Edited version of private advice

Authorisation Number: 1051775788767

Date of advice: 5 November 2020

Ruling

Subject: GST and supply of counselling services

Question 1

Is the supply of counselling services made by the Australian entity to an Australian company a taxable supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the counselling services are provided to employees of companies that are located in and outside Australia?

Answer

When the counselling services are provided to employees of the Australian company who are located in Australia, the supply of counselling services made by the Australian entity to the Australian company is a taxable supply under section 9-5 of the GST Act.

When the counselling services are provided to employees of the overseas company who are outside Australia, the supply of counselling services made by the Australian entity to the Australian company is a GST-free supply under item 3 in the table in subsection 38-190(1) of the GST Act.

Question 2

Is the supply of counselling services made by the Australian entity to the non-resident company, a taxable supply under the GST Act when under its contractual arrangement with the non-resident company, the Australian entity is required to provide the services to employees of an Australian company who are located in Australia?

Answer

When at the request of the non-resident company, the counselling services are provided to the employees of an Australian company in Australia and the Australian company is not registered for GST, the supply of counselling services made by the Australian entity to the non-resident company is a taxable supply under section 9-5 of the GST Act.

When at the request of the non-resident company, the counselling services are provided to the employees of an Australian company in Australia and the Australian company is registered for GST, the supply of counselling services made by the Australian entity to the non-resident company is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

The Australian entity must ensure it holds evidence that the Australian company is registered for GST.

Question 3

a)    Based on the facts, should the non-resident company Ltd lodge the GST collected from the counselling services made to its Australian customers and provided to the employees of the overseas company located outside Australia to the Australian Taxation Office (ATO) or to the overseas inland Revenue?

b)    If the ATO agrees that those overseas related sales should be lodged to the overseas inland Revenue, then what should the Australian entity do to request the refund of the GST overpayment made to the ATO?

c)    Does the Australian entity need to revise those invoices related to the overseas supplies that were issued previously and apply the overseas GST to pass on to its customers?

d)    The Australian entity Ltd allows a customer to pre-purchase bulk hours of counselling service with an upfront payment with 10% AU GST applied. Does the Australian entity need to adjust the AU GST to the overseas GST if some of the hours are used in the overseas country later?

Answer

a)    We cannot advise whether the overseas GST law applies to the supplies that the Australian entity has provided in the overseas country via the non-resident company. We can only consider the Australian GST law regarding the supplies the Australian entity makes.

The Australian entity's contract for the provision of the counselling services is with an Australian company and since the Australian entity is registered for GST, it is liable for GST on the taxable supplies it makes under section 9-5 of the GST Act.

The Australian entity will report its supply of counselling services made to the Australian company and provided to employees of companies located in and outside Australia to the ATO when lodging its business activity statement (BAS) under section 31-5 of the GST Act.

b)    As advised in questions 1 and 2, some supplies of counselling services made by the Australian entity are GST-free where:

•         The counselling services are made to an Australian company and provided to the employees of an overseas company outside Australia via the non-resident company; and

•         The counselling services are made to the non-resident company and provided to employees of GST registered Australian company in Australia.

Where the Australian entity has classified some of its supplies as taxable supplies by mistake and has collected GST on these supplies when issuing the tax invoices to the recipients, it will be able to obtain a refund of the excess GST paid to the ATO where it has reimbursed the collected GST to the recipients.

The Australian entity will have a decreasing adjustment under subsection 19-10(1) of the GST Act due to the change in consideration for its supplies.

Under subsection 29-20(1) of the GST Act an adjustment that you have is attributable to the tax period in which you become aware of the adjustment. The Australian entity will report the adjustment in the tax period it issues the adjustment notes to the recipients.

c)    If the Australian entity decides to reimburse the recipient the GST that has been passed on, the Australian entity is required to issue adjustment notes under subsection 29-75(1) of the GST Act to the recipients as the Australian entity would need to hold an adjustment note for its claim of a decreasing adjustment when completing the BAS.

d)    Where a customer pre-purchases bulk hours of counselling services and the Australian entity has collected GST on the upfront payment, it will have to do an adjustment under subsection 19-10(1) where after the counselling services are later provided to the employees and these supplies are GST-free.

