Private ruling: GST taxable supplies and GST turnover threshold
Date of advice: 24 November 2015
Published: February 2016

Ruling: Q1: Does Entity A make a creditable acquisition when a non-resident supplier provides training in Australia under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: See reasons for decision.

Relevant facts and circumstances: Entity A has entered into a contract with a non-resident company for the company to provide training services in Australia to Entity A's staff. The contract is for an X year term with options to extend it. The price of the supply over the life of the contract is $Y for less than 10 years so approximately $Z a year. The non-resident company is not registered for GST in Australia. They have provided other training services in Australia in the past but have always been under the GST registration threshold. However, based on workflows, they think this may change in the further. Therefore, the non-resident company is currently forming an Australian subsidiary. The non-resident company does not make the supply through an enterprise they carry on in Australia however this may change.

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 83, and | A New Tax System (Goods and Services Tax) Act 1999 section 188-20.

Reasons for decision: Summary: You make a creditable acquisition under section 11-5 of the GST Act if: • You acquire anything solely or partly for a creditable purpose, and • The supply of the thing to you is a taxable supply, and • You provide, or are liable to provide, consideration for the supply, and • You are registered or required to be registered. When Entity A makes the acquisition of the training they will do so for a creditable purpose as it is for use in their enterprise, Entity A will provide consideration for the supply, and Entity A is registered for GST. The final requirement to be met is that the supply to Entity A needs to be a taxable supply. A supply is taxable where the supplier makes a taxable supply under section 9-5 of the GST Act. The section provides 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 for required to be registered. However, the supply is only taxable to the extent it is not GST-free or input taxed. *Australia refers to the term indirect tax zone as defined in section 195-1 of the GST Act. The non-resident company will make a supply for consideration, and the supply will be made in the course of their enterprise, and be connected with Australia as the training will be done in Australia. We know the non-resident is not registered so the final requirement to be met is whether the non-resident is required to be registered for GST in Australia. For an entity to be required to be registered they would meet the GST turnover threshold under section 188-10 of the GST Act. This can occur if your current GST turnover is at or above the turnover threshold and the Commissioner is satisfied that your projected GST turnover is below the turnover threshold, or your projected GST turnover is at or above the turnover threshold. You have stated that the non-resident company's current turnover threshold will not be met; however, it is possible the non-resident company's projected turnover threshold will be met in the future. Guidance on whether your GST turnover meets or does not exceed a turnover threshold, is provided in paragraph 16 onwards in the Goods and Services Tax Ruling on turnover thresholds GSTR 2001/7 (enclosed). Your projected GST turnover provided, under section 188-20 of the GST Act, consists of - at a time during a particular month, the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than supplies that are not connected with Australia. Where the projected GST turnover is met the non-resident company will be required to be registered for GST in Australia. If this is the case their supply to you will be taxable and you will in turn satisfy all the requirement of section 11-5 of the GST Act and will make a creditable acquisition. There is an alternative approach, where the supply is taxable to Entity A (if the non-resident is required to be registered for GST in Australia). The supply can be reversed charged to the recipient in this case Entity A under section 83 of the GST Act. This section provides that the GST on a taxable supply is payable by the recipient of the supply and is not payable by the supplier, if • The supplier is a non-resident, and • The supplier does not make the supply through an enterprise that the supplier carries on in Australia, and • The recipient is registered or required to be registered, and • The supplier and the recipient agree that the GST on the supply be payable by the recipient. Hence, if the non-resident makes a taxable supply to Entity A and the non-resident has not made the supply through an enterprise they carry on in Australia (so the Subsidiary they are considering setting up in Australia for instance), Entity A is registered for GST, Entity A and the non-resident company can agree that the GST on the supply be payable by Entity A. So it can be reversed charged. If this was to occur is would mean that Entity A makes a creditable acquisition and will have an entitlement to an input tax credit of the same amount of the GST liability. So Entity A would not pay the GST component to the non-resident as Entity A would be required to report it in their own activity statement. Furthermore, with reverse charging supplies under Division 83 of the GST Act, the Commissioner need not register a non-resident if the Commissioner is satisfied that the non-resident's GST turnover threshold would not meet the registration turnover threshold but for the taxable supplies to which section 83-5 applies to. Also there is no requirement in this situation for the non-resident to provide a tax invoice.