Edited version of private advice

Authorisation Number: 1051735227616

Date of advice: 06 August 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

No, the income derived from an overseas entity is not 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.

Facts

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 11-5; 11-15; 11-25; 11-30,

subsections 38-190(1) and (3)

Reasons for decision

Summary

No, the income derived from an overseas entity is not subject to the GST.

Detailed reasoning

Summary

Subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) specifies circumstances where the supply of things other than goods or real property for consumption outside of Australia, is GST-free. Videos and advertisements on websites are considered as intangibles and are neither good nor real property. As such, the supply of demonstration videos and advertisement space is appropriately considered under subsection 38-190(1) of the GST Act.

Items 2 in the table in subsection 38-190(1) of the GST Act provides, that a supply that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free where:

(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.

The supply of videos and advertisement space on websites to a non-resident overseas recipient is neither work physically performed on goods situated in Australia nor directly related to real property in Australia. Therefore, the supply satisfies the requirements of item 2(a) in the table in subsection 38-190(1) of the GST Act.

The supply to a non-resident recipient who acquires the demonstration videos and advertisement space on websites in carrying on its enterprise overseas and that is neither registered nor required to be registered for GST is also be GST-free.

Item 2 in the table in subsection 38-190(1) of the GST Act is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by item 2 in that table is not GST-free if:

• it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and

• the supply is provided, or the agreement requires it to be provided to another entity in Australia.

The supply of your videos and advertisement space on websites is GST-free if it satisfies the requirements in item 2 (a) or 2(b) in the table in subsection 38-190(1) of the GST Act and is not excluded from being GST-free by subsection 38-190(3) of the GST Act.

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.