Edited version of private advice

Authorisation Number: 1051841182073

Date of advice: 13 December 2021

Ruling

Subject: GST and carrying on an enterprise in Australia by a non-resident

Question 1.

Is Entity A carrying on an enterprise in Australia and required to be registered for goods and services tax (GST) in relation to executing the project undertaken with Entity B?

Answer:

Entity A is carrying on their enterprise in Australia in relation to executing the project undertaken with Entity B. However, they are not required to be registered for GST as the supplies they make to Entity B are not connected with Australia and therefore, the turnover from these supplies will not be included in working out the GST registration turnover threshold. Please refer to the reasons for decision for details.

Question 2.

Is Entity A required to charge GST on sales made to Entity B?

Answer:

No. Since Entity A is not required to be registered for GST, the supplies they make to Entity B will not satisfy all of the requirements of taxable supply. Therefore, they are not required to charge GST on the supplies they make to Entity B.

Question 3.

Is Entity A required to pay GST on the supplies made by the two labour hire companies Entity X and Entity Y?

Answer:

No. The supplies made by the two labour hire companies to Entity A will be GST-free under Item 2 in the table in subsection 38-190(1) of the GST Act. Please refer to the reasons for decision for more explanation.

This ruling applies for the following period

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

•                    Entity A is a non-resident.

•                    Entity A is providing digitalisation services to Entity B in Australia.

•                    Entity A has no permanent establishment in Australia and is not planning to have one. There is no local office or staff members based in Australia.

•                    The project is managed by the staff of Entity A and the project management is therefore perform overseas.

•                    Australian labour hire companies - Entity X and Entity Y are subcontracted to recruit, employ and pay staff who will perform and supervise the physical work in Australia using the Entity A's equipment.

•                    A number of staff members of Entity A have visited Australia for several days and have not been in Australia for more than 183 days in any year.

•                    The purpose of the visit by the staff members was to conduct training, instruct and set-up tasks, ensuring the locally hired staff work independently.

•                    The employees of Entity A have visited Australia during the early stages of the project. No further visits are scheduled or foreseen until the completion of the project.

•                    The labour hire company Entity X has performed labour hire services from the start of the project and did not charge GST to Entity A.

•                    The labour hire company Entity Y has been providing labour hire services during the later stages of the project and has been charging GST to Entity A.

•                    Entity A did not charge GST to Entity B.

•                    Entity A will perform the following as per the contract:

o        Provision of hardware (imaging equipment) and software

o        Installation of hardware and software.

o        Quality assurance and management (remote)

•                    The equipment was brought by Entity A and will be shipped back after the completion of the project.

•                    Both labour hire companies will recruit and employ scan operators and supervisors who will perform in Australia.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 - section 9-5, 9-20, 9-25, 9-26, 9-27

A New Tax System (Goods and Services Tax) Act 1999 - section 23-5

A New Tax System (Goods and Services Tax) Act 1999 - section 188-10

A New Tax System (Goods and Services Tax) Act 1999 - subsection 188-15(3), 188-20(3)

Reasons for decision

You are liable to pay goods and services tax (GST) if you make a taxable supply. You will be making a taxable supply if the supply satisfies all of the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Section 9-5 of the GST Act states that you make a taxable supply if:

a) you make the supply for consideration; and

b) the supply is made in the course or furtherance of an enterprise that you carry on; and

c) the supply is connected with the indirect tax zone (Australia); and

d) you are 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.

Entity A is making the supply of digitalisation services to Entity B for consideration.

'Enterprise' is defined in section 9-20 of the GST Act to include an activity, or series of activities, done in the form of a business. The definition under section 9-20 of the GST Act does not specify that the enterprise should be carried out in the indirect tax zone (Australia). Although Entity A is a non-resident, they are making the supply of digitalisation services in the course or furtherance of their enterprise.

