Private ruling: GST and supply of software development services
Date of advice: 31 March 2016
Published: May 2016

Ruling: Q1: Is GST payable on the supply of software development services made by X, a partner of the partnership XYZ to the non-resident company? Advice No, GST is not payable on the supply of software development services made by X, a partner of the partnership XYZ to the non-resident company because the supply of software development services is 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 (GST Act). Note : The partnership is required to be registered for GST under section 23-5 of the GST Act despite the fact that the supply made by its partner X is GST-free. Relevant fact X is a software developer and is a partner of the partnership XYZ, which currently is not registered for the goods and services tax (GST). Partner X has entered into a Services Agreement with a non-resident company. In the Services Agreement, partner X shall provide the non-resident with software developments services. The non-resident shall pay partner X a service fee. The partnership has advised that is estimated GST annual turnover is above $A75,000. There is no third party in Australia involved with the supply made by partner X. The non-resident does not do any business in Australia through any agents or representatives. The non-resident is not required to be registered for GST in Australia. Partner X is not required to provide its services to anyone else under the agreement.


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 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 section 195-1 Detailed reasoning | Note : Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act. | A supply is a taxable supply under section 9-5 of the GST Act if: (a) you make the supply for consideration; | (b) the supply is made in the course of an enterprise that you carry on; | (c) the supply is connected with the indirect tax zone (Australia), and | (d) you are registered or required to be registered for GST. | However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. | The supply of software development services made by partner X satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as: (a) X as a partner of the partnership makes the supply of services for consideration; and | (b) the supply is made in the course of an enterprise that the partnership carries on in Australia; and | (c) the supply is connected with Australia as the supply is done through an enterprise that the partnership carries on in Australia; and | (d) the partnership is required to be registered for GST under section 23-5 of the GST Act as its annual turnover is above the GST registration threshold of $A75,000. However, the supply of software development services made by partner X is not a taxable supply to the extent that it is a GST-free or input taxed supply. | There is no provision under the GST Act that makes a supply of software development services an input taxed supply. GST-free supply | Relevant to the supply of software development services made by partner X to the non-resident is item 2 in the table in subsection 38-190(1) of the GST Act (item 2). Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if 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 for GST. | Goods and Services Tax Ruling GSTR 2004/7 (available from the legal database of www.ato.gov.au) provides guidance on item 2. | From the information received, the supply of software development services made by partner X satisfies the requirements in paragraph (a) of item 2 as: | • the supply of software development services is made to a non-resident who is not in Australia at the time of the supply; | • the supply software development services 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. | The requirements in paragraph (b) of item 2 is also satisfied as the non-resident acquires the services in carrying on its enterprise but is not registered or required to be registered for GST. | In this instance, the supply of software development services made by partner X to the non-resident is GST-free under item 2 to the extent that the supply is not negated by 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 that 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. | Subsection 38-190(3) of the GST Act is not applicable as partner X is not required to provide the software development services to another entity in Australia. | Accordingly, the supply of software development services made by partner X to the non-resident is GST-free under item 2. | For more information on subsection 38-190(3) please refer to Goods and Services Tax Ruling GSTR 2005/6.