Private ruling: GST and supply of dismantling and packing services to a non-resident entity
Date of advice: 19 July 2016
Published: August 2016

Ruling: Q1: Will the supply of dismantling and packing services by you to the non-resident company as described in the facts and as per contract with the non-resident company be a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? Advice Yes, your supply of dismantling and packing services as described in the facts and as per contract with the non-resident company will be a GST-free supply under paragraph (b) of item 2 in the table in subsection 38-190(1) of the GST Act.


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: Note : Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act. A supply is a taxable supply under section 9-5 of the GST Act if: (a) you make the supply for consideration; (b) the supply is made in the course of an enterprise that you carry on; (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. The supply of dismantling and packing services satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as: (a) you make the supply for consideration; and (b) the supply is made in the course of an enterprise that you carry on in Australia; and (c) the supply is connected with Australia as the supply is done through an enterprise that you carry on in Australia and is done in Australia; and (d) you are registered for GST. However, your supply of dismantling and packing services is not a taxable supply to the extent that it is a GST-free or input taxed supply. There is no provision under the GST Act that makes your supply of dismantling and packing services an input taxed supply. GST-free supply Relevant to the supply of dismantling and packing services that you make to the non-resident company 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. Precondition of item 2 - non-resident is 'not in Australia' Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2. The requirement that the non-resident in item 2 is not in Australia when the thing supplied is done is a requirement that the non-resident is not in Australia in relation to the supply when the thing supplied is done. Under paragraph 37 in GSTR 2004/7, we consider that 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. 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. The non-resident company does not have any presence in Australia. It has an employee in Australia when you make your supply but this presence does not make the non-resident company in Australia in relation to your supply as the employee is not carrying on any business activity for the non-resident company in Australia. The precondition of item 2 is therefore satisfied as in this case the non-resident company is 'not in Australia' in relation to your supply of dismantling and packing services. Paragraph (a) of item 2 Paragraph (a) of item 2 requires that the supply of services 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. The dismantling and packing of the Plant in Australia is directly connected with goods. Further the dismantling and the packing of the Plant (which includes cleaning the dismantled parts while preparing for the packing) is work performed on goods as there is a physical intervention with the Plant, hence a close connection with the dismantling and packing of the Plant. In this instance paragraph (a) of item 2 is not satisfied. The supply of the dismantling and packing services is therefore not GST-free under this paragraph. Paragraph (b) of item 2 Under paragraph (b) of item 2, a supply is GST-free if the non-resident entity acquires its services in acquiring on its 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. 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 the supplier has reasonable grounds to be satisfied, if the non-resident has provided a signed written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reasons to believe the statement is not accurate. From the facts given, the non-resident company is not registered for GST and is not required to be registered for GST. Further the non-resident company acquires your services while carrying on its business overseas. Paragraph (b) of item 2 is therefore satisfied. The supply of the dismantling and packing services will be GST-free under this paragraph to the extent that it is not negated by subsection 38-190(3) of the GST Act. | Detailed Reasoning - Limitations of item 2 - subsection 38-190(3) of the GST Act: Current subsection 38-190(3) of the GST Act Subsection 38-190(3) of the GST Act provides that, without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table is not GST-free if: a) it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and b) the supply is provided or the agreement requires it to be provided to another entity in Australia. Amended subsection 38-190(3) of the GST Act An amendment was made to subsection 38-190(3) of the GST Act recently. From 1 October 2016, the amended subsection 38-190(3) of the GST Act provides that without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table is not GST-free if: a) it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and b) the supply is provided or the agreement requires it to be provided to another entity in Australia; and c) for a supply other than an input taxed supply - none of the following applies: i. the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it; ii. the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or iii. the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense. Goods and Services Tax Ruling GSTR 2005/6 provides guidance on the application of paragraph (b) in subsection 38-190(3) of the GST Act. Paragraphs 59 and 61 in GSTR 2005/6 state: 59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, 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. 61. Thus the expression 'provided to another entity' means in our view that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an 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 recipient) and the actual flow of the supply is to another entity. Where a non-resident company has an employee it is first necessary to consider the impact, if any, of the presence in Australia on the 'not in Australia requirement' in item 2. To determine whether a supply is provided to an employee it is essential to examine the nature of the supply closely. By examining what is really being supplied and how that supply is carried out. It is possible to establish to whom the service or other thing is provided, that is the employer or another entity the employee. If the supply is provided to the employee it is then necessary to consider if the employee's presence at a particular location is integral to the provision of that supply. Where an employee is involved with the provision of a supply, the weight to be given to that fact differs according to the circumstances of the supply in question. For example if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee. The supply is made to the non-resident company (the employer) and provided to another entity (each employee). Contact with a supplier is of little relevant in circumstances where the employee's involvement with the provision of the supply is simply to facilitate the provision of the supply to the non-resident employer. This is the case where, for example, an employee of a non-resident interacts with a law firm in circumstances where the firm is providing legal advice concerning a business venture of the non-resident employer. The actual flow of the supply is to the non-resident company and not to the employees of the non-resident company who are present to help facilitate the provision of the supply to the non-resident company. From the information received the non-resident company has an employee in Australia to supervise the works and ensure the works are being carried on in accordance with the Agreement. The fact that the employee is in Australia and involved with the supply does not change the nature of your supply which is dismantling and packing the Plant. The actual flow of dismantling and packing the Plant is to the non-resident company and not to the employee. Accordingly subsection 38-190(3) of the GST Act is not applicable to your supply. | Summary: Your supply of dismantling and packing services in Australia under the Agreement is GST-free under paragraph (b) of item 2.

Relevant facts: You are an Australia resident company and currently registered for the goods and services tax (GST). | You have entered into a contract with a non-resident company for the dismantling and packing of a Plant located in Australia in preparation for export (copy of contract received). The packing of the Plant includes cleaning the dismantled parts. The non-resident company is the owner of the Plant. | The non-resident company is a company incorporated outside Australia and does not have a presence in Australia. It is not currently registered for GST nor required to be registered for GST in Australia. The non-resident company has acquired the Plant for use in its business activities. | Whilst the dismantling and packing works are being undertaken, an employee of the non-resident company will be present in Australia to supervise the works and ensure that the works are being carried out in accordance with the agreement with you. | The employee will not undertake any other activities for the non-resident company whilst in Australia and will not have the authority to enter into any other contracts or conduct any other business on behalf of the non-resident company. The employee will remain in Australia only for the length of time required by you to complete the dismantling and packing of the Plant. | The non-resident company does not intend in undertake any further activities in Australia or maintain any other presence in Australia.