Private ruling: Goods and services tax (GST) and consultancy services
Date of advice: 1 March 2018
Published: June 2018

Ruling: Q1: Are you required to be registered for GST and if so from what date? | A1: Yes. You were required to be registered for GST from (date). | Q2: Is GST payable on your supply of services to Australian clients made before (date)? | A2: No. | Q3: Is GST payable on your supply of services to Australian clients made after (date)? | A3: Yes. | Q4: Is GST payable on your supply of services to the non-resident entity? | A4: No.

Relevant facts and circumstances: You are registered for GST. You were registered for GST retrospective from (date). You are an Australian resident. You are a sole trader providing services to clients. You are based in Australia and you perform your services in Australia. You supply consultancy services (professional services relating to imports and marketing) to a non-resident, overseas based company called (name)(X). You are earning (amount) a month from these services. Your contract with X requires you to render these services to a third party based in Australia (Y) (you do the work for Y). Z (an overseas company) is a client of X. Z contracted X to supply these services and X sub-contracted out the performance of these services to you. Y is registered for GST. Y carries on its business in Australia and it utilises these services in its business. You also supply services (including web design services; social networking services and event management services) to Australian based entities. You earn about (amount) a year from these services. Your projected turnover from the services set out above reached $75,000 from (date). You had not earned $75,000 from your business in any 12 month period prior to (date).

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 9-25 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 38-190 | A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision: Summary: An entity is required to be registered for GST if it meets the requirements of section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), that is: (a) the entity is carrying on an enterprise; and (b) the entity’s GST turnover meets the relevant registration turnover threshold (which is $75,000 in your case, as you are not a non-profit entity) You are carrying on an enterprise. Therefore, you meet the requirement of paragraph 23-5(a) of the GST Act. An entity meets a particular turnover threshold in the GST Act if the requirements of subsection 188-10(1) of the GST Act are met, which states: You have a GST turnover that meets a particular *turnover threshold if: (a) your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or (b) your projected GST turnover is at or above the turnover threshold. (*Denotes a term defined in section 195-1 of the GST Act) Current GST turnover is calculated in accordance with section 188-15 of the GST Act. Current GST turnover at a time during a particular month is the sum of the values of the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month (with some exclusions that don’t apply in your case). Projected GST turnover is calculated in accordance with section 188-20 of the GST Act. Projected GST turnover at a time during a particular month is the sum of the values of all supplies that you have made, or are likely to make, during that month and the next 11 months (with some exclusions that don’t apply in your case). You had not earned $75,000 from your business in any 12 month period prior to (date) You met the $75,000 registration threshold from (date) as your projected GST turnover reached $75,000 from that date. Therefore, the requirement of paragraph 23-5(b) of the GST Act is met. As the requirements of section 23-5 of the GST Act were met from (date), you were required to be registered for GST from that date. You make a taxable supply where you meet the requirements of section 9-5 of the GST Act, which 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. The indirect tax zone means Australia. Your GST registration has taken effect retrospectively from (date). You were not required to be registered for GST before that date. Therefore, GST is not payable your supplies of services supplied before (date), as you do not meet the requirement of paragraph 9-5(d) of the GST Act in relation to these services. | Detailed Reasoning - Question 3:: In regards to services you supplied, and will supply, to Australian entities after (date), you meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is: ● you are supplying services to Australian clients for consideration (paragraph 9-5(a) of the GST Act); and ● you supply the relevant services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act); and ● the supply is connected with Australia as you are performing the services in Australia and also because you supply the services through an enterprise that you carry on in Australia (paragraph 9-5(c) of the GST Act); and ● you are registered for GST from (date) onwards (paragraph 9-5(d) of the GST Act). Additionally, your supplies of services to Australian clients are not GST-free or input taxed. Therefore, as all the requirements of section 9-5 of the GST Act are met, GST is payable on your supplies of any services to Australian clients from (date) onwards. | Summary: Your supplies of services to X are GST-free under item 2 in the table in subsection 38-190(1) of the GST Act. | Detailed Reasoning - Detailed reasoning: You meet the requirements of paragraph 9-5(a) to 9-5(d) of the GST Act in regards to your supply of services to X. That is: ● you are supplying services to that company for consideration (paragraph 9-5(a) of the GST Act); and ● you are supplying the services in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act); and ● these supplies are connected with Australia as you perform the services in Australia and you are also supplying the services through an enterprise that you carry on in Australia (paragraph 9-5(c) of the GST Act); and ● you are registered for GST with effect from (date) (paragraph 9-5(d) of the GST Act). There are no provisions of the GST Act under which your supplies of services to X would be input taxed. Therefore, what remains to be determined is whether these supplies are GST-free. The supplies of services will be GST-free if they meet the requirements of item 2 in the table in subsection 38-190(1) of the GST Act (item 2). A supply of things, other than goods or real property, to a non-resident who is not in Australia when the thing supplied is done is GST-free under item 2 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 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 for GST. However, there is an exception in subsection 38-190(3) of the GST Act where: (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 have been an *Australian-based business recipient of the supply if the supply had instead 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 have been an Australian-based business recipient of the supply, if the supply had instead 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. An entity is an Australian-based business recipient of a supply made to it if: (a) the entity is registered for GST; 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. Paragraphs 59 and 60 of Goods and Services Tax Ruling GSTR 2005/6 provide guidance on determining whether a supply of services is provided to ‘another entity’, for the purposes of paragraph 38-190(3)(b) of the GST Act. They state: 59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made. 60. The example in the Explanatory Memorandum accompanying the Bill that introduced subsection 38-190(3) illustrates this. In that example, non-resident parents contract for the supply of education services to be provided to their children in Australia. The contractual flow of the services is to the parents, while the actual flow of the services is to the children. The supply is made to the parents (non-residents) and provided to another entity, each child, in Australia. Services are not goods or real property You are supplying professional services to X. X is the recipient of your supply as they acquire your services under a contract they have with you. You are supplying something, other than goods or real property, to a non-resident who is not in Australia when the thing supplied is done. 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. Therefore, you meet the requirements of item 2. Your supply is provided by you to ‘another entity’ in Australia, as you are rendering the services to (you are working for) Y. This supply is not input taxed. Additionally, Y would have been an Australian based business recipient if it had instead purchased the services from you. Therefore, the circumstances at subparagraph 38-190(3)(c)(i) of the GST Act are present. Hence, the fact that you are rendering the services to a third party (someone other than your client) in Australia will not prevent your supply of these services from being GST-free under item 2. As you meet the requirements of item 2 and none of the exclusions from GST-free treatment (contained in section 38-190 of the GST Act) apply, your supply of the services in question to X is GST-free. Therefore, GST is not payable on your supply of these services.