The Australian entity is required to issue adjustment notes under subsection 29-75(1) of the GST Act to the recipients as the Australian entity would need to hold an adjustment note for their claim of a decreasing adjustment when completing the BAS.

Relevant facts

You are an Australian company and supply counselling services. You are registered for the Australian GST and for GST of an overseas country.

You enter into Agreements with Australian companies under which you are required to provide your counselling services to employees of companies located in and outside Australia.

You have collected GST from the Australian company for the counselling to be provided to the employees of companies located in and outside Australia, reported and remitted the collected GST when lodging your BAS with the ATO.

You have entered into a Memorandum of Understanding (MOU) with a non-resident company. Under the MOU you and then non-resident company agree to work cooperatively and to provide services to each other's existing clients. The services include counselling services, organisational support services, training, coaching and wellbeing services, Critical Incident and Trauma Management. You and the non-resident company will invoice each other in the prevailing local currency.

Where under your agreement with the Australian business you must provide the counselling to the employees of an overseas company outside Australia, the non-resident company would provide the counselling services to these employees on your behalf and invoice you for the services it has performed on your behalf. The non-resident company included the overseas GST when invoicing you for its services. You have invoiced the Australian company GST for this service.

Where the non-resident company under its agreement with an overseas business must provide its services to employees of an Australian company in Australia, you would provide the services to these employees in Australia. The Australian company could be a division of the overseas company who is the parent company. You include 10% GST when invoicing the non-resident company for your supplies done in Australia.

The Australian and overseas companies would acquire the counselling for business purposes as they acquire this service in order to look after their employees' mental health.

You do not know whether the Australian company who is in receipt of the counselling is registered for GST. You consider they would be registered if they meet the requirement.

You subcontract counsellors in Australia to provide counselling in Australia on your behalf and the non-resident company would subcontract overseas counsellors to provide counselling on its behalf outside Australia.

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 19-10

A New Tax System (Goods and Services Tax) Act 1999 section 29-10

A New Tax System (Goods and Services Tax) Act 1999 section 27-5

A New Tax System (Goods and Services Tax) Act 1999 section 31-5

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

A New Tax System (Goods and Services Tax) Act 1999 section 142-10

Reasons for decision

Note:

•         Unless otherwise stated, all legislative references in the private ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         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.

Question 1

Summary

When the counselling services are provided to employees of companies located in Australia, the supply of counselling services you made to the Australian company is a taxable supply under section 9-5.

Where the counselling services are provided to employees of companies located outside Australia, the supply of counselling services you made to the Australian company is GST-free under item 3 in the table in subsection 38-190(1).

Detailed reasoning

A supply is a taxable supply under section 9-5 where:

a)    the supply is for consideration; and

b)    the supply is made through a business that the supplier carries on; and

c)    the supply is connected with Australia; and

d)    The supplier is registered for GST.

However, the supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

When you supply your counselling services paragraphs (a) to (d) in section 9-5 are satisfied as:

a)    you make the supply for consideration; and

b)    the supply is made through a business that you carry on; and

c)    the 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.

Therefore, your supply of counselling services is a taxable supply unless it is GST-free or input taxed.

Your supply of counselling services is not an input taxed supply. Further where the supply of counselling services is done in Australia the supply is not GST-free.

Accordingly, where you supply the counselling services to the Australian company and provide the counselling to the Australian employees of the Australian company in Australia, the supply of counselling services is a taxable supply under section 9-5.

However, where you are required to provide the counselling to the employees of an overseas company outside Australia under the agreement with the Australian company, it is relevant to consider item 3 in the table in subsection 38-190(1) (item 3)

Item 3

Item 3 applies irrespective of whether the recipient is a resident or non-resident of Australia

Under item 3, a supply of a thing other than a supply of work physically performed on goods situated in Australia when the thing supplied is done or a supply directly connected with real property situated in Australia is GST-free if:

a)    the supply is made to a recipient who is not in Australia when the thing supplied is done; and

b)    the effective use or enjoyment of which takes place outside Australia.

