Private ruling: GST and supply made to a recipient not in Australia
Published: February 2012

Ruling: Q1: Is the supply of your service to the buyer a GST-free supply? | A1: Yes. Your supply of the service to the buyer is GST-free under subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 .

Relevant facts and circumstances: You are supplying an auction service and are registered for GST. You sold goods to a buyer in an auction some time ago. The buyer has overseas address and contact details. He used telephone bidding during the auction to bid for the goods. Your records show that the buyer's telephone number used in the bidding is an international number. You have a policy to collect a percentage of the hammer price from the buyer as premium. The premium is added to the winning bid (hammer) price of each individual lot purchased, at the rates set forth in the conditions of sale. The winning bid price plus the premium constitute the purchase price for the lot. You advised that the premium represents the commission for your supply of services to the buyers. The tax invoice that you issued to the buyer contained the hammer price, the premium, and the GST on the premium. The buyer has paid the invoice in full. You reported the GST paid by the buyer in the corresponding activity statement. The goods have been stored in your warehouse since the auction. The buyer will organise a shipping agent for the packing and export of the goods from Australia. The buyer has asked for a refund from your for the GST paid for the premium. You have no knowledge on whether the buyer is registered or required to be 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 subsection 38-190(1)

Reasons for decision: Summary: GST is payable on taxable supplies and taxable importations. For the supply of your service to the buyer to be a taxable supply, all the requirements listed in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) must be satisfied. Section 9-5 of the 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 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. (* denotes a defined term in section 195-1 of the GST Act). The supply that you made to the buyer, who was the successful bidder for the goods at the auction, was of an auctioneering service. You charged a premium, inclusive of GST, for the service. Based on the information provided, you have satisfied paragraphs 9-5(a) to 9-5(d) of the GST Act as follows: · your supply of service was made for consideration; · the supply was made in the course of the enterprise that you carry on; · the supply was connected with Australia as you made the supply through your enterprise in Australia; and · you are registered for GST. Hence, the supply of your service to the buyer is taxable to the extent that it is not GST-free or input taxed. Your supply of service to the buyer is not input taxed under any provision of the GST Act. Therefore, we must determine whether the supply is GST-free under Division 38 of the GST Act. Section 38-190 of the GST Act specifies when supplies of things, other than goods or real property, for consumption outside Australia are GST-free. Item 3 in the table in subsection 38-190(1) of the GST Act (item 3) states: Item Topic These supplies are GST-free (except to the extent that they are supplies of goods or * real property)... 3 Supplies used or enjoyed outside Australia a supply: (a) that is made to a *recipient who is not in Australia when the thing supplied is done; and (b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with *real property situated in Australia. . Accordingly, for the supply to be GST-free you must satisfy both paragraphs (a) and (b) of item 3. Goods and Services Tax Ruling GSTR 2004/7 and Goods and Services Tax Ruling GSTR 2007/2 provide the ATO view on the application of item 3. These rulings are available on our website at www.ato.gov.au | Detailed Reasoning - Paragraph (a) of item 3: For the supply of your auctioneering service to be GST-free, paragraph (a) of item 3 requires that the recipient is not in Australia in relation to the supply when the thing supplied is done. A recipient, in relation to a supply, is the entity to which the supply was made. It is not a requirement of item 3 that the recipient is a non-resident. In the case of supplies made to an individual, we consider the physical location of the individual establishes whether that individual is in Australia when the thing supplied is done. An individual is in Australia in relation to the supply if the individual is involved with the supply while in Australia. You advised that the buyer was using the telephone bidding to bid for the goods during the auction. Your records indicated that the number used was an international line. Therefore, we consider that the buyer was not in Australia when the supply of your service was done. Therefore, the requirement in paragraph (a) of item 3 has been met. | Detailed Reasoning - Paragraph (b) of item 3: Paragraph (b) of item 3 requires the place of effective use or enjoyment of a supply to be determined; that is, whether the place is outside Australia. For this purpose, it necessary to inquire as to which entity has the actual use or enjoyment of the supply. The entity that has the actual use or enjoyment of the supply is the entity to which the supply is provided (providee entity). Then, we determine whether the provision of the supply to the providee entity is outside Australia. Generally, a supply is made and provided to the recipient of the supply; as such, the recipient entity is also the providee entity. However, according to paragraph 41 of GSTR 2007/2, a supply can be made to a recipient and provided to another entity in the case where, in the performance of the service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient with which the supplier made the agreement for the supply. That is, while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity. In this case, you have made and provided your service directly to the buyer. As such the buyer is not only the recipient entity but also the providee entity. We consider that the buyer has the actual use or enjoyment of your supply. The next step is to determine whether the effective use or enjoyment of the supply by the buyer takes place outside Australia. Effective use or enjoyment of a supply only takes place outside Australia if there is provision of the supply to the providee entity outside Australia. In relation to the supply of your service made and provided to the buyer, the buyer was not physically in Australia when you provided your service. In this circumstance, the use and enjoyment of your supply was outside Australia. Your supply was neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, all the requirements in paragraph (b) in item 3 have been met. Accordingly, your supply of the auctioneering service to the buyer is GST-free under item 3; and the premium is therefore not subject to GST. | Detailed Reasoning - Refund of the GST incorrectly included in the price of GST-free supplies: You advised that you have included GST in the premium when you invoiced the buyer. Subsection 105-65 (1) of the Tax Administration Act 1953 (TAA) provides that where GST is incorrectly included in the price of a non-taxable supply, the Commissioner is not obliged to refund or credit the overpaid amount to the supplier if: · the Commissioner is not satisfied that the supplier has reimbursed the GST incorrectly included in the price to the recipient of the supply; and · the recipient is registered or required to be registered for GST. However, where either or both of the above conditions are met, subsection 105-65(1) of the TAA provides that the Commissioner is not required to refund the amount, but has a discretion to do so. Accordingly, you are required to refund the GST included in the premium to the buyer, before you can receive a refund of the overpaid amount from the ATO. | Detailed Reasoning - Obtaining a refund of the GST incorrectly included in the price of GST-free supplies from the ATO: Once you reimburse the GST incorrectly included in the price to the client, you may obtain a refund of the overpaid amount from the ATO by revising the activity statement for each tax period in which the error occurred. Alternatively, you might be able to correct the GST mistake in a later activity statement subject to time and correction limits set out in the fact sheet titled Correcting GST Mistakes . A copy of the fact sheet, Correcting GST Mistakes, is enclosed for your perusal.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.