Edited version of private advice

Authorisation Number: 1052235806470

Date of advice: 14 May 2024

Ruling

Subject: Supply of a service to a non-resident

Question

Is the supply of a service to an employee of a non-resident body politic a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

Yes, the supply of a service is a taxable supply.

Relevant facts and circumstances

You carry on an enterprise in Australia.

In the course of carrying on your enterprise you make supplies to an employee of a non-resident body politic.

Then non-resident body politic is not running an enterprise.

The employee if the non-resident body politic is a non-resident.

You provide these supplies to the employee in the indirect tax zone.

You receive consideration from the non-resident body politic for these supplies.

You are registered for GST.

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 11-15

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

Reasons for decision

Detailed reasoning

GST is payable on taxable supplies. Section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states 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; 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.

You are registered for GST. The supply or a service to an employee of a non-resident body politic is a supply for consideration that is in furtherance of the enterprise that you carry on. These services are provided in the indirect tax zone and therefore are connected with the indirect tax zone. There is no provision in the GST Act where the supply would be input taxed.

Under subsection 38-190(1) of the GST Act, certain supplies of things, other than goods or real property, for consumption outside Australia are GST-free.

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 if:

(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 the indirect tax zone; 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 for GST.

The supply of services are neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done, nor a supply directly connected with real property situated in Australia therefore the requirements of Item 2(a) in the table in subsection 38-190(1) of the GST Act are satisfied. However, if the supply is provided to another entity in Australia subsection 38-190(3) of the GST Act states that 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 the indirect tax zone; 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.

The Goods and Services Tax Ruling, Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR2005/6) explains the commissioner's view in relation to the meaning of non-resident and another entity and states:

46. The term 'non-resident' is defined in section 195-1 to mean 'an entity that is not an Australian resident'.

47. 'Australian resident' is defined in section 195-1 to mean 'a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

...

54. 'Another entity' is an entity other than the non-resident entity to which the supply is made. The term 'entity' is defined in subsection 184-1(1) and includes an individual, company, partnership, corporate limited partnership or trust.

...

228. An employee is an individual and therefore an entity as defined. If a supply is made to a non-resident employer, and the supply is provided, or required to be provided, to an employee, that supply is provided to 'another entity'. It is inherent in the nature of some supplies, for example, the training or entertainment of employees, or travel by employees, that those supplies can only be provided to the employee....

Furthermore section 11-15 of the GST Act requires states you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

The operation of subsection 38-190(3) of the GST Act means that the supply by you is not GST-free as:

• there is an agreement between the non-resident body politic and you for these supplies; and
• the supply is provided to 'another entity' your employee in Australia; and
• your employee is a non-resident, and they not would not be an Australian-based recipient, had the supply been made to them; and
• the non-resident body politic is not an Australian-based recipient; and
• the non-resident body politic does not make the acquisition for solely a creditable purpose as defined in section 11-15 of the GST Act, as they are not carrying on an enterprise,

Consequently, the supply is not GST-free because subsection 38-190(3) applies to negate the operation of item 2. Therefore, the supply by you to the non-resident body politic is a taxable supply and GST is payable.