Edited version of your written advice

Authorisation Number: 1051306647875

Date of advice: 4 December 2017

Ruling

Subject: GST and supply of tests to Australian candidates

Question

Are the non-resident’s supplies of tests to Australian candidates connected with the indirect tax zone on the basis that the “thing is done in the indirect tax zone”, pursuant to paragraph 9-25(5)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, the non-resident’s supplies of tests to Australian candidates are connected with the indirect tax zone on the basis that the “thing is done in the indirect tax zone”, pursuant to paragraph 9-25(5)(a) of the GST Act.

Relevant facts

You are a non-resident that carries on your business activity outside Australia. You supply test to Australian individuals located in Australia.

The Australian candidates will refer to the Bulletin related to the test they would like to take before they register for the test and its taking with you. The Bulletin provides information about the test, how to do the registration, how to take test, refund policy and how and when the candidate will receive the score for the taken test.

The contents, terms and conditions in the Bulletin become a binding contract between the candidate and you when the candidate registers for the test and its taking and makes the payment to you.

Candidates can register to take the test with you by logging onto your website, by phone or mail. Payment of the test fee generally entitles candidates to obtain copies of score reports for the tests that have been undertaken.

When registering for the test and its taking, the candidate will pay the test in full, nominate the centre where they will take the test, enter their identification information and advise how they would like to receive the score report for the test and whether the score report is to be provided to additional entities. Late registration for the test after the registration deadline incurs a fee.

The candidate can update the detail of the entities they nominated to receive to receive a copy of the score report by a certain date and if they do the update after that given date they will be charge a fee for each report to be sent to the nominated entity.

Candidates that do not have the correct ID at the time they are to take the test will not be allowed to take the test and will not receive a refund for the fee paid for the test. Candidates who do not come to the center on that booking day to take the test are not entitled to receive a refund of the fee for not taking the test.

Candidates who want to reschedule the date for the test have to pay a fee first before they can select the new date for the booking.

Candidate who cancels their registration before the deadline would automatically receive a refund equivalent to half of the test fee they paid. The remainder of the fee will be retained to cover the cost of processing the candidate’s registration and holding a seat for them at the test center.

You use both human scorers and automated scoring methods for the tests. Candidate may view some of the scores at the time of completing the test at the centre and you consider these score to be unofficial records. Information about the test done by candidate is uploaded to your server and you will scrutinise the results before providing the official score report to the candidate.

The tests taken by the candidates are developed by professional teams located outside Australia. Once a test question is created, it is put through multiple, rigorous reviews to meet the highest standards of fairness, validity and reliability in the testing industry. All of these reviews are carried out outside Australia.

You engage third party entities to provide test administration services in Australia for the purposes of collecting test data, and ensuring the integrity of that data. In general this involves making a testing centre available, administering tests to candidates, invigilating testing, collecting responses and ensuring these are transmitted to you overseas.

Candidates receive the test scores in three ways:

● Unofficial online score reports are posted to the candidate’s profile xx days after test administration. Candidates can log in to view the report.

● Unofficial score reports are posted to the candidate’s profile approximately yy days after test administration. Candidates can log in to download the report.

● Official paper examinee score reports are mailed approximately xy days after test administration.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(5)

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

The connection with Australia is one of the elements required to be satisfied before a supply is a taxable supply.

Relevant to the supplies of the tests is subsection 9-25(5) of the GST Act.

A supply of something other than goods or property is connected with Australia under subsection 9-25(5) of the GST Act if any of the following applies:

a) the thing is done in Australia;

b) the supplier makes the supply through an enterprise that they carry on in Australia;

c) the supply is of a right or option to purchase something that would be connected with Australia;

d) the purchaser is an Australian consumer (from 1 July 2017).

Paragraph 9-25(5)(a) of the GST Act

'Thing' in paragraph 9-25(5)(a) of the GST Act is defined in section 195-1 of the GST Act. It means anything that can be supplied or imported. 'Thing', in the context of paragraph 9-25(5)(a), is what is supplied. It is the subject matter of the supply.

According to paragraph 177 in GSTR 2000/31, a supply of any one or more of these things is connected with Australia, if the thing is done in Australia. Thus, in establishing whether a thing is done in Australia it is important to identify:

i. what is the 'thing' that is being supplied; and

ii. where that 'thing' is done.

We will now consider each of the above.

What is the ‘thing’ that is being supplied?

‘Thing’ as defined in section 195-1 of the GST Act means anything that can be supplied or imported. It is the subject matter of the supply or importation.

Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. It is also necessary to establish the exact nature of the supply.

According to paragraph 222 in Goods and Services Tax Ruling GSTR 2006/9, where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes.

Paragraph 223 of GSTR 2006/9 further provides the following:

223. Australian courts have held that an arrangement between the parties will be characterised not merely by the description the parties give to the arrangement, but by looking at the transactions entered into and the circumstances in which the transactions are made. This was made clear by McTiernan J in Radaich v. Smith (1959) 101 CLR 209 at 214:

...the parties cannot by the mere words of their contract turn it into something else. Their relationship is determined by the law and not by the label they choose to put on it.

and by Gray J in Re Porter; Re Transport Workers Union of Australia (1989) 34 IR 179 at 184:

A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. ...the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.

However this is to say ….

Accordingly from the above, the starting point to determine the ‘thing’ supplied to the candidate is to refer to the Test Information Bulletins (Bulletins) which are the binding contracts between you and the candidate once a payment is received from the candidate. The candidate is bound by the contents, terms and conditions in the Bulletin.

Taking into consideration the Bulletins and the information given, we consider that you on receipt of the payment from the candidate has agreed to:

● supply the elected test to the candidate,

● deliver the elected test to the candidate’s nominated centre that is supplied by you so that the candidate can take the test (provided the candidate has the required ID) and;

● advise the candidate and any nominated additional recipients the score of the taken test.

Based on the terms and conditions in the Bulletins, we consider that supply of the test and its taking is the ‘thing’ being supplied to the candidate and the provision of the scoring test and score to the candidate is part of the supply of the ‘thing’ since the score is the product of the taken purchased test. The score for the test is not a separate supply since the scoring of the test and the score contribute to the supply and the taking of the test as a whole and cannot be identified as the dominant supply in regard to the payment received by you. This view is consistent to the explanations at paragraphs 69 and 70 in Goods and Services Tax Ruling GSTR 2000/31 which state:

69. Sometimes a service may involve both work being done and the creation of a product for the recipient. However, this does not alter the nature of the supply as one for the performance of a service.

70. For example, if an architect is engaged to prepare and provide a plan for the recipient, the plan is the product produced as a result of the services provided by the architect. The service is done where the work is done, that is, where the plan is prepared or drawn. This is the case even if the contract is to deliver a completed plan. If the plan is prepared in Australia, the service is performed in Australia and the supply is connected with Australia. The delivery of the plan does not determine where the service is done. The product of that service, the plan, is not a separate supply from the supply of that service.

Where that 'thing' is done.

As determined above the ‘thing’ supplied to the candidate is the test and the taking of the test.

The supply of the test is done at the time when the test is taken. In this instance the test and its taking is done in Australia as the Australian candidate will take the test at the nominated test centre you make available to them in Australia. The supply of the test and its taking is therefore connected under paragraph 9-25(5)(a) of the GST Act.

Summary

The supply of the tests and its takings by you to the Australian individuals is connected with Australia under paragraph 9-25(5)(a) of the GST Act.