Edited version of your written advice

Authorisation Number: 1051384608321

Date of advice: 21 June 2018

Ruling

Subject: GST and supply of assembly and repair services to a non-resident entity

Question 1

Is the supply of assembly services made by the Australian company (you) to the overseas company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as per the Service Agreement?

Advice

Before 1 October 2016

The supply of assembly services you made to the overseas company is not a GST-free supply. The supply is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act.

From 1 October 2016

The supply of assembly services you made to the overseas company is a GST-free supply under paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act where the overseas company is not required to be registered for GST.

Question 2

Is the supply of repair services made by the Australian company (you) to the overseas company a GST-free supply under the GST Act as per the Service Agreement?

Advice

Before 1 October 2016

Before 1 October 2016, the supply of repair services you made to the overseas company is not a GST-free supply. The supply is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act

From 1 October 2016

The supply of repair services you made to the overseas company is GST-free under subsection 38-191(1) of the GST Act where the equipment is under warranty when repaired. Further any supply of goods that are attached to the equipment that is under warranty is GST-free under subsection 38-191(2) of the GST Act.

The supply of repair services you made to the overseas company is also GST-free under paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act where the overseas company is not required to be registered for GST.

Relevant facts

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

You have entered into a Service Agreement with an overseas company in 2015. Under the agreement you will perform assembly services for the overseas company’s products in Australia and you will received an agreed commission based on per job quotation.

You provided the following information:

● The overseas company deals with their Australian customers directly and provide equipment to them. The Australian customers are registered for GST.

● The overseas company advises you when a shipment arrives in Australia and the date the installation should take place.

● The overseas company is not the importer of the equipment in Australia. A GST registered Australian company is the importer of the equipment. It has purchased the equipment from the overseas company and will have the equipment installed in places in Australia.

● Upon completion of the installation, you will issue invoices to the overseas company for the service amount agreed upon.

● The overseas company does not provide training and support to their Australian customers in Australia. It does not have any staff or representative in Australia when the equipment is being assembled. It does not carry on any business activity in Australia and it is not registered for GST.

● When the assembly of the equipment is done maybe some parts need to be repaired later to the equipment. You would buy parts in Australia. When the repair job is done, you will issue repair invoice to the overseas company.

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 section 38-191

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.

Question 1

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 or furtherance of an enterprise that the supplier carries on; and

c. the supply is connected with Australia; and

d. the supplier is registered or required to be registered for GST.

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

All of the above must be satisfied for your supply of assembly services to be a taxable supply.

From the information given, your supply of assembly services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you make your supply for consideration; and

b) the supply is made in the course of a business that you carry on; and

c) your supply is connected with Australia as it is made through a business that you carry on in Australia; and

d) you are registered for GST.

However, your supply of assembly 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 assembly services input taxed.

GST-free supply

Relevant to your supply of assembly services is item 2 in the table in subsection 38-190(1) of 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 that 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.

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

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done.

From the facts given, the precondition the non-resident is not in Australia in relation to the supply of assembly services when it is done is satisfied as the overseas company is incorporated outside Australia, does not carry on any business activity in Australia and has no presence in Australia when the assembly services is done.

Paragraph (a) of item 2

From the fact given, your supply of assembly services does not satisfy paragraph (a) of item 2 since your supply of assembly services is a supply of work physically performed on goods situated in Australia when the work is done.

Paragraph (b) of item 2

A supply that does not satisfy paragraph (a) of item 2 may nevertheless satisfy item 2 where paragraph (b) of item 2 is met.

A supply will satisfy paragraph (b) of item 2 when the non-resident recipient acquires the thing in carrying on its enterprise and is not registered or required to be registered for GST.

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of item 2. The supplier can check the GST registration of an entity that they deal with by checking the Australian business register at www.abr.gov.au

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that reasonable grounds are satisfied, if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only acceptable where the supplier has no reason to believe the statement is not accurate.

From the facts given, the overseas company acquires your supply while carrying on its enterprise overseas, and is not registered for GST in Australia. In this instance your supply of assembly services satisfies paragraph (b) of item 2 and is GST-free to the extent it is not negated by subsection 38-190(3) of the GST Act.

Where the overseas company is required to be registered for the Australian GST paragraph (b) will not be satisfied. The supply will be a taxable supply as paragraph (a) of item 2 is not satisfied as well. As explained above you need to enquire if you are not sure if the overseas company is not required to be registered for GST.

Subsection 38-190(3) of the GST Act pre 1 October 2016

Before 1 October 2016, 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.

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

Paragraph (a) of subsection 38-190(3) of the GST Act is satisfied as you have entered into an agreement with a non-resident.

