Edited version of your written advice

Authorisation Number: 1013124833053

Date of advice: 15 November 2016

Ruling

Subject: GST and supply of services to a non-resident

Question

Is the supply of services made by you to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, based on the information given the supply of services made by you to the non-resident company is a GST-free supply under item 1 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

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

You have entered into a contract of service with an offshore entity for the provision of your services to the customer of the offshore entity. Your services consist of modelling data centres for the non-resident company which are located outside Australia.

The work being performed is the creation of management databases from various sources which are all located outside Australia. The database work consists of creating models of the buildings, sites, and relevant equipment, along with other ancillary items. All of the work is being performed in Australia from source data provided over the internet. The databases are sent back to the offshore entity for checking and handover to the customer of the offshore entity for their ongoing use.

The work performed is directly connected with property as the actual data centres and databases are in various locations located outside Australia.

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

Taxable supply

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

a) the supplier makes the supply for consideration; and

b) the supply is made in the course of an enterprise that the supplies carries on; and

c) the supply is connected with Australia; and

d) the supplier is registered for GST.

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

You must satisfy all of the above for your supply of services to be a taxable supply and to be liable for GST.

From the information given you satisfy paragraphs 9-5(a) to (d) of the GST Act when you supply your services to the non-resident company as:

a) you make your supply for consideration;

b) you make the supply in the course of an enterprise that you carry on in Australia;

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

d) you are registered for GST.

However, your supply of services is not 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 input taxed.

GST-free supply

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

Under item 1 a supply of things other than goods or real property that is directly connected with goods or real property situated outside Australia is GST-free.

Where a supply has a direct connection with goods or real property, or is a supply of work physically performed on goods, the location of goods or real property is the basis upon which he GST treatment of the supply is determined under item 1. The place of consumption is in effect determined by the location of the goods or real property. If the goods or property is located outside Australia, the supply of the thing is GST-free under item 1. If the real property is located in Australia, the supply of the thing is not GST-free.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is directly connected with goods or property. Paragraphs 21 to 23 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 of goods or real property. The inference is that the supply is 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).

23. The goods or real property must, in our view, be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one.

Supplies that affect (or its purpose is to affect) or protect the nature or value of particular goods or real property may depending on what the supply is for, include management services, advisory consulting or other professional services that commonly do not involve physically dealing with goods or real property. Specific examples of supplies of this kind include a supply of architectural or design engineering services for particular real property.

Paragraphs 48 and 49 of GSTR 2003/7 state:

48. For example, a supply of architectural services to design a building for a particular site may be perceived as one step removed from the transaction that has direct effect upon the real property - namely the construction of a building. On this view, the architectural services only make way for the supply of building services that is directly connected with real property and the supply of the architectural services is not directly connected with real property.

49. However, the direct object of the supply is the real property in the sense that it affects, or has the purpose of affecting, the nature of the real property. There is a very close connection between the supply and the real property. The supply of architectural services is, therefore, directly connected with real property.

You advised that the work being performed is infrastructure management databases from various source data of the actual buildings, which are all located outside of Australia. The database work consists of creating models of the buildings, sites and relevant equipment, along with other ancillary items. All of the work is being performed in Australia from soft copies of the source data provided over the internet. The databases are sent back to the offshore entity for checking and handover to the customer of the off-shore entity for their ongoing use. You stated that the services you performed are directly connected with property situated outside Australia as the actual data centres and databases are in various locations located outside Australia.

From the above your supply of services to the non-resident company is GST-free under item 1 as your supply of services is directly connected with real property located outside Australia.