Edited version of private advice

Authorisation Number: 1051600043426

Date of advice: 28 October 2019

Ruling

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

Question

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for your supply of services to the non-resident company?

Answer

No. You are not making a taxable supply under section 9-5 of the GST Act for your supply of services to the non-resident company as you are not required to be registered for GST under section 23-5 of the GST Act when your annual turnover is below the GST registration threshold of A$75,000.

However, if you register for GST voluntarily, your supply of services to the non-resident company will be GST-free under paragraph (a) in item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are a company incorporated in Australia and currently not registered for GST.

You have entered into a Marketing Service Agreement (Agreement) with a non-resident company. Under the Agreement you will provide the services of marketing, selling and promoting the non-resident's product services on a commission basis.

You provided the following information:

·         You are providing marketing, sales and promotional services to the non-resident company.

·         You are selling and promoting the non-resident company's services to Australian clients.

·         The Australian clients will sign up to the on-resident company's services and enter into an agreement with the non-resident company.

·         Staff of the non-resident company will provide the services to the Australian clients online from overseas. The services are performed overseas. Staff will perform various online admin tasks such as answering emails, data entry and taking phone calls. All communications is between the on-resident company and the Australian clients. You do not service the Australian clients.

·         The non-resident company will issue invoices for the services provided to Australian clients.

·         You are collecting fees from the Australian client on behalf of the non-resident company.

·         You invoice the non-resident company for commission for your services.

·         You transfer the net amount after deducting the commission to the non-resident company.

·         There is no other Australian entity involved with your supply of services made to the on-resident company.

·         The Australian clients may or may not be registered for GST.

·         Your current and projected annual turnover is below A$75,000.

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 23-5

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 taxable supplies. 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 the supply is GST-free or input taxed.

All the requirements in section 9-5 of the GST Act need to be satisfied for your supply of services to the non-resident company to be a taxable supply and subject to GST.

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

a)    you make your supply for consideration as you receive commission for your supply of services; and

b)    you make your supply of services through a business that you carry on; and

c)    your supply of services is connected with Australia as you make the supply through a business that you carry on in Australia.

Currently you are not registered for GST. We will now consider if you are required to be registered for GST for the purpose of paragraph 9-5(d) of the GST Act.

Paragraph 9-5(d) of the GST Act

Under section 23-5 of the GST Act a supplier is required to register for GST if:

a)    it is carrying on an enterprise (business); and

b)    its annual turnover meets the GST registration threshold of A$75,000 (A$150,000 for non-profit organisation).

Under section 23-10 of the GST Act a supplier can choose to register for GST if it is not required to be registered for GST. If the supplier chooses to register for GST generally it must stay registered for at least 12 months.

You reach the GST turnover threshold if either:

·         your 'current GST turnover' (your turnover for the current month and the previous 11 months) totals $75,000 or more ($150,000 or more for non-profit organisations)

·         your 'projected GST turnover' (your total turnover for the current month and the next 11 months) is likely to be $75,000 or more ($150,000 or more for non-profit organisations).

Even if your current GST turnover is at, or above, the GST turnover threshold you do not have to register for GST if your projected GST turnover will be below the threshold.

You advised that your current and projected turnover is below $75,000. In this case you are not required to be registered for GST. Accordingly, you have not satisfied paragraph 9-5(d) of the GST Act as you are not required to be registered for GST.

Your supply of services to the non-resident company is not a taxable supply under section 9-5 of the GST Act and therefore not subject to GST.

Other information

As determined above you are not required to be registered for GST because your supply is below the GST registration threshold of A$75,000.

However, if you choose to register for GST in order to be able to claim back the GST paid on expenses related to your business your supply will satisfy paragraph 9-5(d) of the GST Act. In this instance your supply will be a taxable supply to the extent that it is not GST-free or input taxed.

There is no provision in the GST Act that will make your supply of services input taxed.

GST-free

Relevant to your supply of services to the non-resident company is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Under item 2 a supply of services is GST-free it the supply is made to a non-resident who is not in Australia at the time the supply is done and:

a)    the supply of services is neither a supply of work performed on goods located in Australia nor a supply directly connected with real property; 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 for your supply of services to be GST-free.

The services you supply to the non-resident company are marketing, referral and agency services. From the information received, your supply of services satisfies 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 at the time your services are done; and
• your supply of services is neither a supply of work performed on goods located in Australia nor a supply directly connected with real property.

Your supply of services is GST-free under paragraph (a) in item 2 to the extent that subsection 38-190(3) of the GST Act does not negate that GST-free status.

There is no need to consider paragraph (b) when the requirements in paragraph (a) are 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.

All of the requirements in this subsection have to be satisfied for the GST-free supply under item 2 to be negated from being GST-free and be a taxable supply under section 9-5 of the GST Act.

From the information given subsection 38-190(3) of the GST Act does not apply to your supply of services since your supply of services is made and provided to the non-resident company and not to another entity in Australia.

Your supply of services to the non-resident company is therefore GST-free under paragraph (a) in item 2. You will not charge GST for this supply.