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, 61 and 62 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.

62. For example if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee. The supply is made to the non-resident company (the employer) and provided to another entity (each employee).

Thus the focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided.

When you installed the equipment that the GST registered Australian company has purchased from the overseas company, you are providing your services to the Australian company at the request of the overseas company. In this instance paragraph 38-190(3(b)) of the GST Act is satisfied.

Summary

Since all the requirements in subsection 38-190(3) of the GST Act are satisfied, your supply of assembly services to the overseas company and provided to the Australian company is a taxable supply under section 9-5 of the GST Act before 1 October 2016.

Subsection 38-190(3) of the GST Act from 1 October 2016

An amendment was made to subsection 38-190(3) of the GST Act. 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.

As discussed above, paragraphs (a) and (b) of subsection 38-190(3) of the GST Act are satisfied when you supply your assembly services to the overseas company.

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

Requirement (i)

The term ‘Australian based business recipient’ describes the relationship that a recipient has with a particular supply. An entity is an ‘Australian-based business recipient’ of a supply that is made to it if:

● the entity is registered;

● an enterprise of an entity is carried on in Australia; and

● the acquisition of the thing supplied is not solely of a private or domestic nature.

The Australian company to whom you are providing your assembly services at the request of the overseas company is registered for GST and has acquired the services for business purposes. In this instance requirement (i) does not apply. Subsection 38-190(3) of the GST Act does not negate the GST-free status of your supply under paragraph (b) of item 2.

Based on the information received, requirements (ii) and (iii) are not relevant to your supply of assembly services.

Summary

Since requirement (i) in paragraph (c) of subsection 38-190(3) of the GST Act applies the amended subsection 38-190(3) of the GST Act is not applicable. Your supply of assembly services made to the overseas company and provided to the GST registered Australian company is GST-free under paragraph (b) of item 2.

Question 2

From the information given, you satisfy paragraphs 9-5(a) to (d) of the GST Act and your supply of repair services is not input taxed.

GST-free supply

Relevant to your supply of repair services is item 2 in subsection 38-190(1) of the GST Act (item 2) and section 38-191 of the GST Act.

Item 2

From the information given, your supply of repair services to the overseas company satisfy paragraph (b) of item 2 and is GST-free to the extent it is not negated by subsection 38-190(3) of the GST Act.

When you provide the repair services to the Australian company before 1 October 2016, your supply of repair services to the overseas company and provided to the Australian company is not GST-free under subsection 38-190(3) of the GST Act. Your supply of repair services is a taxable supply under section 9-5 of the GST Act.

From 1 October 2016, from the facts given, your supply of repair services made to the overseas company and provided to the GST registered Australian company is GST- free under paragraph (b) where the overseas company is not required to be registered for GST.

Section 38-191

From 1 October 2016 section 38-191 of the GST Act was added to the GST law.

Section 38-191 of the GST Act is about supplies relating to the repair, renovation, modification or treatment of goods under warranty. The supply is GST-free where all the requirements in that section are met.

Section 38-191 of the GST Act states:

38-191 Supplies relating to the repair etc. of goods under warranty

(1) A supply of anything other than goods or *real property is GST-free if:

a) the *recipient is a *non-resident who:

i. is not in the indirect tax zone when the thing supplied is done; and

ii. acquires the thing in *carrying on the recipient’s *enterprise, but is not *registered or *required to be registered; and

b) the supply is constituted by the repair, renovation, modification or treatment of goods; and

c) the repair, renovation, modification or treatment is done in order to meet the recipient’s obligations under a warranty relating to the goods; and

d) either:

i. *consideration for the warranty was included in the consideration for the supply of the goods; or

ii. the supply of the warranty was a separate *taxable supply to the supply of the goods.

(2) A supply of goods is GST-free if:

a) it is made in the course of a supply that is GST-free under subsection (1), and to the same *recipient; and

b) either:

i. the goods are attached to, or become part of, the goods to which the warranty relates; or

ii. the goods become unusable or worthless as a direct result of being used to repair, renovate, modify or treat the goods to which the warranty relates.

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

You advised the repairs you will do after the assembly is for the equipment which is under warranty. In this instance your supply of repair of faulty parts in the equipment to the overseas company satisfy all the requirements in subsection 38-191(1) of the GST Act.

Accordingly, from 1 October 2016 your supply of repair of faulty parts in the equipment under warranty is GST-free under subsection 38-191(1) of the GST Act provided the overseas company is not required to be registered for GST.

Further any supply of goods that are attached to or become part of the equipment to which the warranty relates is GST-free under subsection 38-191(2) of the GST Act.