Edited version of private advice

Authorisation Number: 1051583616103

Date of advice: 25 September 2019

Ruling

Subject: GST and supply of services to a non-resident company

Question

Is the supply of services you make to the non-resident accounting practice a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) under the engagement letter?

Answer

No. The supply of services you make to the non-resident accounting practice is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act because the services to be supplied in the engagement letter are provided to an Australian company when the services are done.

Relevant facts

You are an Australian company and registered for GST.

In an engagement letter you agreed to supply your services as accountant and tax agent for an Australian company to a non-resident accounting firm who is acting as an advisor under a written authority it has received from the Australian company.

The non-resident accounting firm does not carry on any business activity in Australia at a fixed place in Australia or through an agent in Australia.

The scope of your work and responsibilities to supply to the non-resident accounting firm in the engagement letter is:

·        prepare the financial statement and tax returns of the Australian company which would involve liaising with auditor, in-house accountant of the Australian company or its presentation

·        lodge the audited financials of the Australian company with ASIC

·        lodge tax returns with the Australian Taxation Office (ATO) and

·        wind up the Australian company with ASIC after the company has sold its overseas shares and to cancel the ABN and other applicable registrations of the company

Your engagement will result in the production of tax returns and financial documents.

The Australian company is currently not carrying on any business in Australia and is not registered for GST. It only holds shares in an overseas company and does not have any residential property in Australia from which it is deriving rental income. The Australian company will be selling its shares. The director of the company lives overseas.

You only deal with the non-resident accounting practice.

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.

Detailed reasoning

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

1. the supplier makes the supply for consideration; and
2. the supply is made in the course or furtherance of an enterprise that the supplier carries on; and
3. the supply is connected with Australia; and
4. 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 to the non-resident company regarding the preparation and lodgement of tax returns and financial statements of the Australian company in Australia 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 to the non-resident company 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 to the non-resident company input taxed.

GST-free supply

Relevant to your supply of services to the non-resident company 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.

Paragraph (a) of item 2

From the facts given, your supply of services to the non-resident company satisfy paragraph (a) of item 2 as:

·        your supply of services is made to a non-resident who is not in Australia in relation to your supply when the supply is done; and

·        your 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.

However, paragraph (a) of item 2 is limited by subsection 38-190(3) of the GST Act.

There is no need to consider paragraph (b) as paragraph (a) is satisfied.

Subsection 38-190(3) of the GST Act

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.

Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act

You have been engaged by the non-resident company to:

·        prepare the financial statement and tax returns of the Australian company which would involve liaising with auditor, in-house accountant of the Australian company or its presentation

·        lodge the audited financials of the Australian company with ASIC

·        lodge tax returns with the Australian Taxation Office (ATO)and

·        wind up the Australian company with ASIC after the company has sold its Indonesian shares and to cancel the ABN and other applicable registrations of the company.

Paragraphs (a) and (b) in subsection 38-190(3) of the GST Act are satisfied in this instance as your supply of the above services is made to the non-resident company and under the engagement letter you are required to provide your services to the Australian company.

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

Only one of the requirements in paragraph 38-190(3)(c) needs to apply for the GST-free supply under item 2 to be negated under 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:

                 i.          the entity is registered for GST;

                ii.          an enterprise of an entity is carried on in Australia; and

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

From the information given, the Australian company does not carry on any business activity in Australia and is not registered for GST. In this case requirement (i) applies to your supply of services that is provided to the Australian company. Subsection 38-190(3) of the GST Act accordingly negates the GST-free status of your supply of services under item 2.

There is no need to consider the other requirements in paragraph 38-190(3) (c) of the GST Act as requirement (i) applies to the supply of services you made to the non-resident company and provided to the Australian company.

Summary

Your supply of services made to the non-resident company under the engagement letter is provided to the Australian company and therefore 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.