Therefore, the supply of digitalisation services provided by Entity A will satisfy paragraphs (a) and (b) of section 9-5 of the GST Act. Next, it should be determined whether the supplies made by Entity A to Entity B are connected with Australia.

Supplies connected with Australia

Section 9-26 of the GST Act provides when supplies made by non-residents that are not connected with Australia.

Subsection 9-26(1) of the GST Act provides that a supply is not connected with Australia if:

a) the supplier is a non-resident; and

b) the supplier does not make the supply through an enterprise that they carry on in Australia; and

c) the supply is covered by an item in the table. Item 1 in the table provides that a supply of anything other than goods or real property (an intangible) is not connected with Australia if:

i. the thing is done in Australia; and

ii. the recipient is an Australian-based business recipient of the supply.

According to subsection 9-26(2) of the GST Act, an entity is an Australian-based business recipient if:

a) the entity is registered; and

b) an enterprise of the entity is carried on in Australia; and

c) the entity's acquisition of the thing supplied is not solely of a private or domestic nature.

Entity A is a non-resident and the supplies they make under the project are other than goods or real property. The imaging equipment they have supplied will be shipped back after the completion of the project. The supplies in relation to the project are done in Australia. The recipient of the supplies, Entity B is an Australian-based business recipient as they are registered for GST, they carry on an enterprise in Australia and they do not acquire the supplies made by Entity B under the project for private or domestic purposes.

The activities carried out by Entity A under the project in Australia should be considered in order to determine whether they make the supplies through an enterprise they carry on in Australia.

Paragraph 9-25(5)(b) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if the supplier makes the supply through an enterprise that the supplier carries on in the indirect tax zone. If a non-resident entity makes a supply through their Australian GST presence the supply will be treated in the same way as a domestic entity. The concept of 'an enterprise of an entity that is carried on in Australia' is referred to as the entity's 'Australian GST presence'.

Goods and Services Tax Ruling GSTR 2019/1: 'supply of anything other than goods or real property connected with the indirect tax zone (Australia)' (GSTR 2019/1) discusses when a supply of anything other than goods or real property (an intangible) is connected with Australia under subsection 9-25(5) of the GST Act.

Paragraph 8 of GSTR 2019/1 states:

8. A supply of an intangible is connected with Australia under paragraph 9-25(5)(b) if the supplier:

•                    carries on an enterprise in Australia within the meaning given by section 9-27, and

•                    makes the supply through that enterprise.

Applying the test in section 9-27 of the GST Act to a non-resident has two main outcomes:

•                    Where the non-resident entity has a GST enterprise presence, the entity will be treated in the same way a domestic entity, and

•                    Where they do not have a GST enterprise presence, then a non-resident will generally only be subjected to GST on supplies to unregistered entities in Australia.

Subsection 9-27(1) of the GST Act provides:

An enterprise of an entity is carried on in the indirect tax zone if:

a) the enterprise is carried on by one or more individuals covered by subsection (3) who are in the indirect tax zone; and

b) any of the following applies:

i. the enterprise is carried on through a fixed place in the indirect tax zone;

ii. the enterprise has been carried on through one or more places in the indirect tax zone for more than183 days in a 12 month period;

iii. the entity intends to carry on the enterprise through one or more places in the indirect tax zone for more than 183 days in a 12 month period.

The individuals who can carry on an enterprise are:

•                    if the entity is an individual - that individual

•                    an employee or officer of the entity, or

•                    an individual who is, or is employed by, an agent of the entity that

o        has, and habitually exercises, authority to conclude contracts on behalf of the entity, and

o        is not a broker, general commissioner agent or other agent of independent status that is acting in the ordinary course of the agent's business as such an agent.

Where one or more relevant individuals are in Australia carrying on an enterprise of an entity, paragraph 9-27(1)(a) of the GST Act is satisfied.

