Private ruling: GST and supply of services to non-resident
Published: January 2012

Ruling: Q1: Is the supply of your services to the non-resident a taxable supply? | A1: No, the supply of your services to the non-resident is not a taxable supply.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You entered into a contract with a non-resident entity to provide your services comprising the design and development of computer software. Under the contract, the non-resident will pay you a specified annual fee. The non-resident will own all intellectual and industrial property rights pertaining to the design of the software. The non-resident will license its clients to use the software designed by you. The non-resident entity is not registered or required to be registered for GST. The non-resident does not have a fixed and definite place of its own in Australia for a sufficiently substantial period of time in relation to your supply. The non-resident does not have a development team in Australia and does not have any plans to establish a development team or hire employees in Australia. You perform your services in Australia. The contract does not require you to provide your services to another entity. You do not deal directly with any of the non-resident's clients. You do not have authority to deal with Australian clients on behalf of the non-resident. All technical support issues are raised by the clients directly to the non-resident entity. The non-resident has a dedicated support staff overseas to receive and manage the issues. If there is a problem with the software that was written by you, you produce a fix and send it to the non-resident for verification and quality assurance before the support staff deploys it to the clients.

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 38-190

Reasons for decision: Summary: An entity makes a taxable supply if all the conditions in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are met. Section 9-5 states: You make a taxable supply 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. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. (*denotes a term defined in section 195-1 of the GST Act). In this case, you make the supply for consideration and in the course of your enterprise. The supply is connected with Australia; and you are registered for GST. As such, the conditions in paragraphs 9-5(a) to 9-5(d) of the GST Act are met. Therefore, the supply of your services to the non-resident is a taxable supply unless it is GST-free or input taxed. A supply of a thing, other than goods or real property, is GST-free if the supply satisfies the requirements in one of the items in the table in subsection 38-190(1) of the GST Act. According to item 2 in the table in subsection 38-190(1) of the GST Act (item 2), a supply that is made to a non-resident is GST-free if the non-resident is not in Australia when the thing supplied is done and either of the following applies: · 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. | Detailed Reasoning - Non-resident is not in Australia: Goods and Services Tax Ruling GSTR 2004/7 gives guidance on determining if a non-resident is in Australia for the purpose of subsection 38-190(1) of the GST Act. According to paragraph 241 of GSTR 2004/7, a non-resident company is in Australia for the purpose of item 2 if that company carries on business (or in the case of a company that does not carry on business, carries on its 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 You advised that the non-resident does not have any fixed and definite place of its own in Australia either through its representatives, employees or an agent in relation to your supply. It does not have any employees in Australia and does not have plans to establish a team or hire employees in Australia. As such, the non-resident is not in Australia when you provide your services. | Detailed Reasoning - Supply is neither a supply of work physically performed on goods in Australia nor a supply directly connected with real property in Australia: A supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or otherwise affect them in some physical way. A supply is directly connected with real property if there is a very close link or association between the supply and a particular real property. Under the contract with the non-resident, the only service that you provide is the design and development of computer software. This is neither a supply of work physically performed on goods situated in Australia nor a supply connected with real property in Australia. Therefore, the condition in paragraph (a) of item 2 is satisfied. | Detailed Reasoning - Non-resident is not registered or required to be registered: A non-resident entity is required to be registered for GST if the turnover from its supplies that are connected with Australia meets the registration turnover threshold of $75,000. You advised that the non-resident is not registered or required to be registered for GST. As such, the condition in paragraph (b) of item 2 is satisfied. The supply of your services to the non-resident meets the requirements of item 2. Therefore, the supply is GST-free under subsection 38-190(1) of the GST Act unless the supply is excluded from being GST-free by subsection 38-190(3) of the GST Act. | Detailed Reasoning - Supply provided to another entity in Australia: Subsection 38-190(3) of the GST Act provides that a supply covered by item 2 is not GST-free if: · it is a supply under an agreement 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. In this case, you do not provide or the contract does not require you to provide your services to another entity in Australia. Where there is a technical support issue raised by a client in relation to the software that you designed, you produce a fix for the software and send it to the non-resident for testing and quality assurance. The non-resident has a dedicated support staff to manage issues raised by the clients. Furthermore, you do not have authority to deal with the clients of the non-resident. As the supply of your services is not provided to another entity in Australia, the supply is not excluded by subsection 38-190(3) of the GST Act from being GST-free. Accordingly, the supply of your services to the non-resident is not a taxable supply.

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