Private ruling: Goods and services tax (GST) and extracting materials from used goods
Published: March 2013

Ruling: Q1: Is GST payable on your supply of the service of processing certain contents of used goods for the entity or another overseas based company where you export the milled material from Australia? | A1: GST will not be payable on your supply of the service of processing the used goods for the entity. GST will not be payable on your supply of the service of processing the used goods for other overseas based extraction companies under similar circumstances, that is, where the overseas company: · does not have a branch or office in Australia and is not otherwise 'in Australia' as defined in Goods and Services Tax Ruling GSTR 2004/7 · acquires your services in carrying on an enterprise, and · is not registered or required to be registered for GST Where your supply of the service of processing the used goods for an overseas company is not 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), GST will be payable. For example, if your customer is registered or required to be registered for GST, GST will be payable. | Q2: Are you entitled to an input tax credit on your purchase of the metals extracted by the entity or another overseas based company overseas, where the metals are not returned to Australia under your arrangement with that company? | A2: No. | Q3: Is GST payable on your sale of the metals extracted by the entity or other overseas based company overseas, where the metals are not returned to Australia under your arrangement with the entity that buys the metals from you? | A3: No.

Relevant facts and circumstances: You are registered for GST. You are a buyer and processor of used goods. You carry on these activities in Australia. You buy these goods from certain places, cut them and process the something contents before exporting the milled contents overseas to a smelter where metals are recovered. You also process used goods on behalf of larger customers, you send the milled contents overseas for them and once the analysis result of metal contents is known and the metals have been recovered, they can either transfer these metals into metal accounts or sell them at an international metal market. Either way the metals don't get returned to Australia. You are currently communicating with a foreign buyer of the used goods (the entity). Te entity is a (certain overseas country) company. The entity comes to Australia on a regular basis to purchase used goods. At the moment the entity is exporting the whole used goods, but you are hoping to process their used goods in Australia for a charge. Under your proposed arrangement with the entity, it would not be necessary for the entity's personnel to be in Australia while you are doing the processing (for example, to instruct you on how to do the processing). Under your proposed arrangement with the entity, you would export the milled product from Australia. The entity would extract metals from this product overseas. You sometimes become the owner of the metals to be extracted overseas if your customer requires a prepayment based on estimated metal content. You may on-sell the metals. Under the arrangements set out above, the metals would not be removed from the place at which they are extracted. From our research, the entity in question is not registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision: Summary: GST will not be payable on your supply of the service of processing the used goods for the entity, because your supply of this service to the entity will be a GST-free supply of a service to a non-resident under section 38-190 of the GST Act. GST will not be payable on your supply of the service of processing the used goods for other overseas based extraction companies under similar circumstances, that is, where the overseas company: · does not have a branch or office in Australia and is not otherwise 'in Australia' (as defined in GSTR 2004/7) · acquires your services in carrying on an enterprise, and · is not registered or required to be registered for GST Where your supply of the service of processing the used goods for an overseas company is not GST-free under item 2 in the table in subsection 38-190(1) of the GST Act, GST will be payable. For example, if your customer is registered or required to be registered for GST, GST will be payable. | Detailed Reasoning - Detailed reasoning: GST is payable by you where you make a taxable supply. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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 term defined in section 195-1 of the GST Act) You will make a supply of the service of processing the certain contents of used goods. This supply will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because: · you will make this supply for consideration · you will make this supply in the course or furtherance of an enterprise that you carry on · this supply will be connected with Australia, and · you are registered for GST. There are no provisions in the GST Act under which your supply of this service is input taxed. Therefore, what remains to be determined is whether your supply of this service will be GST-free. | Detailed Reasoning - GST-free supplies of services to non-residents: A supply of something other than goods or real property is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act where the supply 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. The fee you receive for processing the used goods is a fee for a service. You are supplying something other than goods or real property to a non-resident. Goods and Services Tax Ruling GSTR 2004/7 states: 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. Paragraph 31 of GSTR 2004/7 states: 31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done. The entity is an overseas company. You advised that the entity does not have a branch or office in Australia, although it sends its personnel to Australia for the purpose of buying used goods. Therefore, the entity is not in Australia for the purposes of item 2. Hence, it is not in Australia in relation to your supply of the processing services. The presence of the entity's personnel in Australia for the purpose of buying used goods will not make the entity in Australia in relation to your supply of processing services. Your supply of the processing service is a supply of work physically performed on goods situated in Australia when the work is done. The entity will acquire your services in carrying on its enterprise. Our research reveals that the entity in question is not registered for GST. Therefore, the requirements of item 2 are satisfied provided that the entity is not required to be registered for GST. The arrangements you have set out would not result in the entity being required to be registered for GST. Hence, you will make a GST-free supply of processing services to the entity provided that the entity is not required to be registered for GST. Based on the information provided, the entity is not required to be registered for GST, because it is not making any supplies that are connected with Australia. Therefore, your supplies of processing services to the entity are GST-free. Hence, GST is not payable on your supply of these processing services to the entity. Similarly, GST will not be payable on your supply of processing services to other overseas based metals extraction companies, where the overseas company: · does not have a branch or office in Australia and is not otherwise 'in Australia' as defined in GSTR 2004/7 · acquires your services in carrying on an enterprise, and · is not registered or required to be registered for GST. Where your supplies of the services are not GST-free under item 2 in the table in subsection 38-190(1) of the GST Act, GST will be payable on these supplies because all of the requirements of section 9-5 of the GST Act will be satisfied. GSTR 2004/7 can be found on the Australian Taxation Office website, www.ato.gov.au. | Summary: You will not be entitled to input tax credits on your purchase of the metals from the entity etc under the arrangements in question, because the supplies of the metals to you will not be connected with Australia. | Detailed Reasoning - Detailed reasoning: You are entitled to input tax credits on your creditable acquisitions. You make a creditable acquisition where you satisfy the requirements of section 11-5 of the GST Act, which states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide, *consideration for the supply; and (d) you are *registered or *required to be registered. A supply of goods will not be a taxable supply if the supply is not connected with Australia (in accordance with paragraph 9-5(c) of the GST Act). In accordance with subsection 9-25(1) of the GST Act, a supply of goods is connected with Australia if the goods are delivered, or make available, in Australia to the recipient of the supply. In accordance with subsection 9-25(2) of the GST Act, a supply of goods that involves the goods being removed from Australia is connected with Australia. In accordance with subsection 9-25(3) of the GST Act, a supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either: (a) imports the goods into Australia, or (b) installs or assembles the goods in Australia. Under your proposed arrangement to purchase metals from the entity or another overseas based extraction company, the supplies of goods made to you will not meet the requirements of subsection 9-25(1), 9-25(2) or 9-25(3) of the GST Act. The goods will remain overseas when they are sold to you. Hence, these supplies will not be taxable supplies. Therefore, you will not satisfy the requirement of paragraph 11-5(b) of the GST Act. Hence, you will not make a creditable acquisition of the metals from the entity etc. Therefore, you will not be entitled to input tax credits on your purchase of metals from the entity etc. | Summary: GST will not be payable on your sales of the metals under the arrangements in question, because these supplies will not be connected with Australia. | Detailed Reasoning - Detailed reasoning: Your sales of the metals will not be connected with Australia because these goods will remain overseas when you sell them. Hence, you will not satisfy the requirement of paragraph 9-5(c) of the GST Act. Therefore, you will not make a taxable supply of metals. Hence, GST will not be payable by you on your sales of the metals.