'Recipient' is defined in section 195-1 as in relation to a supply, the entity to which the supply was made

Where the recipient of your supply is an Australian company paragraph (a) of item 3 is not satisfied as an Australian company is considered to be in Australia.

However, it is relevant to consider whether subsection 38-190(4) applies to the supply.

Subsection 38-190(4) extends the scope of item 3 by treating a supply that is made to a recipient who is in Australia in relation to the supply as being made to a recipient who is not in Australia if:

a)    the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and

b)    the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

The expression 'provided to another entity' in subsection 38-190(4) seeks to identify the entity to which the item 3 supply flows. For example, if a supply of a service is made to an Australian resident recipient who is in Australia in relation to the service and that service is rendered to or received by another entity at the time it is performed, the supply is provided to that other entity. If that other entity is outside Australia, subsection 38-190(4) treats the supply as being made to a recipient who is not in Australia. Paragraph (a) of item 3 is satisfied in this instance.

When you are required under the agreement with the Australian company to provide the counselling to the employees of the overseas company outside Australia, subsection 38-190(4) applies to the supply of counselling services you make to the Australian company. As such paragraph (a) of item 3 is satisfied.

Since the counselling services are provided to individuals located outside Australia, the use and enjoyment of the counselling services takes place outside Australia. Paragraph (b) of item 3 is also satisfied.

The supply of counselling services made to the Australian company and provided to employees of the overseas company outside Australia is GST-free under item 3. This supply is reported as a GST-free supply in the BAS and included in the annual turnover for GST purposes.

Question 2

Summary

When the counselling services are provided to the employees of an Australian company in Australia and the Australian company is not registered for GST, the supply of counselling services you make to the non-resident company is a taxable supply under section 9-5.

When the counselling services are provided to the employees of an Australian company in Australia and the Australian company is registered for GST, the supply of counselling services you make to the non-resident company is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

You must ensure you hold evidence that the Australian company is registered for GST.

Detailed reasoning

When you supply your counselling services to the non-resident company, your supply satisfies paragraphs (a) to (d) in section 9-5. However, your supply is not a taxable supply to the extent that the supply is GST-free or input taxed.

Your supply of counselling services to the non-resident company is not input taxed.

GST-free supply

Relevant to your supply of counselling 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 anything other than goods or real property to a non-resident who is not in Australia in relation to the supply when the supply is done is GST-free if:

a)    the supply of the thing is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia; or

b)    the non-resident acquires the thing while carrying on its business overseas and the non-resident is not registered and is not required to be registered for GST.

From the information given paragraph (a) in item 2 is satisfied when you make your supply your counselling services to the non-resident company as:

•         the supply of counselling services is made to a non-resident company that is not in Australia in relation to the supply when the supply is done; and

•         the supply of counselling services is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia.

Your supply of counselling services to the non-resident company is GST-free to the extent that it is not negated by subsection 38-190(3).

Subsection 38-190(3)

Subsection 38-190(3) 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.

If subsection 38-190(3) applies, a supply covered by 2 is negated from being GST-free and will be a taxable supply under section 9-5.

Paragraph 38-190(3)(b)) of the GST Act

Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means in our view that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

You have a MOU with the non-resident company where you both agree to provide your services to each other's customer. When the non-resident company requests you to provide the counselling services to an Australian company in Australia, paragraph (b) in subsection 38-190(3) of the GST Act is satisfied as you are required to provide the services to another entity in Australia.

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

Requirement (i) and (ii)

An entity is an 'Australian-based business recipient' of a supply that is made to it if:

•         the entity is registered;

•         the enterprise of the entity is carried on in Australia; and

•         the acquisition of the thing supplied to the entity is not solely of a private or domestic nature.

An employee or officer is provided with a supply in their capacity as an employee or officer if the supply was provided to them in the performance of their duties or as part of their remuneration.

You have no information on whether the Australian company referred to you by the non-resident company for the provision of your services in Australia is registered for GST or not.

Australian company not registered for GST

Where the Australian company is not registered for GST, requirements (i) and (ii) do not apply to the supply of counselling that is provided to the employees of the Australian company at the request of the non-resident company.

