Edited version of your written advice

Authorisation Number: 1051208296032

Date of advice: 30 March 2017

Ruling

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

Question 1

Will your supply of marketing services to the non-resident entity be a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, your supply of marketing services to the non-resident entity will be a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

● You are an Australian entity and registered for the goods and services tax (GST).

● The non-resident entity has an online marketplace and accommodation network which enables people to list or rent short-term lodging in residential properties.

● You are considering marketing the non-resident's online marketplace to residential property owners in Australia.

● You will receive commission from the non-resident entity in relation to residential property owners who sign-up to the online marketplace or rent out properties in Australia through the online marketplace. The commission is payable regardless of whether your marketing efforts directly result in a booking.

● To your knowledge, the non-resident entity does not carry on any business activity in Australia at a place of its own or through a subsidiary, third party or agent in Australia. There will be nobody acting on behalf of the non-resident entity in Australia that will be involved with your supply of marketing services.

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.

Detailed reasoning

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 supplier 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 liable for GST.

From the information given you will satisfy the requirements in paragraphs 9-5(a) to (d) of the GST Act when you supply your marketing services as:

a) you will make your supply for consideration;

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

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

d) you are registered for GST.

However, your supply of marketing services to the non-resident entity 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 marketing services under input taxed.

GST-free supply

Relevant to your supply of marketing services to the non-resident entity 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.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7provides guidance on when a supply is a supply of work physically performed on goods and when a supply is directly connected with real property.

Based on the information received, your supply of marketing services satisfies paragraph (a) of item 2 since:

● your supply will be made to a non-resident entity that will not be in Australia in relation to your supply; and

● your supply of marketing services will neither be 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.

Your supply of marketing services will be GST-free under paragraph (a) of item 2 to the extent that the supply is not negated by subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

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

Limitations of item 2 

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

From the information received, this subsection does not apply to your supply of marketing services since your supply is not a supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Subsection 38-190(2A) of the GST Act

Under subsection 38-190(2A) of the GST Act a supply covered by any items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be wholly or partly input taxed under Subdivision 40-B or 40-C.

Subdivision 40-B of the GST Act deals with the supply of premises (including a berth at a marina) by way of lease, hire or license. Subdivision 40-C of the GST Act deals with the sale of residential premises and the supply of residential premises by way of long-term lease).

Paragraphs 9.5 and 9.6 and Example 9.1 in the Explanatory Memorandum (EM) to Tax Laws Amendment (2004 Measures No 6) Act 2005 state the following:

9.5       This bill amends section 38-190 to ensure that supplies covered by items 2 to 4 in the table in subsection 38-190(1) that relate (whether directly or indirectly) to making a supply of real property in Australia, are not GST-free if the supply of the real property would be input taxed under Subdivisions 40-B and 40-C of the GST Act.

[Schedule 9, item 1, subsection 38-190(2A)]

9.6       Supplies that would be directly related to the making of supplies of real property include a supply of architectural services for a particular property, real estate property management services, building insurance and legal services in preparing an instrument of mortgage over real property. Supplies that would be indirectly related to the making of supplies of real property in Australia include a supply of public liability insurance and advertising services.

Example 9.1

Jane is a non-resident of Australia who lives in Singapore. She owns a rental property in Brisbane. She hires a local gardener to maintain the garden. She also hires a local real estate agent to advertise the property for rent. The supply of the gardening service is directly related to the property while the advertising is indirectly related to the property. New subsection 38-190(2A) operates to ensure that these services are not GST-free.

Subsection 38-190(2A) of the GST Act applies regardless of whether an acquisition may either relate directly or indirectly to the making of those input taxed supplies of real property. In addition, where only part of the supply relates to the real property activities, the entire supply will be caught under subsection 38-190(2A) of the GST Act. Equally, where only part of the real property is used to make supplies that would be input taxed under subdivisions 40-B or 40-C of the GST Act, the entire acquisition will not be GST-free under subsection 38-190(1) of the GST Act.

In applying subsection 38-190(2A) of the GST Act it is the acquisition of the supply which must relate to making a supply of real property that would be input taxed. The provision therefore applies only where the acquisition of the supply relates to a supply that would be input taxed.

When you supply your marketing services to the non-resident entity, the acquisition of your marketing services by the non-resident entity will relate to making a supply of advertising on its websites which is not an input taxed supply. Subsection 38-190(2A) of the GST Act therefore does not apply to your supply.

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; 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.

Based on the information received, subsection 38-190(3) of the GST Act is not applicable as the marketing services are provided to the non-resident entity and not to the potential clients of the non-resident entity. The potential clients are being supplied with information about using the non-resident's website to advertise their residential property for lease.

Summary

Your supply of marketing services to the non-resident entity will be a GST-free supply under paragraph (a) of item 2.