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Edited version of private advice
Authorisation Number: 1051652640671
Date of advice: 30 March 2020
Ruling
Subject: GST and income derived from an overseas entity
Question 1
Is the income derived by you from an overseas entity subject to the GST?
Answer
Yes, the income derived from an overseas entity will be subject to the GST.
Question 2
Are you able to claim input tax credits on expenses incurred in carrying on your enterprise?
Answer
You are allowed to claim input tax credits on expenses incurred in carrying on your enterprise if your acquisitions are creditable acquisitions.
You are registered for the goods and services tax (GST).
You generate income from providing services to an overseas entity.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999:
sections 9-5; 9-40; 11-5; 11-15; 11-25; 11-30
subsection 9-25(5),
Reasons for decision
Summary
The income derived from an overseas entity will be subject to the GST if the supplies made by you are considered to be taxable supplies.
Detailed reasoning
Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity must pay the GST payable on any taxable supply that it makes.
Under section 9-5 of the GST Act an entity makes a taxable supply if:
a) the entity makes the supply for consideration; and
b) the supply is made in the course or furtherance of an enterprise that it carries on; and
c) the supply is connected with the indirect tax zone (Australia); and
d) the entity is registered, or required to be registered.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
In this instance your supplies is made to an overseas entity for consideration in the course or furtherance of an enterprise that you carry on and you are registered for GST.
Among other things according to subsection 9-25(5) of the GST Act a supply of anything other than goods or real property is connected with Australia if the thing is done in Australia or the supplier makes the supply through an enterprise the supplier carries on in Australia. Therefore, your supplies are connected with Australia.
In this situation your supplies are neither GST-free nor input taxed. Further, your supplies meet all the other requirements of section 9-5 of the GST Act. Therefore, your supplies to the overseas entity are taxable and the income derived from the overseas entity is consideration received for your taxable supplies and is subject to GST.
This means that you are required to remit GST on the consideration you receive from the overseas entity.
Summary
You are allowed to claim input tax credits on expenses incurred in carrying on your enterprise if your acquisitions are creditable acquisitions.
Detailed reasoning
Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if it acquires anything solely or partly for a creditable purpose; the supply of the thing to it is a taxable supply; it provides, or is liable to provide, consideration for the supply and it is registered, or required to be registered.
Creditable purpose is defined in section 11-15 of the GST Act. An entity acquires a thing for a creditable purpose to the extent that it acquires it in carrying on its enterprise.
However, it does not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed; or the acquisition is of a private or domestic nature.
Therefore, if you acquire a thing for a creditable purpose you will be entitled to input tax credits.
Section 11-25 of the GST Act provides that the amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable
According to section 11-30 of the GST Act an acquisition is partly creditable if it is a creditable acquisition you make only partly for a creditable purpose or you provide or are liable to provide only part of the consideration for the acquisition.
Therefore if an entity acquires a thing partly for a creditable purpose then the input tax credits is apportioned to the extent to which the acquisition is used for a creditable purpose. For example if an acquisition is used 20% for the purposes of an enterprise and 80% for private or domestic purposes then only 20% of the relevant input tax credits is available in relation to the acquisition.