In this instance subsection 38-190(3) of the GST Act will negate the GST-free status of the supply. The supply of counselling services is a taxable supply under section 9-5.

Australian company registered for GST

Where the Australian company is registered for GST, requirements (i) and (ii) apply to the supply of counselling services that is provided to the employees of the Australian company at the request of the non-resident company.

In this instance subsection 38-190(3) of the GST Act will not negate the GST-free status of the supply. The supply of counselling services is GST-free under item 2.

You will need to obtain evidence that the Australian business is registered for GST before treating your supply of counselling services that is provided to the Australian business GST-free under item 2.

Requirement (iii)

Requirement (iii) requires that the acquisition is solely for a creditable purpose and is not a non-deductible expense.

An acquisition is solely for a creditable purpose where the thing is acquired solely for business purposes and the acquisition does not relate to making supplies that would be input taxed.

Division 69 of the GST Act is about non-deductible expenses and lists supplies that are generally not creditable acquisitions for non-resident employers, for example entertainment expenses such as dinners, cocktail parties, tickets for sightseeing tours.

This requirement is not relevant to your supply as you are not required to provide your counselling services to the employees of the non-resident company in Australia.

Question 3

Question (a)

We cannot advise whether the overseas GST law applies to the supplies you provide outside Australia through the non-resident company. We can only consider the Australian GST law in relation to the supplies you make.

Under section 31-5 you must give GST returns:

1. if you are registered or required to be registered for GST, you must give to the Commissioner a GST return for each tax period.
2. You must give the return whether or not:

a)    Your net amount for the tax period is zero; or

b)    You are liable for the GST on any taxable supplies that are attributable to the tax period.

Your contract for the provision of the counselling services outside Australia is with the Australian company and since you are registered for GST you are liable for GST for the taxable supplies you make under section 9-5.

You will report your supply of counselling services made to the Australian company and provided to employees of companies located in and outside Australia to the ATO when lodging your BAS under section 31-5.

Question (b)

As advised in questions 1 and 2, your supply of counselling services is GST-free where:

•         the counselling services are made to an Australian company and provided to the employees of the overseas company outside Australia via the non-resident company; and

•         the counselling services are made to the non-resident company and at the request of the non-resident company provided to employees of a GST registered Australian company in Australia.

Under section 142-10 an amount of excess GST will only be refundable if:

•         It has not been passed on to the recipient; or

•         It has been passed on to the recipient and the recipient has been reimbursed.

Goods and Services Tax Ruling GSTR 2015/1: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1) provides guidance on when an amount of excess GST has been passed on to another entity and the circumstances the amount of excess GST which has been passed on to another entity has been reimbursed to that entity. GSTR 2015/1 is available at ato.gov.au.

The following are relevant paragraphs from GSTR 2015/1:

8. Under Division 142, a supplier self-assesses their entitlement to a refund of an amount of excess GST according to objective criteria.

9. The object of Division 142 is to ensure that excess GST is not refunded if this would give an entity a windfall gain. Generally, the Division operates so that a supplier is not entitled to a refund of an amount of excess GST where the supplier has passed on the GST to another entity (the recipient) and has not reimbursed that other entity for the passed-on GST. Where a supplier is uncertain whether it has passed on the GST or reimbursed, it may apply for a private ruling.

12. 'Excess GST' is an amount of GST that has been taken into account in an entity's assessed net amount and is in excess of what was payable by the entity in the relevant tax period prior to taking into account or applying the provisions of Division 142.

17. If the excess GST has been passed on to the recipient, section 142-10 applies to treat the excess GST as always having been payable, and payable on a taxable supply, until the excess GST has been reimbursed to the recipient. Once section 142-10 ceases to apply, the supplier can claim a refund of the excess GST.

18. In cases where the supplier actually makes a supply, an adjustment event arises under Division 19 when the supplier reimburses the recipient as the reimbursement has the effect of changing the consideration for the supply, or causing the supply to stop being a taxable supply. In these cases, the supplier has a decreasing adjustment which is attributable to the tax period in which the reimbursement is made to its recipient. The recipient has an increasing adjustment where it is registered for GST and has claimed an input tax credit in relation to the acquisition. The Commissioner's view on the operation of Division 19 is explained in Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events.

