Edited version of your written advice

Authorisation Number: 1051383308873

Date of advice: 7 June 2018

Ruling

Subject: Goods and services tax (GST) and a supply of consultancy services to a non-resident entity

Question

Is the supply of consultancy services by an Australian entity to a non-resident entity subject to GST?

Answer

No, your supply of consultancy services to the non-resident entity is GST-free under item 2 (a) in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (item 2).

Relevant facts and circumstances

You are an Australian entity.

You are currently not registered for goods and services tax (GST).

Your annual GST turnover will be more than $75,000.

You supply a consultancy services to a non-resident entity.

You will supply your consultancy services from Australia.

The non-resident entity is based overseas and is not registered or required to be register for GST in Australia.

The non-resident entity does not have any office or its representatives in Australia in relation to your supply of consultancy services.

You do not have an agreement with the non-resident entity to provide your consultancy services to another entity in 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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3)

Reasons for decisions

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 the indirect tax zone (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 their supply to be a taxable supply and to be liable for GST.

From the information given you satisfy paragraphs 9-5(a) to (c) of the GST Act when you supply your consultancy services as:

a) you make your supply for consideration (fund received from the head office);

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

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

Therefore, we need to consider whether you are required to be registered for GST (paragraph 9-5(d) of the GST Act).

Paragraph 9-5(d)

Are you required to be registered for GST?

Under section 23-5 of the GST Act, a supplier is required to be registered for GST if:

a) the supplier carries on an enterprise; and

b) the supplier’s GST turnover (current and/or projected) meets the GST registration turnover threshold (currently $A75,000 and $A150,000 for non-profit organisation).

Section 188-10 of the GST Act provides that your GST turnover meets the registration turnover threshold if:

● your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is below $75,000; or

● your projected GST turnover is at or above $75,000.

You can choose to register for GST if its GST turnover is less than $A75, 000.

Goods and Services Tax Ruling GSTR 2001/7 (available at www.ato.gov.au) provides guidance on the meaning of GST turnover.

The current annual turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. The projected annual turnover is the sum of the value of all supplies made in a particular month plus the next 11 months.

The GST turnover is the gross business income (not the profit). Supplies that are connected with Australia are included when calculating the GST turnover even if these connected supplies are determined to be GST-free.

Based on the information provided, your annual GST turnover will be more than $75,000. Therefore you are required to register for GST and satisfy paragraph 9-5(d) of the GST Act.

Accordingly, you satisfy paragraphs 9-5(a) to (d) of the GST Act when you supply your consultancy services.

However, your supply of consultancy 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 consultancy services input taxed.

GST-free supply

Relevant to your supply of consultancy 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.

Precondition of item 2 – non-resident is 'not in Australia'

For the supply of your services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is performed/provided.

Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done. Paragraph 37 of GSTR 2004/7 provides that a non-resident company is in Australia if that company carries on business (or in the case of company that does not carry on business, carries on its activities) in Australia through:

a) a fixed and definite place of its own for a sufficiently substantial period of time; or

b) an agent at a fixed and definite place for a sufficiently substantial period of time.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply, when the supply is done (that is, performed/provided).

From the facts provided your supply of consultancy services are made and provided to the non-resident entity. You advise that the non-resident entity is not in Australia in relation to your supply of the services, nor do they have any other representatives acting on their behalf in Australia in relation to those services. Accordingly, it is considered that the non-resident entity is 'not in Australia' in relation to the supply of your services in for the purposes of Item 2.

Paragraphs (a) and/or (b) of Item 2

The next step is to consider the paragraphs in item 2. Only one of the paragraphs needs to be satisfied for the supply of consultancy services to be GST-free under item 2.

Paragraph (a) of Item 2

Paragraph (a) of Item 2 requires that the supply of 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.

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

Your supply of consultancy services satisfy paragraph (a) of Item 2 since the supply is neither a supply of work physically performed on goods situation in Australia when the work is done, nor a supply directly connected with real property situated in Australia.

Your supply of consultancy services is GST-free to the extent that it is not negated by subsection 38-190(2A) or 38-190(3) of the GST Act.

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

Limitations of Item 2

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 acquisitions of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of residential real property situated in Australia.

From the facts given subsection 38-190(2A) of the GST Act is not applicable to your supply of consultancy services.

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.

Based on the facts provided, the supply of your consultancy services is not provided, and there is no agreement(s) with the non-resident entity to provide these services to another entity in Australia. Accordingly, subsection 38-190(3) of the GST Act does not exclude the supply of your consultancy services from being GST-free under Item 2.

In summary, the supply of your consultancy services to the non-resident entity is GST-free under Item 2 and no GST payable on this supply.

Please note: You are required to be registered even though all your supplies are GST-free. You must make your application within 21 days after becoming required to be registered for GST.