Private ruling: GST and supplies to non-residents
Date of advice: 15 December 2015
Published: February 2016

Ruling: Q1: Is the sale, from Entity A to Entity B and Entity C a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. They are both GST-free supplies.

Relevant facts and circumstances: Entity A provides advertising in Australia for Entity B and Entity C who are non-residents outside of Australia. The advertising for Entity B is to entice people to become members of particular dating agencies. Entity B contracts with Entity A and will request a form of advertising. Entity A will source a provider in Australia. Entity B will pay the amount to Entity A. Entity A contracts with the provider for the supply of advertising in their own right. If there are any issues with the supply of the media product Entity B is required to seek a refund or compensation from Entity A. Entity A also contracts with Entity C to provide advertising to promote a foreign country as a travel destination to Australians.

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), and | A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(4).

Reasons for decision: Summary: Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make. You make a taxable supply where section 9-5 of the GST Act is 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 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. (*denotes a term defined in section 195-1 of the GST Act) In this situation, the supplies from Entity A to Entity B and Entity C will satisfy section 9-5 and be a taxable supply to the extent it is not GST-free or input taxed. As the supplies are for consideration, the supplies are in the course of the enterprise that you carry on, the supplies are connected with the indirect tax zone (Australia), as the services are performed in Australia, and you are registered for GST. There are no provisions that would result in the supplies being input taxed but consideration needs to be given to whether the supplies are GST-free under section 38-190 of the GST Act. | Detailed Reasoning - GST-free: Section 38-190 of the GST Act provides that certain supplies of things other than goods or real property, for consumption outside of Australia are GST-free. Your supply of your services is neither a supply of goods nor a supply of real property therefore, item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) is relevant. Item 2 provides that 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: (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. Section 195-1 of the GST Act provides that for GST purposes 'non-resident' means an entity that is not an Australian resident and 'Australian resident' means a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). Accordingly, a supply that is made to an entity is a supply to a non-resident for GST purposes if the entity is not a resident of Australia for income tax purposes. Subsection 6(1) of ITAA 1936 provides that a company is a resident of Australia for income tax purposes if: • the company is incorporated in Australia, or • if not incorporated in Australia, it carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia There is an entity called the same name as Entity B in Australia, however, Entity A is contracting with Entity B a non-resident of Australia and Entity C of which both are not a resident of Australia for income tax purposes and are non-residents for GST purposes. Not in Australia For the supply of the services to be covered under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when the supply is performed/provided. Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is considered not to be in Australia when the thing supplied is done. Paragraphs 37 to 41 of GSTR 2004/7 explain when a non-resident company is in Australia. These paragraphs state: 37. A non-resident company is in Australia 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: (a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or (b) through an agent at a fixed and definite place for a sufficiently substantial period of time. 38. We consider that it would be reasonable for a supplier to conclude that a non-resident company is in Australia if: • the company is registered with ASIC; or • the company has a permanent establishment in Australia for income tax purposes. 39. However, a non-resident company to which the supplier makes a supply may be able to demonstrate to the supplier that, even though it is registered with ASIC or has a permanent establishment, on application of the test (at paragraph 37) to its particular circumstances, the non-resident company is not in Australia. 40. Suppliers should be aware that even if a company is not registered with ASIC, it may still be in Australia on an application of the test (at paragraph 37). Similarly, even if a company does not have a permanent establishment in Australia for income tax purposes, it may still be in Australia on application of the test to its particular circumstances. 41. 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, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor. Therefore, provided your supply (partly or otherwise) is not for a branch in Australia of an entity you contract with and that this branch is neither involved in the supply, unless the involvement is only minor, Entity B will not be carrying on an enterprise in Australia through a fixed and definite place of their own or through an agent in Australia. Also Entity C will not be carrying on an enterprise in Australia through a fixed and definite place of their own or through an agent in Australia. Further, Entity B and Entity C are not registered with ASIC and do not have a permanent establishments in Australia. Based on the information available, Entity B and Entity C are not in Australia in relation to the supply of your services. Paragraphs (a) and/or (b) of Item 2 Where a non-resident is not in Australia in relation to the supply when the thing supplied is done, it is necessary to determine if the requirements of either paragraph (a) or (b) of Item 2 are satisfied. For the purposes of paragraph (a) of Item 2, the supply cannot be a supply of work physically performed on goods or is directly connected with real property situated in Australia. This is examined in Goods and Services Tax Ruling GSTR 2003/7. From the information available, the nature of your supply is the provision of services to Entity B and Entity C. The supply of your services is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the supply of your services to Entity B and Entity C satisfies the requirement of paragraph (a) of Item 2. Consequently, the supply of your services to Entity B and Entity C are covered by Item 2 and hence, will be GST-free. | Detailed Reasoning - Further information: Due to the nature of the supplies under the arrangement it maybe that where you enter into an agreement with a resident entity in Australia and the supply is provided, or the agreement requires it to be provided, to another entity outside of Australia, that supply from the entity you contract with will also be GST-free pursuant to subsection 38-190(3) of the GST Act. For example, where you contract with an advertising entity in Australia to provide advertising for an entity outside of Australia, as in the situation of Entity B, the supply from the advertising entity may also be GST-free under subsection 38-190(3) of the GST Act. As a supply is taken, for the purposes of item 3, to be a supply made to a recipient who is not in Australia if it is s supply under an agreement entered into, either directly or indirectly with an Australia resident, and the supply is provided, or the agreement requires it to be provided, to another entity outside of Australia. Were this to occur, in that, the advertising entity treats their supply as GST-free, you would not a make a creditable acquisition as the supply to you would not be taxable as required under paragraph 11-5(b) of the GST Act, 'the thing to you is a taxable supply'. Section 11-5 of the GST Act is about what is a creditable acquisition for an entitlement to an input tax credit. Therefore, if a supply is GST-free there is no GST in the price of the supply and no input tax credit for the purchaser to claim.