Australian labour hire companies have been subcontracted by Entity A to provide employees to perform and supervise the physical work on-site in Australia. Entity A's staff have been visiting Australia for the purposes of providing training, instruction and set-up tasks to ensure that the local labour hire employees are able to work independently. The presence of Entity A' staff in Australia as part of the project they carry on, will satisfy paragraph 9-27(1)(a) of the GST

When is an enterprise carried on in a fixed place?

Law Companion Ruling LCR 2016/1: 'GST and carrying on an enterprise in the indirect tax zone (Australia)' (LCR 2016/1) explains the issue of when an enterprise of an entity is carried on in the Indirect Tax Zone (Australia).

Paragraph 37 of LCR 2016/1 explains that one of the factors that may determine whether an entity has a GST enterprise presence is whether the enterprise is carried on through a fixed place. Although the term 'fixed place' is not defined in the GST Act, it takes the meaning defined in subsection 6(1) of the Income Tax Administration Act 1936.

The fixed place must have an element of permanence, both geographic and temporal. The term 'fixed' requires a stable or continual connection between the enterprise and the place that is more than temporary or transitory in nature.

Paragraph 39 of LCR 2016/1 states:

39. Given the role of the 183 day rule, the importance of the fixed place test is most relevant to circumstances where an enterprise operates from a fixed place for 183 days or less. The OECD Commentary on the Model Tax Convention and ATO rulings mention that there can be circumstances in which a period of less than six months is sufficient to lead to the conclusion that temporal permanence exits. Where the period in Australia is less than six months, there may still be temporal permanence where the connection with Australia is very strong. For example, the enterprise returns to a particular location in Australia on an on-going and regular basis, but for a short period each time. In such cases of recurring activity, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years).

Entity A has confirmed that they do not operate from a fixed place in Australia. The employees of Entity A have visited Australia to train and assist the employees provided by the two labour hire companies to enable them to operate independently. The employees of Entity A have used the onsite facilities available with Entity B to provide their training and support services.

Furthermore, the employees of Entity A visited Australia a number of times during the early stages of the commencement of the project. The employees never stayed in Australia for more than 183 days in a 12 month period. They are not intending to visit Australia in the near future. Therefore, it is our view based on the facts provided, the presence of the employees of Entity A in Australia will not satisfy paragraph 9-27(1)(b) of the GST Act. Subsection 9-27(1) of the GST act requires both elements under paragraph (a) and (b) should be satisfied to consider whether an enterprise of an entity is carried on in Australia.

As explained above, we consider that the supplies made by Entity A under the project are not connected with Australia under section 9-26 of the GST Act.

Section 23-5 of the GST provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold.

Subsections 188-15(3) and 188-20(3) of the GST Act explain amongst other things that supplies not connected with Australia are disregarded when working out the current or projected GST turnover.

Although, Entity A is carrying on their enterprise in relation to the project, the turnover from the project is not included in working out the GST registration turnover threshold.

Since the supplies made by Entity A to Entity B under the project do not satisfy all of the requirements of section 9-5 of the GST Act, Entity A is not required to charge GST on the supplies made by them to Entity B.

Supplies made to Entity A

Item 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:

•                    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

•                    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 both labour hire companies to Entity A is not 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.

Entity A being a non-resident recipient had acquired the labour hire service in carrying on its enterprise overseas and is neither registered nor required to be registered for GST. Therefore, the supply satisfies the requirements of item 2(b) in the table in subsection38-190(1) of the GST Act

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; and

•                    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 be an Australian-based business recipient of the supply, if the supply had been made to it;

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.

In this case, both labour hire companies are subcontracted by Entity A to provide the employment services to Entity B in relation to the project. However, as explained above and as per subsection 9-26(2) of the GST Act, Entity B is an Australia-based business recipient. Therefore, the supplies made by both labour hire companies to Entity A are not excluded by subsection 38-190(3) of the GST Act from being GST-free.

As the supply satisfies the requirements in item 2 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, the employment services provided by both labour hire companies will be GST-free.