25. If excess GST is included on a tax invoice, this is prima facie evidence that the excess GST has been passed on.

31. Some common circumstances in which excess GST may arise include:

•         incorrectly treating something which is not a supply as a taxable supply

•         miscalculating a GST liability under the GST law

•         incorrectly reporting an amount of GST on a GST return

•         incorrectly treating a GST-free or input taxed supply as a taxable supply (including incorrectly apportioning the taxable and non-taxable components of a mixed supply).

What constitutes reimbursement?

69. The Commissioner considers that, for the purposes of section 142-10, an amount of excess GST that has been passed on to the recipient is appropriately reimbursed when the recipient has been compensated an equivalent amount by the supplier. This reimbursement may be made voluntarily by the supplier or in satisfaction of a contractual obligation.

70. For the purposes of section 142-10, a supplier has reimbursed the recipient for the passed-on excess GST where:

•         reimbursement takes the form of a payment in money, the setting off of mutual liabilities, or the issuing of a voucher, the recipient must be able to choose the form in which reimbursement is made

•         the amount of the reimbursement corresponds to the amount of excess GST passed on to the recipient and the method of reimbursement ensures this is achieved, and

•         the reimbursement or journal entry under an agreement to set-off the liabilities between the parties has actually been made, and is not merely planned to be made.

71. A supplier may self-assess its entitlement to a refund of the excess GST to the extent that it has reimbursed the recipient.

Under subsection 19-10(1) an adjustment event is any event which has the effect of:

a)    cancelling a supply or acquisition; or

b)    changing the consideration for a supply or acquisition; or

c)    causing a supply or acquisition to become or stop being, a taxable supply or creditable acquisition.

You have treated some of your supplies as taxable supplies by mistake where they would be GST-free and have collected GST on these supplies when issuing the tax invoices to the recipients.

In this instance, if you decide to reimburse the recipients the GST that has been passed on you will be able to obtain a refund of the excess GST paid.

When the reimbursement is done, you will have a decreasing adjustment under subsection 19-10(1) due to the change in consideration for your supplies.

Under subsection 29-20(1) an adjustment that you have is attributable to the tax period in which you become aware of the adjustment. You will report the adjustment in the tax period you issue the adjustment notes to the recipients.

Question (c)

Section 29-75 provides what are adjustments notes and when an adjustment note is to be issued.

29-75 Adjustment notes

1)    An Adjustment note or an adjustment that arises from an adjustment event relating to a taxable supply:

a)    must be issued by the supplier of the taxable supply in the circumstances set out in subsection (2); and

b)    must set out the ABN of the entity that issues it; and

c)    must contain such other information as the Commissioner determines in writing; and

d)    must be in the approved form.

However, the Commissioner may treat as an adjustment note under a particular document that is not an adjustment note.

2)    The supplier of the taxable supply must:

a)    Within 28 days after the recipient of the supply requests for the supplier to give an adjustment note for the adjustment relating to the supply; or

b)    If the supplier has issued a tax invoice in relation to the supply (or the recipient has requested one), and the supplier becomes aware of the adjustment before the adjustment note is requested - within 28 days after becoming aware of that fact.

give to the recipient an adjustment note for the adjustment, unless any tax invoice relating to the supply would have been a recipient created tax invoice (in which case it must be issued by the recipient).

For more information on adjustment notes refer to Goods and Services Tax Ruling GSTR 2013/2: adjustment notes available at ato.gov.au

If you decide to reimburse the recipients the GST that has been passed on, you are required to issue adjustment notes under section 29-75 to the recipients as you need to hold an adjustment note for claiming a decreasing adjustment when completing the BAS.

Question (d)

Where a customer pre-purchases bulk hours of counselling services and you have collected GST on the upfront payment, you will have to do an adjustment under subsection 19-10 (1) when the counselling services are later provided to the employees and these supplies are GST-free.

You are required to issue adjustment notes under section 29-75 to the recipients as you would need to hold an adjustment note for your claim of a decreasing adjustment when completing the BAS.