Edited version of your written advice

Authorisation Number: 1013139161899

Date of advice: 14 December 2016

Subject: GST and supplies to non-resident

Question

Will your supply of services to the non-resident entity be a GST-free supply?

Answer

Yes. Your supply of services to the non-resident entity will be a GST-free supply.

Relevant facts and circumstances

You are am Australian company wholly owned and controlled by an individual.

The individual is an employee of the non-resident entity.

You will enter into an agreement with the non-resident entity under which you will supply services to the non-resident entity; such services will be provided by the individual.

From the date of the agreement, the individual will cease to be an employee of the non-resident entity.

The non-resident entity does not have an employee, an agent or a subsidiary in Australia.

The non-resident will pay you a gross service fee of more than $75,000 per annum inclusive of any tax that may apply to such payment.

You have an Australian Business Number (ABN) but are 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 9-27; and

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

Reasons for decision

GST is payable on a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) states:

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.

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

(* denotes a term defined under section 195-1 of the GST Act)

You will make the supply of services for consideration and in the course of carrying on your enterprise. The supply will be connected with the indirect tax zone as you will make the supply through your enterprise carried on in the indirect tax zone. The requirements in paragraphs (a), (b) and (c) above will be satisfied. Therefore, if you are registered or required to be registered, the supply will be a taxable supply unless it is GST-free or input taxed.

Under subsection 38-190(1) of the GST Act certain supplies of things, other than goods or real property, for consumption outside the indirect tax zone are GST-free.

Item 2 in the table in subsection 38-190(1) (item 2) provides that a supply that is made to a non-resident who is not in the indirect tax zone 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 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.

A non-resident entity is in the indirect tax zone if it carries on its enterprise in the indirect tax zone.

Subsection 9-27(1) of the GST Act provides that an enterprise of an entity is carried on in the indirect tax zone if:

(a) the enterprise is carried on by one or more individuals covered by subsection (3) who are in the indirect tax zone; and

(b) any of the following applies:

i. the enterprise is carried on through a fixed place in the indirect tax zone;

ii. the enterprise has been carried on through one or more places in the indirect tax zone for more than 183 days in a 12 month period;

iii. the entity intends to carry on the enterprise through one or more places in the indirect tax zone for more than 183 days in a 12 month period.

For the purpose of paragraph 9-27(1)(a) of the GST Act, 'individuals' include:

(a) if the entity is an individual - that individual;

(b) an employee or officer of the entity;

(c) an individual who is, or is employed by, an agent of the entity that:

i. has, and habitually exercises, authority to conclude contracts on behalf of the entity; and

ii. is not a broker, general commission agent or other agent of independent status that is acting in the ordinary course of the agent's business as such an agent.

The non-resident entity does not have an employee, an agent or a subsidiary in Australia; thus, the non-resident entity does not carry on its enterprise in the indirect tax zone. Therefore, the non-resident entity is not in the indirect tax zone.

The agreement between you and the non-resident entity does not provide that the supply will either be a supply of work physically performed on goods situated in the indirect tax zone or a supply directly connected with the indirect tax zone. Therefore, paragraph (a) of item 2 will be satisfied. Accordingly, your supply of services to the non-resident entity will be GST-free.

Requirement to register

An entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold of $75,000 ($150,000 for non-profit bodies).

GST-free supplies are included in calculating an entity's GST turnover.

As the consideration for the supply that you will make to the non-resident will exceed $75,000 in a 12-month period, your GST turnover will meet the registration turnover threshold. Therefore, you will be required to be registered for GST even if the only supplies that you will make would be GST-free.