Private ruling: GST and reimbursement of expenses from a non-resident
Published: June 2015

Ruling: Q1: Are you entitled to claim an input tax credit (ITC) for the goods and services tax (GST) paid on the services invoiced by third parties to you in regard to the conduct of the clinical trial? | A1: Yes. Based on the information received, you are entitled to claim an ITC for the GST paid on the services invoiced by third parties to you in regard to the conduct of the clinical trial because the acquisition of services made by you from the third parties is a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Q2: Should GST be included when you claim back the amount paid to the third parties from the non-resident company? | A2: No. Based on the information received, GST should not be included when you claim back the amount paid to third parties from the non-resident company because the reimbursed money is consideration of a supply that is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act. Relevant fact You are a company in Australia and registered for GST. You have a Services Agreement (agreement) with a non-resident company in which you agreed to provide certain research or other related services to them under the agreement and an executed work order. You invoice the non-resident company all amounts due as agreed in accordance to the executed work order and agreement. You have provided us with a copy of the agreement and a sample of work order and change of work order. The agreement provides that the payments you received from the non-resident company are in accordance with the fee and payment schedule in the applicable work order and include all pre-approved costs you paid to third parties so that you are able to meet your obligation to perform your services to the non-resident company. The services under the agreement with the non-resident company are related to a clinical trial to be done in Australia. You are engaged by the non-resident company to be the Australian sponsor (local sponsor) for the clinical trial. The non-resident company does not have a legal entity or permanent resident in Australia. It did not have any staff in Australia when the clinical trial is conducted. Under the agreement, you provide the services as an independent contractor. As the local sponsor for the clinical trial, you are the local contact and manage the clinical trial. You do not make any decisions regarding the clinical trial and any question for which information has not already been provided by the non-resident company is forwarded to the non-resident company for answer. The oversight and worldwide management of the clinical trial is conducted by the non-resident company. Under the agreement, you may subcontract the performance of certain portions of the services, with the non-resident company's prior written consent to an affiliate of yours or to a qualified third party, provided that: a) you notify the non-resident company in writing of the affiliate or proposed subcontractor and you identify the specific services to be performed by such affiliate or subcontractor; b) such affiliate or subcontractor performs those services in a manner consistent with the terms, conditions and obligations of this agreement; and c) you remain liable for the performance of such affiliate or subcontractor. For the conduct of the clinical trial in Australia you enter into Research Agreement with third parties and have provided a copy of a Research Agreement you have with a third party. The third parties invoice you for the services relating to the clinical trial and you make the payment to them. The third parties' invoices include GST. You seek reimbursement of these expenses from the non-resident company. The third parties provide you with reports of the study and you check them for completeness and correctness before sending them to the non-resident company.


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 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: Under section 11-20 of the GST Act an entity is entitled to input tax credit for any creditable acquisition that it makes. Under section 11-5 of the GST Act 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 for GST. From the information received, you satisfy the requirements in section 11-5 of the GST Act as: a) Under subsection 11-5(1) of the GST Act you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. From the facts given, you acquire the services from third parties in order to be able to perform the services agreed in the agreement and work order you have with the non-resident company. In this instance your acquisition is for a creditable purpose since you acquire the services from third parties for your business purpose and not on behalf of the non-resident company. However, under subsection 11-5(2) of the GST Act you do not acquire the thing for a creditable purpose to the extent that: a. the acquisition relates to making supplies that would be input taxed; or b. the acquisition is of a private or domestic nature. Subsection 11-5(2) of the GST Act is not applicable to you since you do not acquire the services to make supplies that are input taxed and the acquisition is not for a private or domestic nature. Accordingly, you acquire the services from third parties for a creditable purpose as the services are acquired for your business purpose. b) From the information received, the supply of the services from third parties to you is a taxable supply and you have paid GST for the supply. c) You provide consideration for the supply of services to you; and d) You are registered for GST. You therefore are entitled to an ITC for the GST paid on the acquisition of services from third parties as your acquisition is a creditable acquisition under section 11-5 of the GST Act. From the facts given you acquire the services from third parties in order to be able to perform the services agreed in the agreement and work order you have with the non-resident company. When you seek reimbursement of this expense from the non-resident company, this repayment forms part of the consideration payable by the non-resident company to you for the services to be made by you under the agreement and work order. Accordingly the GST status of the repayment will depend on the GST status of your supply of services to the non-resident company. We will now consider the GST status of your supply of services to the non-resident company. GST status of services made to the non-resident company GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the GST Act 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. All of the above requirements must be satisfied for a supply to be a taxable supply under section 9-5 of the GST Act. From the information received, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act when you supply your services to the non-resident company as: a) you make the supply of services for consideration; and b) the supply is made in the course of the business that you carry on; and c) the supply is connected with Australia as the services are done in Australia; and d) you are registered for GST. However, the supply of services is not a taxable supply to the extent that it is either input taxed or GST-free. | Detailed Reasoning - Input taxed: There is no provision under the GST Act that makes your supply of services input taxed. | Detailed Reasoning - GST-free: Relevant to the supply of services is item 2 in the table in subsection 38-190(1) of the GST Act (item 2). Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that 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. | Detailed Reasoning - Paragraph (a) of item 2: From the information provided, when you supply your services to the non-resident company the requirements in paragraph (a) of item 2 are satisfied as: • the supply of services is made to a non-resident who is not in Australia when the thing supplied is done; and • the services that are made to the non-resident are 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. As the requirements of paragraph (a) of item 2 are satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met. However, item 2 is limited by subsection 38-190(3) of the GST Act. | Detailed Reasoning - Limitations of item 2 - subsection 38-190(3) of the GST Act: If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided or the agreement requires that it to be provided to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status of that supply. From the information received, subsection 38-190(3) of the GST Act is not applicable as you are not required to provide your services to an entity in Australia. | Summary: Based on the information received, the supply of services you make to the non-resident company is GST-free under item 2. GST is therefore not payable on the reimbursed money that you receive from the non-resident company in regard to the acquisition of services you made from third parties.