Edited version of private advice

Authorisation Number: 1051910115262

Date of advice: 14 October 2021

Ruling

Subject: GST and supply of preparation of tax return services to a non-resident and provided to the employee of an overseas entity

Question

Is your supply of preparation of tax return services to the non-resident entity a GST-free supply under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when the supply is provided to the employee of an overseas client of the non-resident entity (overseas client) and the tax return includes income received in connection with residential premises?

Answer

Your supply of preparation of tax return services to the non-resident entity is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act when the employee of the overseas client is not in Australia in relation to the supply when preparation for the tax return services is done and the tax return include income received in connection with residential premises.

Your supply of preparation of tax return services to the non-resident entity is a taxable supply under section 9-5 of the GST Act by virtue of subsection 38-190(3) of the GST Act when the employee of the overseas client is in Australia in relation to the supply when the preparation of tax return services is done, and the tax return includes income received in connection with residential premises.

Relevant facts

You are an entity based in Australia and are registered for GST.

A non-resident entity has entered into a Master Services Agreement (MSA) with an entity located outside Australia (overseas client). Under the MSA the non-resident entity has agreed to supply Australian tax advisory and compliance services to expatriate employees of the overseas client.

The non-resident entity is not a related party of your business and is neither registered nor required to be registered for GST.

The non-resident entity has engaged you to provide Australian tax advisory and compliance services including preparation of tax returns to expatriate employees of its overseas client.

The tax advice may be in relation to, or the tax return may include, income received from leasing of Australian residential property which is input taxed. The expatriate employees of the overseas client may or may not be Australian residents and may or may not be in Australia at the time you provide your preparation of tax return services to them.

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 section 195-1

Reasons for decision

Note: 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.

An entity is liable to pay GST on any taxable supply that it makes under section 9-40 of the GST Act.

Section 9-5 of the GST Act provides that an entity makes a taxable supply if:

a)    the supply is made for consideration; and

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

c)    the supply is connected with Australia; and

d)    the entity is registered for GST.

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

Your supply of preparation of tax return services to the non-resident entity satisfies the requirements in paragraphs 9-5(a) to 9-5 (d) of the GST Act as:

a)    you make the supply for consideration; and

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

c)    the supply of services is connected with Australia as it is done through a business that you carry on in Australia; and

d)    you are registered for GST.

Your supply of preparation of tax return services is not input taxed under the GST Act. What remains to consider is whether your supply is GST-free as it is made to a non-resident.

GST-free supply

Relevant to your supply of preparation of tax return services to the non-resident entity 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 is GST-free when the supply is made to a non-resident who is not in Australia in relation to the supply at the time the supply is done and

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

b)    the non-resident is neither registered nor required to be registered for GST and the acquisition is for the purpose of the business carried on by the non-resident.

Only one of the paragraphs in item 2 needs to be satisfied.

Your supply of preparation of tax return services made to the non-resident entity satisfies paragraph (a) in item 2 as:

• the non-resident entity is a non-resident of Australia and is not in Australia in relation to your supply at the time your services are done; and
• your supply of preparation of tax return services made to the non-resident entity is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia.

Since paragraph (a) is satisfied there is no need to consider paragraph (b).

Thus, your supply of preparation of tax return services to the non-resident entity is GST-free under paragraph (a) in item 2 to the extent that subsection 38-190(2A) or 38-190(3) of the GST Act does not negate this GST-free status.

Subsection 38-190(2A) of the GST Act

Under subsection 38-190(2A) of the GST Act a supply that is covered by any of items 2 to 4 in the table in subsection 38-190(1) is not GST-free if:

•         the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia; and

•         the supply of that property would be wholly or partly input taxed under Subdivisions 40-B or 40-C of the GST Act.

Subdivision 40-B of the GST Act is about the supply of premises (including a berth at a marina) by way of lease, hire or licence. Subdivision 40-C of the GST Act is about the sale of residential premises and the supply of residential premises by way of long-term lease.

Under subsection 38-190(2A) it is the acquisition of the supply which must relate (whether directly or indirectly, or wholly or partly) to the making of a supply of real property that would be input taxed.

Goods and Services Tax Determination GSTD 2007/3 provides guidance on the application of subsection 38-190(2A) regarding an accountant making supplies to an entity consisting of advice about residential premises and tax return preparation.

Paragraphs 11 and 12 in GSTD 2007/3 state the following:

11.  The test in subsection 38-190(2A) is whether there is a connection between the acquisition of the supply and the making of a supply of real property that is input taxed under Subdivision 40-B or 40-C. It is not a requirement that the acquisition relates only to the making of supplies of real property that would be input taxed under Subdivision 40-B or 40-C. Subsection 38-190(2A) negates the GST-free status of a supply, such as the supply of advice or tax return preparation services to a non-resident property owner, even if the acquisition of those services also relates, directly or indirectly or wholly or partly, to the making of supplies that are not input taxed supplies of real property.

12.  The phrase 'relates to', is not defined and takes its ordinary meaning. It has been held to be capable of wide meaning. In any case, that the phrase is intended to have a wide meaning and application is put beyond doubt by the words 'whether directly or indirectly, or wholly or partly' in subsection 38-190(2A), which amplify its scope.

The acquisition of preparation of tax return services by the non-resident entity does not relate whether directly or indirectly, wholly or partly to the making of a supply of residential property by the non-resident entity as the non-resident entity does not own the Australian residential property that is reported in the employee's tax return. The non-resident entity's acquisition of your services instead relates to the making of an acquisition of tax return preparation services which it acquires to fulfill its contractual obligations it has with its overseas client under the MSA, and this acquisition has no relationship with the supply the employee of the overseas client makes in Australia.

Accordingly, section 38-190(2A) of the GST Act does not apply to your supply of preparation of tax return to the non-resident entity.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in the 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.

Employee not in Australia

Where the employee of the overseas client is not in Australia in relation to your supply, subsection 38-190(3) of the GST Act does not apply to your supply of preparation of tax return services made to the non-resident entity. Thus, your supply made to the non-resident entity is GST-free under paragraph (a) in item 2.

Employee in Australia

Paragraphs (a) and (b) in subsection 38-190(3) are satisfied as you have a contractual arrangement with the non-resident entity to provide your supply of preparation of tax return services to the employee of the overseas client.

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

Your supply of preparation of tax return services is not an input taxed supply thus it is relevant to consider whether any the requirements in that paragraph are satisfied.

Requirements (i) and (ii) in paragraph 38-190(3)(c) of the GST Act are not relevant to your supply as you are not providing your services to an Australian GST registered business or to the employee of an Australian GST registered business.

Requirement (iii) in paragraph 38-190(3)(c) of the GST Act

This requirement relates to a supply that is provided to the employee or officer of the recipient who is in Australia at the time of the supply.

Section 195-1 of the GST Act defines 'recipient' in relation to a supply to be the entity to which the supply was made. In this case the recipient of your supply is the non-resident entity.

The employee to whom you provide the supply of preparation of tax return services is not an employee of the non-resident entity. Thus requirement (iii) in paragraph 38-190(3) of the GST Act does not apply to your supply of preparation of tax return services made to the non-resident entity and provided to the employee of the overseas client in Australia.

In this instance subsection 38-190(3) of the GST Act will negate the GST-free status of your supply. Thus, your supply of preparation of tax return services made to the non-resident entity and provided to the employee of the overseas client in Australia is a taxable supply under section 9-5 of the GST Act.