Edited version of private advice

Authorisation Number: 1051590215141

Date of advice: 8 October 2019

Ruling

Subject: GST and supply of taxation services to non-resident individuals

Question 1

Is the supply of taxation services made by the Australian company to a non-resident individual located outside Australia a GST-free supply under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply of taxation services made by the Australian company to a non-resident individual located outside Australia is a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act.

Question 2

Is the supply of taxation services made by the Australian company to a non-resident individual located outside Australia a GST-free supply under section 38-190 of the GST Act when the supply of taxation services relates to rental income from residential property in Australia owned by the individual?

Answer

No. the supply of taxation services which made by the Australian company to a non-resident individual located outside Australia is a taxable supply under section 9-5 of the GST Act when the supply of taxation services relates to rental income from residential property in Australia owned by the individual.

Question 3

Is the supply of taxation services made by an overseas tax agent to a non-resident individual located outside Australia a GST-free supply under the GST Act where the supply of taxation services relates to rental income from residential property in Australia owned by the individual?

Answer

No. The supply of taxation services made by the overseas tax agent to a non-resident individual located outside Australia is not connected with Australia where the supply of taxation services relates to rental income from residential property in Australia owned by the individual. The supply of taxation services is therefore outside the scope of GST.

Relevant facts

You are an Australian company and is registered for GST.

You supply taxation services which include tax return preparation to Australian residents and non-resident individuals.

You have a number of individuals from overseas who are required to lodge an annual Australian Income Tax return. These individuals are non-resident for Income Tax purposes in Australia and some of them own residential property from which they derive rental income. The non-resident individuals are neither registered nor required to be registered for GST.

Under the Agreement you will provide taxation services to the client specifically for:

·        Preparation and lodgement of all income tax returns and supporting schedules as required by the Australian Taxation Office within required lodgement times (where all information is available and provided to you prior to 45 days before any due date).

·        Attendance to all correspondence from the Australian Taxation Office in relation to the income tax returns prepared by you.

The fee you charge includes all matters relation to annual federal property tax issues and advice thereon. You reserve the right to charge an additional consulting fee for matters not relating to the property. You are not responsible for any State Land Tax issues.

When the non-resident individuals come to Australia it is for holidays and they are not in Australia in relation to your supply of taxation services to them.

You have fully operational offices located outside Australia who will handle all matters in relation to the Australian income tax return preparation. Some non-resident individuals who own residential property in Australia would contact the overseas office directly for the supply of taxation services to them.

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

Questions 1 and 2

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 taxation services to the overseas individuals 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 taxation services to the non-resident individuals 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 taxation services input taxed.

GST-free supply

Relevant to your supply of taxation services to the non-resident individuals 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 (available at ato.gov.au) 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.

Individual in relation to the supply

In the case of supplies made to an individual, we consider that the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done.

If a supply is made to a non-resident individual who is physically in Australia when the thing supplied is done, the individual is in Australia. However, the individual must be in Australia in relation to the supply.

A non-resident individual may be physically in Australia when the thing supplied is done, but that presence in Australia may be unrelated to the supply. For example, the non-resident is in Australia on holidays only. If that individual is in Australia only on matters unrelated to the supply, we consider that the individual recipient is in Australia but not 'in relation to the supply'. We recognise that the physical presence in Australia of the non-resident individual at the relevant time is merely coincidental.

From the information given your supply of taxation services is made to individuals who are non-residents located overseas. Where the individuals are in Australia they are here for holidays and are not in relation to your supply of taxation services to them. In this instance the precondition that the 'non-resident is not in Australia in relation to the supply' is met.

Paragraph (a) of item 2

Goods and Services Tax Ruling GSTR 2003/7 (available at ato.gov.au) provides guidance on paragraph (a) of item 2.

Paragraphs 21 to 25 in GSTR 2003/7 state:

21. Under items 1, 2 and 3 it is only where the connection between the supply and the goods or real property is a direct one that the location of goods or real property is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods or real property. The inference is that the supply is so closely aligned with goods or real property that it is appropriate to treat the location of the goods or real property as the place where consumption occurs

22. We consider, therefore, that the expression 'directly connected with' contemplates a very close link or association between the supply and goods or real property. (This is discussed further at paragraphs 113 to 134 of the Explanations section of the Ruling.)

23. The goods or real property must, in our view, be particular goods or real property for this very close connection to exist. A supply that is connected with goods or real property in general, rather than with particular goods or real property, does not have a sufficiently close connection with goods or real property for that connection to be a direct one.

24. For example, a supply of advice or information to a non-resident about the potential for investment in the real property market in Melbourne is not directly connected with real property. While the supply is connected with real property, the generality of the advice or information means that the supply does not have a direct connection with real property. The supply is not one so closely connected with real property in Melbourne that the place of consumption is regarded as Melbourne.

25. Fundamental to establishing whether there is a direct connection between a supply and particular goods or real property is determining what the supply is for. For example, without knowing what legal services are for, it cannot be said what they are connected with. Legal services in acting for a purchaser or vendor in the conveyance of land are directly connected with that real property. However, legal services in establishing a trust that will subsequently hold real property are not directly connected with the underlying real property.

