Edited version of your written advice

Authorisation Number: 1051415271447

Date of advice: 14 August 2018

Ruling

Subject: GST and supply of services to an Australian entity

Question 1

Is your supply of services to the Australian company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your supply of services to the Australian company is a GST-free supply under either item 1 or item 3 in the table in subsection 38-190(1) of the GST Act.

Where the supply of services is directly connected with property or goods located outside Australia, the supply is GST free under item 1 in the table in subsection 38-190(1) of the GST Act.

Where the supply of services is neither a supply of work physically performed on goods nor directly connected with read property when made to the Australian company and provided to its representative located outside Australia, the supply of services is GST-free under item 3 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

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

You have verbally agreed to provide your services to an Australian company and these services are to be done on an island which is an external territory of Australia and not in Australia for GST purposes There is no arrangement to supply specific goods to the Australian company on the island.

The Australian company has a representative and a storage facility on the island. You are engaged to provide third party contractors to carry out maintenance / repairs / labour for tasks related to the onshore storage facility.

Further, you, under request of the Australian company, organise and manage the marine operations for the Australian company on the island. You invoice the Australian company for the amount of charges you incur to perform the services plus an agreed management fee.

You invoice the overseas company the following:

● Services of a third party commercial painter

● Services of a fire system maintenance provider

● Services of a yard maintenance (lawn mowing / pest control)

● Services of a general building maintenance provider

● Services of labour for assistance with discharge of fuel tankers

● Services of hire vessel provision and crew for marine tasks

● Services of commercial diving and VEA marine asset maintenance

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.

Summary

Your supply of services made to the Australian company is GST-free under either item 1 or item 3 in the table in subsection 38-190(1) of the GST Act.

Where the supply of services is directly connected with property or goods located outside Australia, the supply is GST free under item 1 in the table in subsection 38-190(1) of the GST Act.

Where the supply of services is neither a supply of work physically performed on goods nor directly connected with read property when made to the Australian company and provided to its representative located outside Australia, the supply of services is GST-free under item 3 in the table in subsection 38-190(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 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 services to be a taxable supply.

From the information given, your supply of 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 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 services input taxed.

GST-free supply

Relevant to your supply of services is items 1 and 3 in the table in subsection 38-190(1) of GST Act (item 1 and item 3).

Item 1 is for supply of services that is directly connected with goods or real property outside Australia.

Item 3 is for supply of services that is neither a supply of work physically performed on goods nor directly connected with read property when made to the Australian company and provided to the Australian company’s representative located outside Australia.

Item 1

Under item 1 a supply of things other than goods or real property (for example services) that is directly connected with goods or real property situated outside Australia is GST-free.

Goods and Services Tax Ruling GSTR 2003/7 provides guidance on when a supply is directly connected with goods or real property for the purposes of item 1.

Where a supply has a direct connection with goods or real property, or is a supply of work physically performed on goods, the location of goods or real property is the basis upon which the GST treatment is determined under item 1. If the goods or real property are located outside Australia, the supply of a thing (such as services) is GST-free under item 1.

In determining whether there is a direct connection between a supply and particular goods or real property, the location of the recipient is not relevant. Rather the issue is one of determining whether the relationship between the supply and goods or real property is sufficiently close to be directly connected.

We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the goods or real property in the sense that:

● the supply changes or affects the goods or real property in a physical way; or

● there is a physical interaction with the goods or real property but without changing the goods or real property; or

● the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

● the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

● the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

Paragraphs 37 to 43 in GSTR 2000/37 provides examples of supplies that will fall the above categories

From the information given some of your services (for example, maintenance, repairs, painting of the storage facility) are directly connected with real property located outside Australia. In this instance the supply of these services is GST-free under item 1.

Item 3

Under item 3 a supply of things other than goods or real property (for example services) is GST-free where the supply:

a) is made to a recipient who is not in Australia when the thing supplied is done; and

b) the effective use or enjoyment of which takes place outside Australia;

other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with real property situated in Australia.

Item 3 applies irrespective of the residency of the recipients.

Paragraph (a) of item 3

For the supply of supply of services to be GST-free under item 3 there is a condition that the recipient must not be in Australia in relation to the supply when it is done. A recipient, in relation to a supply, is the entity to which the supply was made.

Where the supply of services is made to an Australian company in Australia, requirement (a) of item 3 is not satisfied.

If a supply is made to a recipient who fails the ‘not in Australia’ requirement in paragraph (a) of item 3, it is necessary to consider whether subsection 38-190(4) of the GST Act applies. That subsection extends the scope of item 3 by treating a supply that is made to a recipient who is in Australia in relation to the supply as being made to a recipient who is not in Australia if:

● the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and

● the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

Subsection 38-190(4), by means of the expression ‘provided to another entity’, seeks to identify the entity to which the item 3 supply actually flows. For example, if a supply of a service is made to an Australian resident recipient who is in Australia in relation to the service and that service is rendered to or received by another entity at the time it is performed, the supply is provided to that other entity. If that other entity is outside Australia, subsection 38-190(4) treats the supply as being made to a recipient who is not in Australia. Paragraph (a) of item 3 is satisfied in this instance.

From the information received paragraph (a) of item 3 is satisfied when you make your supply of services (for example management) to the Australian company and provide them to its representative on the island.

Paragraph (b) of item 3

Goods and Services Tax Ruling GSTR 2007/2 provides guidance for paragraph (b) in item 3.

Paragraph (b) of item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). As paragraph (b) refers to the ‘effective’ use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply.

A supply is made to a recipient and provided to another entity if in the performance of a service (or in the doing of some thing) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is, while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity. If a supply is made to a recipient and provided to another entity, the entity that actually uses or enjoys the supply is that other entity. For example, if a supply of travel services is made to a company (recipient) and the travel is undertaken by an employee of the recipient, the supply is provided to the employee and it is the employee that actually uses or enjoys the supply.

From the information received you supply your services (for example management) to the Australian company and provide them to its representative who is located on the island. In this instance the Australian company’s representative is the relevant entity to determine whether use or enjoyment of your supply of services takes place outside Australia. The representative is located on the island that is not in Australia for GST purposes and therefore the use and enjoyment of your supply of services is outside Australia. Paragraph (b) of item 3 is satisfied.

Other requirements in item 3

The other requirements in item 3 are satisfied as the supply of services is neither a supply of work physically performed on goods situated in Australia when the work is done nor directly connected with real property situated in Australia.

Your supply of services made to the Australian company and provided to its representative who is located outside Australia is therefore GST-free under item 3.