Edited version of private advice

Authorisation Number: 1052373268236

Date of advice: 17 March 2025

Ruling

Subject: GST and supply of services to non-residents

Question 1

Is the supply of services such as business development, sales, software rollout, training and support made to a non-resident entity and provided to their customers in Australia and outside Australia, GST-free under section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer 1

The supply of services of business development, sales, software rollout, training and support made to the non-resident entity and provided to their customers in Australia would be GST-free under table item 2 of subsection 38-190(1) of the GST Act. The supply provided to the customers located outside Australia is not connected with Australia and therefore the supply will not subject to GST.

This ruling applies for the following periods:

Not applicable.

The scheme commenced on:

Not applicable.

Relevant facts and circumstances

•                     You provide consulting services to a non-resident entity and paid by them.

•                     The non-resident entity sells subscriptions for job management software.

•                     Business customers from Australia and outside Australia subscribe to and pay for the services directly to the non-resident entity.

•                     You have entered into a Consulting Agreement with the non-resident and you will perform or complete the work required by the non-resident entity under Statement of Work.

•                     The consulting agreement provides:

­                       Notwithstanding any provision hereof, for all purposes of this Agreement each party shall be and act as an independent contractor and not as partner, joint venturer, employer, employee or agent of the other and shall not bind nor attempt to bind the other to any contract.

­                       Consultant is an independent contractor and is solely responsible for all taxes, withholdings, and other statutory or contractual obligations of any sort, including, but not limited to, Workers' Compensation Insurance.

•                     Under the statement of work your primary responsibilities are development of business, sale, training and implementation of the Visual Dispatch product portfolio to XX equipment companies in the Consultant's defined territory.

•                     You do not physically perform any work on goods located in Australia as part of your services provided to business entities in 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 subsection 9-26(2)

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(3)

Reasons for decision

Goods and Services Tax (GST) is payable on any taxable supplies you make.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 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.

The supply of services made by you to the non-resident entity under the consulting agreement will satisfy the requirements of a taxable supply according to section 9-5 of the GST Act. The supply will not be an input taxed under any GST Act. However, it should be determined whether the supply will satisfy any of the GST-free provisions in the GST Act.

GST-free supplies

Section 38-190 of the GST Act lists supplies of things other than goods or real property for consumption outside Australia that are GST-free. The services you supply are neither good nor real property and therefore comes within the scope of subsection 38-190(1) of the GST Act. In particular, table item 2 of subsection 38-190(1) of the GST Act (item 2) is relevant to the circumstances of the case.

Under item 2, a supply is GST-free where it is:

a supply that is made to a non-resident who is not in Australia when the thing supplied is done; and

(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 Australia; 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.

The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done. In your circumstances, the supply is made to the offshore entity that does not have an Australian presence and therefore this requirement is met.

Physically performed on goods situated in Australia

Under item 2, it is only where the connection between the supply and the goods is a direct one that the location of goods is regarded as the place where consumption occurs. The addition of the adverb 'directly' to the phrase 'connected with' implies a more emphatic connection between the supply and goods. The inference is that the supply is so closely aligned with goods that it is appropriate to treat the location of the goods as the place where consumption occurs.

Goods and Services Tax Ruling GSTR 2003/7: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999, provides the meaning of 'directly connected with'.

Paragraphs 33 to 38 of GSTR 2003/7 state:

33.          We consider that such a close link or association between the supply and particular goods or real property exists where, for example, the direct object of the supply is the good or real property in the sense that:

•                     the supply changes or affects the goods or real property in a physical way; or

•                     there is a physical interaction with the goods or real property but without changing the goods or real property; or

•                     the supply establishes the quantity, size, other physical attributes or the value of the goods or real property; or

•                     the supply affects (or its purpose is to affect) or protects the nature or value (including indemnity against loss) of the goods or real property; or

•                     the supply affects, or is proposed to affect, the ownership of the goods or real property including any interest in, or right in or over goods or real property.

...

37.          A common example of a supply of this kind is a supply of a service that is physically performed on particular goods or real property such as the repair of goods or a building.

Paragraph 39 of GSTR 2003/7 further provides examples of supplies where there is a physical interaction with the goods or real property but without changing the goods or real property include supplies of services of the following kind:

•                     transport services - the removal of goods from one place to another;

•                     security services in relation to goods or real property; and

•                     storage services for goods.

In your circumstances, you provide software roll out, training and other support services to the customers of the non-resident located in Australia and outside Australia. You have confirmed that you do not perform anything physically on equipment owned by the customers of the non-resident. You do not alter any equipment in a physical way. Therefore, it is our view that the supply of services is not a supply of work physically performed on goods. Hence, the supply will satisfy the requirements of item 2.

Limitation of item 2

However, a supply covered by item 2 will not be GST-free if the provisions of subsection 38-190(3) of the GST Act are met. Subsection 38-190(3) of the GST Act provides that the supply will not be 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.

The supply of services provided to the non-resident satisfies paragraphs 38-190(3)(a) and(b) of the GST Act. However, the supply does not satisfy paragraph 38-190(3)(c) of the GST Act as the supply would be provided to Australian-based business recipient in Australia.

Subsection 9-26(2) of the GST Act provides that an entity is an Australian-based business recipient if:

(a)           the entity is registered; and

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

(c)           the entity's acquisition of the supply is not solely for private or domestic nature.

Under the consulting agreement with the non-resident, you will be providing the software rollout, training and other support services to Australian based business entities. Therefore, subsection 38-190(3) of the GST Act will not override the GST-free status under item 2.

Supply of services provided to customers located outside Australia.

One of the requirements of a taxable supply under section 9-5 of the GST Act is that the supply should be connected with Australia.

Law Companion Ruling LCR 2016/1: GST and carrying on an enterprise in the indirect tax zone (Australia) explains amongst other things, when a supply is not connected with Australia.

Paragraph 85 of LCR 2016/1 provides that:

Supplies of intangibles done in Australia are no longer connected with Australia if they are:

•                     supplied by a non-resident other than through an enterprise they carry on in Australia, and

•                     supplied to either:

­                       a non-resident that acquires the intangible for the purpose of an enterprise they carry on outside Australia, or

­                       an Australian based business recipient.

The non-resident does not carry on their enterprise in Australia as they do not have a presence in Australia. The business customers from Australia and outside Australia subscribe and pay directly to the non-resident for the services provided to them by you. You provide the services to the customers of the non-resident as a separate contractor under the consulting agreement with the non-resident entity. Therefore, the supply made by the non-resident to the business customers located outside Australia through you is not connected with Australia. Hence, the supply to business customers located outside Australia is not subject to GST.