Edited version of your written advice

Authorisation Number: 1013125442690

Date of advice: 17 November 2016

Ruling

Subject: GST and supply of consulting services

Question 1

Is the supply of consulting 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, the supply of consulting services made by you to the non-resident company is a GST-free supply under item 2 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 run a consultancy business from your home.

One of your clients is a non-resident company. You do not have any contract with this non-resident company and you advised the following in regard to your supply to the non-resident company:

● The non-resident company operates from overseas and has no operational bases in Australia.

● The non-resident company generally operates charter flights each year which usually operate through Australia.

● The non-resident company contacts you from overseas well prior to the operation of the charter and you assist it with arrangement.

● You liaise with local companies in Australia and ascertain arrangements and provide information based on your local knowledge and experience.

● By the time of the flights all of the arrangements are made, the non-resident company pays all costs as per those contracts and arrangements directly to the suppliers.

● You do not engage in the actual provision of the services. You simply arrange them that is you provide the non-resident company with information to enable it to make a decision, enter into contracts and pay for the costs.

● You do not provide any services to the non-resident company in Australia. It pays you for your advice and information to assist it in making the arrangement.

● After you issue the non-resident company with an invoice payment is made to your bank account.

● You may have contact with the employees when they arrive in Australia and the contact is not business related. It is mostly social contact and the contact is unplanned.

● You have checked the ABN register and there is no information that indicates that the non-resident company is 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

Reasons for decision

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

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 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 consulting services 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 consulting services are done in Australia and made through a business that you carry on in Australia; and

d) you are registered for GST.

However, your supply of consulting 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 consulting services input taxed.

GST-free supply

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

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that 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.

Only one of the paragraphs in item 2 needs to be satisfied for your supply of consulting services to be GST-free under item 2.

From the facts given, you satisfy the requirements of paragraph (a) in item 2 as:

● your supply is made to a non-resident who is not in Australia in relation to your supply when your consulting services are done;

● your consulting services 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

There is no need to consider paragraph (b) of item 2 since paragraph (a) of item 2 is satisfied.

Limitations of item 2

Your supply of consulting services is GST-free to the extent that it is not negated by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act

An amendment was made to subsection 38-190(3) of the GST Act recently. From 1 October 2016, the amended 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; and

c) for a supply other than an input taxed supply - none of the following applies:

i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;

ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.

Paragraph (b) of subsection 38-190(3) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means in our view that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable to you as the consulting services are provided to the non-resident company. You may have contact with the employees when they arrive in Australia and since you advised that your contact with them is not for business purposes you are not providing your services to them.

Summary

Your supply of consulting services to the non-resident operator is GST-free under item 2.