Private ruling: GST and supply of programming services
Published: September 2012

Ruling: Q1: Should you charge goods and services tax (GST) when you supply programming services to the non-resident company? Advice: No, you should not charge GST when you supply programming services to the non-resident company.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 s ection 9-5; | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1); and | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(3).

Reasons for decision: Summary: GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if: · you make the supply for consideration; and · the supply is made in the course or furtherance of an enterprise that you carry on; and · the supply is connected with Australia; and · 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. From the facts, your supply of programming services to the overseas company satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as: · you make the supply for consideration; and · the supply is made in the course of an enterprise (business) that you carry on; and · the supply is connected with Australia as it is made through a business that you carry on in Australia; and · you are registered for GST. However, your supply of programming services will be a taxable supply to the extent that they are not GST-free or input taxed. There is no provision under the GST Act that will make your supply of programming services input taxed. The next step is to examine whether your supply of programming services will be GST-free and therefore excluded from being a taxable supply. | Detailed Reasoning - GST-free supply: Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia is GST-free. Of particular relevance to your supply of programming services is item 2 in the table in subsection 38-190(1) of the GST Act (Item 2). Item 2 provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where: · 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 · the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered. Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done. | Detailed Reasoning - Not in Australia in relation to the supply: For a supply to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the thing supplied is done. Where the thing supplied is a service, when the service is done refers to the period of time during which the service is performed. Goods and Services Tax Ruling GSTR 2004/7 (available at www.ato.gov.au) provides guidance on when a non-resident is not in Australia when the thing supplied is done. A non-resident company is in Australia if the company carries on its business or activities in Australia: · at or through a fixed and definite place of its own for a sufficiently substantial period of time; or · through an agent at a fixed and definite place for a sufficiently substantial period of time. Further, a non-resident company is in Australia in relation to the supply if: · the supply is solely or partly for the purposes of the Australian presence; or · the presence of the company is involved in the supply, unless the only involvement is minor. Based on the facts, the precondition that 'the non-resident must not be in Australia in relation to the supply' when the thing supplied is done is met as the non-resident company carries on its business activities overseas and does not have any presence in Australia. The next step is to determine whether paragraph (a) or (b) of Item 2 is satisfied. | Detailed Reasoning - Paragraph (a) of Item 2: The requirements in paragraph (a) of Item 2 are met if the thing supplied is neither work physically performed on goods situated in Australia when the work is done, nor directly connected with real property situated in Australia. Goods and Services Tax Ruling GSTR 2003/7 (available at www.ato.gov.au) provides guidance on when a supply is physically performed on goods and when a supply is directly connected with real property. A supplier may use goods or real property as inputs in making a supply. However, that use does not make that supply directly connected with the goods or real property used. A supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods. In many cases it is self-evident that a supply is a supply of work physically performed on goods. However, sometimes a supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods. For example, a supply of a report on the results of testing and analysing samples of goods is characterised as a supply of information or advice as the dominant part of the supply is the analysis of data to enable a professional opinion to be provided. The supply is not characterised as a supply of work physically performed on goods because the testing and analysis of samples of goods enables the information to be compiled and is ancillary to the supply of that information. From the facts, your supply of programming services to the overseas company satisfies paragraph (a) of Item 2 as: · the programming services are not a supply of work physically performed on goods though they may be connected to goods; and · the programming services are not directly connected with real property in Australia. Your supply of programming services is therefore GST-free under paragraph (a) of Item 2 to the extent that this GST-free status is not negated by subsection 38-190(3) of the GST Act. | Detailed Reasoning - Paragraph (b) of Item 2: Under paragraph (b) of Item 2, a supply other than goods or real property is GST-free if the non-resident acquires the services in carrying on their business and is neither registered nor required to be registered for GST. The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. The supplier can check the GST registration status of an entity that they deal with by checking the Australian business register at www.abr.gov.au Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that reasonable grounds to be satisfied, if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reason to believe the statement is not accurate. Accordingly, if the overseas company is not required to be registered for GST paragraph (b) of Item 2 will be satisfied as the overseas company will be acquiring the services while carrying on its business. However, the supply will be GST-free under paragraph (b) of Item 2 to the extent that subsection 38-190(3) of the GST Act does not negate this GST-free status. | Detailed Reasoning - Limitation - subsection 38-190(3) of the GST Act: The scope of Item 2 is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by Item 2 is not GST-free if: · it is a supply under an arrangement entered into, whether directly or indirectly with a non-resident; and · the supply is provided or the agreement requires it to be provided, to another entity in Australia. Goods and Services Tax Ruling GSTR 2005/ 6 (available at www.ato.gov.au) provides guidance on the application of subsection 38-190(3) of the GST Act. Subsection 38-190(3) of the GST Act applies if there is a supply of something, being a supply that is made to a non-resident and covered by Item 2, and the same supply is provided, or is required to be provided to another entity in Australia. The word 'provided' is used in subsection 38-190(3) of the GST Act to contrast with the term 'made' in Item 2. In the context of section 38-190 of the GST Act, 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. Accordingly, a supply is provided to another entity if the contractual flow is to one entity (the non-resident recipient) while the actual flow of that supply (for example, the doing of the thing supplied) is in whole or in part, to another entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident entity) and the actual flow of the supply is to another entity. A clear understanding of the exact nature of the supply is essential in determining whether that supply is provided to another entity. It is only by having regard to what is in substance and reality being supplied that it is possible to identify to which entity that supply is provided. The focal point in working out whether a supply is provided to another entity is the facts and circumstances of the doing of the thing supplied. By the supplier examining what it is required to do and in what circumstances, the supplier is able to objectively determine to whom the supply is provided. From the information received, subsection 38-190(3) of the GST Act is not applicable to your supply of programming services as you are not required to provide the programming services to another entity in Australia. | Summary: Your supply of programming services to the non-resident is GST-free under Item 2 and therefore no GST is payable on this supply.

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. | Relevant facts: You carry on your business activities at your home office and are registered for GST. | You are preparing a quotation for programming services for a company located outside Australia. All work will be carried out in your home office using your own computer hardware and you will test the program by using the software that the overseas company will send to you. The final result of your work will be several electronic files which you send to the overseas company. | The overseas company does not have any subsidiary or branch in Australia. Further, there is no third party in Australia that will be involved with your supply to the overseas company.