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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 1051554705648

Date of advice: 29 July 2019

Ruling

Subject: Input tax credit and acquisition of services

Question

Is Company A entitled to claim input tax credits for its acquisition of installation services from Company B?

Answer

No. Company A is not entitled to claim input tax credits for its acquisition of installation services from Company B.

This ruling applies for the following period:

1 July 2018 - 1 July 2022

Relevant facts and circumstances

Company A is a non-resident that is not registered or required to be registered for GST.

Company A does not carry on an enterprise in Australia.

Company has manufactured and sold goods to Company C, an Australian-based business, on terms which required:

  1. Company C to import the goods into Australia and enter it for home consumption; and
  2. Company B to install the goods in Australia as an installation contractor to Company A.

Company A is not in Australia at the time the installation services are done.

Company A, Company B and Company C are not related entities.

Company B and Company C are both registered for GST.

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 11-5

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

Reasons for decision

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a creditable acquisition if:

(a)   you acquire anything solely or partly for a *creditable purpose; and

(b)   the supply of the thing to you is a *taxable supply; and

(c)   you provide, or are liable to provide,*consideration for the supply; and

(d)   you are *registered, or *required to be registered.

Company A's acquisition of the installation services from Company B is for the purpose of its enterprise; and Company A is liable to provide consideration for the supply of the services. Therefore, paragraphs 11-5(a) and 11-5(c) of the GST Act are satisfied. What remains to be determined is whether paragraphs 11-5(b) and 11-5(d) are also satisfied.

Paragraph 11-5(b)

Paragraph 11-5(b) of the GST Act requires that the supply of the thing acquired is a taxable supply.

According to section 9-5 of the GST Act, a supply is a taxable supply if:

(a)   the supply is 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 the indirect tax zone; and

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

However, a supply is a taxable supply to the extent that it is GST-free or input taxed.

There is no provision in the GST Act under which the supply of installation services which Company A acquired from Company B would be input taxed. Therefore, it must be determined whether the supply would be GST-free

Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply, other than goods or real property, is GST-free if it is made to a non-resident that is not in the indirect tax zone when the thing supplied is done; and:

(a)   the supply is neither a supply of work physically performed on goods situated in the indirect tax zone nor a supply connected with real property situated in the indirect tax zone; or

(b)   the non-resident acquires the thing in carrying on its enterprise, but is not registered or required to be registered for GST

Subsection 38-190(3) of the GST Act provides that a supply covered by item 2 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 the indirect tax zone; 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.

Company A is a non-resident entity. Company A submitted that it is not in the indirect tax zone at the time the services are done; and that it is not registered, or required to be registered for GST. Therefore, the supply of the installation services is GST-free under item 2 unless subsection 38-190(3) of the GST Act applies.

Company B made the supply under an agreement with Company A under which the installation services are provided to Company C. Paragraphs 38-190(3)(a) and 38-190(3)(b) of the GST Act are satisfied. However, Company C is registered for GST and thus, it would be an Australian-based business recipient if the supply had been made to it. Therefore, paragraph 38-190(3)(c) is not satisfied. Accordingly, subsection 38-190(3) does not apply to negate the GST-free status of the supply under item 2. The supply of the installation services remains GST-free.

As the supply of the installation services that Company A acquired from Company B is not a taxable supply, paragraph 11-5(b) of the GST Act is not satisfied. Company A is not entitled to claim input tax credit for the acquisition of the installation services from Company Bas it was not a creditable acquisition.

Paragraph 11-5(d)

For completeness, we determine that paragraph 11-5(d) of the GST Act is also not satisfied as Company A submitted that it is not registered or required to be registered for GST.

The acquisition of the installation services would still not be a creditable acquisition unless all the requirements in section 11-5 of the GST Act are satisfied.


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