Edited version of private advice

Authorisation Number: 1051863541698

Date of advice: 14 July 2021

Ruling

Subject: GST-free supplies of professional services

Question 1

Is the supply of services by Entity X (the Solicitor) to the non-resident Client under the Cost Agreement GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of services by the Solicitor to the non-resident Client who is not in the indirect tax zone (Australia) is GST-free under section 38-190 of GST Act.

Question 2

Is the supply of legal services by Entity Y (the Barrister) to the Solicitor GST-free under section 38-190 of the GST Act?

Answer

Yes, the supply of legal services by the Barrister to the Solicitor but provided to the non-resident Client who is not considered to be in Australia in relation to the Barristers supply is GST-free under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3).

Question 3

Is the Solicitor entitled to claim an input tax credit on the acquisition of legal services acquired from the Barrister under section 11-20 of the GST Act?

Answer

No.

To be entitled to an input tax credit the acquisition by the Solicitor must be a creditable acquisition by satisfying all the requirements of section 11-5 of the GST Act. Paragraph 11-5(b) of the GST Act provides the requirement that 'the supply of the thing to you must be a taxable supply'. Based on our response to question 2 the acquisition by the Solicitor is a GST-free supply. Consequently, no input tax credit will arise.

Question 4

If the Barrister has treated the supply incorrectly as a taxable supply, does section 142-10 of the GST Act apply where the Barrister does not reimburse the excess GST?

Answer

Yes, section 142-10 of the GST Act applies if the Barrister does not reimburse the excess GST.

Relevantly, where the Barrister has treated the supply of legal services as a taxable supply and does not reimburse the Solicitor the relevant amount the excess GST has been passed on to the Solicitor. Consequently, consistent with the view in paragraph 17 of GSTR 2015/1, section 142-10 of the GST Act applies and the Barrister is not entitled to the refund of the excess GST and the excess GST it is treated as always having been payable on the supply.

Further, consistent with Note 3 at the end of subsection 142-10 of the GST Act, while this section applies, paragraph 11-5(b) (about taxable supplies) is satisfied for the corresponding acquisition made by the Solicitor.

Relevant facts and circumstances

The description of the scheme is based on information provided by the applicants in the following documents, which are to be read in conjunction with the facts as set out below:

•                    The costs agreement between the Solicitor and the non-resident Client

•                    The costs agreements between the Solicitor and the Barrister

The Solicitor and the non-resident client (Client) entered into a costs agreement under which the Client appointed the Solicitor to advise and act on their behalf in respect of certain claims.

At all times during which the Solicitor have provided legal advice and services to the Client in the legal matter (Proceeding):

•                    the Client has been a non-resident of Australia for GST purposes, pursuant to section 195-1 of the GST Act;

•                    the Client has not travelled to Australia or sought legal advice while in Australia, in respect of the Proceeding;

•                    no physical goods have been supplied to the Client;

•                    no work has work been physically performed on goods situated in the indirect tax zone;

•                    no legal services have been directly or indirectly connected with real property situated in the indirect tax zone;

•                    the Client's costs agreement with the Solicitor required the Solicitor to provide services directly to the Client

At all times during which the Solicitor have provided legal advice and services to the Client in the Proceeding:

•                    the Solicitor have been residents of Australia for GST purposes; and

•                    the Solicitor have not been non-residents for these purposes.

The Solicitor and the Barrister

the Solicitor and the Barrister entered into a number of agreements (the Barrister Costs Agreements) in respect of the Solicitor's Client. The subject matter of the Barrister Costs Agreements was to provide legal services such as prepare for and appear on a mediation and other matters pertaining to the Proceedings for the Client. Further the Barrister Cost Agreement provides that acceptance of the Barristers offer result in a retainer agreement in respect of the Solicitor's instructions, not with the Client. The Solicitor are the client, from whom the Barrister takes instructions, and to whom the Barrister is accountable under this retainer agreement and who is liable for me fees.

At all times in the Proceeding, the Barrister:

•                    has been resident of Australia for GST purposes.

•                    have or will invoice the Solicitor, rather than the Client, for their costs pursuant to their respective costs agreements in the Proceeding.

The Solicitor will invoice the Client for all outlays and disbursements incurred in the Proceedings, including Barrister fees, pursuant to the Solicitor's Costs Agreement with the Client.

At no time has there been a recognised agency agreement between the Solicitor and the Client by either Barrister engaged in the Proceeding.

The Barrister has understood and acknowledged that they were retained as sub-contractors to the Solicitor to provide legal services in respect of the Client's Proceeding.

Under the Solicitor's Costs Agreement, the Solicitor does not have an express authority to engage counsel (or any other third party) on behalf of the Client.

The Solicitor costs agreement, together with those of counsel engaged in the Proceeding, contain standard GST provisions, requiring the charging of GST in addition to each party's stipulated professional rates for taxable supplies under that party's costs agreement.

None of the costs agreements described above contain GST Act subdivision 153-B provisions regulating how tax invoices would be rendered and GST charged in respect of the supply of agency services under the said costs agreements. Such provisions are absent.

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 38-190

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(4)

A New Tax System (Goods and Services Tax) Act 1999 section 142-5

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