Your supply of taxation services is not a supply of work physically performed on goods situated in Australia when the work is done. However the supply of taxation services is directly connected with real property situated in Australia since the preparation of the tax return is for a specific property that the individual owned in Australia and therefore there is a close connection between your supply and the property. Paragraph (a) is therefore not satisfied.

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 information given the non-resident individuals are carrying on a rental enterprise when renting the Australian residential property they own and the acquisition of your taxation services is for the purpose of this rental enterprise. Further they are neither registered nor required to be registered for GST.

In this instance paragraph (b) is satisfied. However the supply of taxation services is GST-free to the extent it is not negated by subsections 38-190(2), 38-190(2A) and 38-190(3) of the GST Act.

Limitations of item 2

Subsection 38-190(2) of the GST Act

Subsection 38-190(2) of the GST Act provides that a supply covered by any of the items 1 to 5 in the table in subsection 38-190(1) of the GST Act is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free.

Where a transaction involves a supply of a right or option to acquire something, the supplier will usually enter into an obligation to supply the thing if the right or option is exercised. The fact that the transaction also involves an entry into an obligation does not in itself preclude the operation of subsection 38-190(2) if there is a relevant supply of a right or option to acquire something.

For example, an Australian vehicle rental firm supplies car rental rights to a UK travel agency. The travel agency supplies car rental vouchers to UK tourists who may use the vouchers to obtain car rental in Australia. The supply of the car rental to the tourists is a supply that is connected with Australia. The supply of car rental rights to the UK travel agency is therefore not GST-free.

From the information given, subsection 38-190(2) of the GST Act does not apply to your supply of taxation services as your supply is not a supply of a right or option to acquire something the supply of which would be connected with Australia.

Subsection 38-190(2A) of the GST Act

Subsection 38-190(2A) of the GST Act provides that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) of the GST Act is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of a real property situated in the indirect tax zone that would be input taxed under Subdivision 40-B or 40-C of the GST Act.

For example, a non-resident individual, who owns residential rental property situated in Australia and who is not registered or required to be registered, acquires gardening services for the property and also acquires the services of a tax agent to prepare their tax return for the rental income earned from the residential property. The acquisition of each service relates to the making of an input taxed supply of real property. The supplies of those services are therefore not GST-free.

Subsection 38-190(2A) of the GST Act will apply regardless of whether an acquisition may either relate directly or indirectly to the making of those input taxed supplies of real property. In addition, where only part of the supply relates to the real property activities, the entire supply will be caught under subsection 38-190(2A) of the GST Act. Equally, where only part of the real property is used to make supplies that would be input taxed under subdivisions 40-B or 40-C of the GST Act, the entire acquisition will not be GST-free under subsection 38-190(1) of the GST Act.

From the facts given, some of the overseas individuals own residential property in Australia from which they derive rental income. In this instance subsection 38-190(2A) applies to your supply of taxation services and therefore your supply is not GST-free under item 2

Accordingly, your supply of taxation services is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(2A) of the GST Act when the acquisition of the taxation services made by the non-resident individual relates to their rental residential property in Australia.

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.

From the information given subsection 38-190(3) of the GST Act does not apply to your supply of taxation services as you are not required to provide your taxation services to another entity in Australia.

Summary

Your supply of taxation services to the non-resident individuals located outside Australia and who do not own residential property in Australia is GST-free under item 2.

Your supply of taxation services to non-resident individuals located outside Australia and who derive rental income from residential property in Australia is a taxable supply under section 9-5 of the GST Act.

Question 3

GST is payable on taxable supply. A supply is a taxable supply if all of the following are satisfied:

a)     the supplier makes the supply for consideration;

b)     the supply is made in the course of an enterprise(business) that the supplier carries on;

c)     the supply is connected with Australia

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.

Supplies connected with Australia

For a supply of services made by a non-resident to be subject to GST the supply must be connected with Australia.

A supply of services is connected with Australia under subsection 9-25(5) of the GST Act if one of the following is satisfied:

a)     the supply is done in Australia; or

b)     the supplier makes the supply through a business that the supplier carries on in Australia; or

c)     all of the following apply:

                           i.          Neither paragraph (a) nor (b) applies in respect of the thing;

                          ii.          The thing is a right or option to acquire another thing;

                         iii.          The supply of the other thing would be connected with the indirect tax zone; or

d)     the recipient of the supply is an Australian consumer (Australian resident not registered for GST or registered and the purchase is not for business purposes).

Where none of the above is satisfied, the supply of services is not connected with Australia and therefore will be outside the scope of the GST system. The supply is not included when calculating annual turnover for GST registration purposes.

From the information given none of the paragraphs in subsection 9-25(5) of the GST Act applies to the supply of taxation services made by the overseas tax agent as:

a)     the taxation services are done overseas;

b)     the overseas tax agent does not make the supply through a business that they carry on in Australia;

c)     the supply of taxation services is not a supply of a right or option to acquire another thing;

d)     the non-resident individual is a non-resident for Australian Income Tax purposes.

In this instance the supply of taxation services by the overseas tax agent to the non-resident individual located outside Australia is not connected with Australia. The supply is outside the scope of GST.