident and non-resident of Australia) are not in Australia at the time of the supply of the eBooks. Paragraph (a) of item 3 is therefore satisfied.

Where paragraph (a) of item 3 is satisfied it is necessary to consider paragraph (b) of item 3.

Paragraph (b) of item 3

Paragraph (b) of item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia).

To work out whether effective use or enjoyment of a supply takes place outside Australia, we apply the following two step approach:

i. Determine the entity to which the supply is provided (the providee entity);

A supply is provided to an entity if in the performance or doing of the supply, the service or thing supplied flows to that entity. For example a supply of travel services is provided to the entity that undertakes the travel. The actual flow of the travel service is to that entity.

ii. Determine whether provision of the supply to the providee entity is outside Australia.

Effective use or enjoyment of the supply takes place outside Australia if there is provision of the supply to the providee entity outside Australia.

A supply is provided as and when the thing supplied is done. Therefore this is the relevant time for determining whether a supply is provided to an individual in or outside Australia.

A supply is provided to a resident individual outside Australia if that individual is physically outside Australia when the thing supplied is done and, that presence outside Australia is integral to, as distinct from being merely coincidental with the provision of the supply.

A supply is provided to a non-resident individual outside Australia if that individual is physically outside Australia when the thing supplied is done; or is physically in Australia when the thing supplied is done but that presence in Australia is not integral to, but is merely coincidental with, the provision of the supply.

Indicators that the presence of the individual outside Australia is integral to the provision of the supply include:

• the need for the supply arises from the individual's presence outside Australia, for example a supply of legal services in relation to an offence committed by that individual while outside Australia; or

• the presence of the individual outside Australia is integral to the performance, receipt or delivery of the supply, for example training, entertainment or travel services.

In this case, the supply of the eBook is done when it is delivered to the individual. The presence of the individual is therefore integral to the receipt of the eBook.

Accordingly where the supply of the eBook is made to an individual (resident and non-resident) located outside Australia, the effective use or enjoyment of the supply takes place outside Australia. Paragraph (b) of item 3 is therefore satisfied.

For more information on paragraph (b) of item 3 please refer to Goods and Services Tax Ruling GSTR 2007/2.

Other requirements of item 3

The other requirements for item 3 is the supply is neither a supply of work physically performed on goods situated in Australia when the thing supplied is done nor a supply directly connected with real property situated in Australia

Your supply of the eBook is neither a supply of work physically performed on goods situated in Australia when it is supplied nor a supply directly connected with real property situated in Australia.

The other requirements in item 3 are satisfied.

Summary

Your supply of eBooks to individuals (resident and non-resident) located outside Australia is GST-free under item 3.