Private ruling: Goods and services tax (GST) and software
Published: June 2014

Ruling: Q1: Is GST payable on your supply of software to Australian clients? | A1: No. | Q2: Is GST payable on your supply of software licences to Australian clients? | A2: No. | Q3: Is GST payable on your supply of services performed in your country to customise software for an Australian client? | A3: No. | Q4: Is GST payable on your supply of services performed by staff while in Australia? | A4: Yes.

Relevant facts and circumstances: You are a technology and software company based overseas. You are not registered for GST. You do not have a physical presence in Australia and you do not retain any staff in Australia. Contracts are normally handled electronically, signed by one party then scanned and emailed to the other. You have entered into a contract with an Australian client and you are looking to enter into further contracts with Australian entities. The contract with the Australian client is to supply the client with: • a licence to use your software • services to customise the software for the client • your software • services for the installation and training to use the software Generally, the licence is granted as the first step to an implementation (possibly following a process mapping exercise), in order for the software to be configured and otherwise modified, it must belong to the customer. The customisation services are performed by your staff in your country. It is expected that the software will be distributed electronically from your servers in your country. Installation and training services will be performed by your staff, who will be present in Australia specifically to perform these tasks. While your staff are in Australia, they will do the initial process mapping, installation, making minor configurations specific to the client, training and 'hand holding' during the go live process. Services performed by your staff in Australia will be worth over $75,000 per annum. The value of the licence and software relating to a single contract will be over $75,000. Contracts may have the final confirmatory signature added in your country, Australia or elsewhere.

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 subsection 9-25(5) | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-25(6) | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 83-5 | A New Tax System (Goods and Services Tax) Act 1999 section 83-25(1) | A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision: Summary: GST is not payable on your supply of the software and associated licence because the supply is not connected with Australia and therefore is not a taxable supply. GST is not payable on your supply of the services that are performed in your country because the supply is not connected with Australia and therefore is not a taxable supply. GST is payable on your supply of the services that are performed in Australia because the supply is taxable. | Detailed Reasoning - Detailed reasoning: GST is payable by you on your taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 the GST Act) In your case, you meet the requirements of paragraphs 9-5(a) and 9-5(b) of the GST Act, because you will supply various things (for example, services) for consideration and you will make these supplies in the course or furtherance of an enterprise that you carry on. There are no provisions in the GST Act under which your supplies will be GST-free or input taxed. You are not registered for GST. Therefore, what remains to be determined is whether your supplies will be connected with Australia and whether you are required to be registered for GST. Connected with Australia Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if: (a) the thing is done in Australia, or (b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or (c) all of the following apply: (i) neither paragraph (a) nor (b) applies in respect of the thing (ii) the thing is a right or option to acquire another thing; and (iii) the supply of the other thing would be connected with Australia. An enterprise is carried on in Australia if the enterprise is carried on through a permanent establishment that the entity maintains in Australia. You do not carry on your enterprise through a permanent establishment that you maintain in Australia. You will be supplying things other than goods or real property. | Detailed Reasoning - Software: In regards to the supply of the software, the thing supplied will not be done in Australia as the software will be distributed electronically from your servers in your country. Your supply of the software will not be connected with Australia because: • the thing supplied will not be done in Australia • you will not supply the software through a permanent establishment that you maintain in Australia, and • the supply is not of a right to acquire another thing the supply of which would be connected with Australia. Therefore, your supplies of the software do not meet the requirement of paragraph 9-5(c) of the GST Act. | Detailed Reasoning - Licences: Paragraph 89 of Goods and Services Tax Ruling GSTR 2003/8 provides that where the essential nature of a transaction is the supply of a computer program, subject to restrictions on its use, the fact that a licence relating to the supply of the software is couched in terms of a licence to use the software will not in itself mean that the substance of the supply is a supply of a right to use the software. However, paragraph 90 of GSTR 2003/8 states that a supply of the rights to use the copyright in the program itself for commercial purposes, which allows the licensee to modify, adapt or copy or otherwise do what would ordinarily be the exclusive right of the copyright owner, is a supply that is made in relation to rights. The licence you supply to a client is a licence to use the software only. Therefore, we do not consider that the substance of the supply you make is a supply of a right. We consider that your supply of the software licence is incidental to, and part of, the supply of the software. Hence, you are not making a separate supply of a licence, for GST purposes, that is connected with Australia. In accordance with paragraph 18 of Goods and Services Tax Ruling GSTR 2001/8, the GST status of the licence will hinge on the GST status of the software. | Detailed Reasoning - Services performed in your country: Paragraph 65 of Goods and Services Tax Ruling GSTR 2000/31 discusses supplies of services. It states: 65. If the 'thing' being supplied is a service, the supply of that service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service is connected with Australia under paragraph 9-25(5)(a). This is the case even if the recipient of the supply is outside Australia. The services that are performed in your country will not be done in Australia as they will not be performed in Australia. Your supply of these services will not be connected with Australia because: • the thing supplied will not be done in Australia • you will not supply the services through a permanent establishment that you maintain in Australia, and • the supply is not of a right to acquire another thing the supply of which would be connected with Australia. Therefore, your supplies of these services do not meet the requirement of paragraph 9-5(c) of the GST Act. | Detailed Reasoning - Services performed in Australia: The services that are performed in Australia will be done in Australia as they will be performed in Australia. Therefore, your supplies of such services will be connected with Australia and the requirement of paragraph 9-5(c) of the GST Act is met. Required to be registered for GST Section 23-5 of the GST Act provides that an entity is required to be registered for GST if: (a) it is carrying on an enterprise, and (b) its GST turnover meets the registration turnover threshold ($75,000). In accordance with Division 188 of the GST Act, only supplies that are connected with Australia are included in GST turnover. You are carrying on an enterprise. Hence, you meet the requirement of paragraph 23-5(a) of the GST Act. Your supplies of services that are performed in Australia will be connected with Australia and they will be greater than $75,000 per annum. Hence, you meet the requirement of paragraph 23-5(b) of the GST Act. Therefore, you will be required to be registered for GST as you meet both requirements of section 23-5 of the GST Act. Goods and Services Tax Ruling GSTR 2001/7 provides guidance on determining at what point in time an entity is required to be registered for GST. You can find this publication by typing in GSTR 2001/7 into an internet search engine. Conclusion Your supplies of the software are not connected with Australia. Therefore, as you do not meet all of the requirements of section 9-5 of the GST Act, GST is not payable on your supply of the software or associated licence. Your supplies of services performed in your country are not connected with Australia. Therefore, as you do not meet all of the requirements of section 9-5 of the GST Act, GST is not payable on your supply of these services. Your supplies of services performed in Australia meet all of the requirements of section 9-5 of the GST Act. Therefore, GST is payable on your supplies of these services. For information on registering for GST, type in GST registration information for a non-resident into the search box of www.ato.gov.au. Reverse charging Subsection 83-5(1) of the GST Act states: The GST on a *taxable supply is payable by the *recipient of the supply, and is not payable by the supplier, if: (a) the supplier is a *non-resident; and (b) the supplier does not make the supply through an *enterprise that the supplier *carries on in Australia; and (c) the recipient is *registered or *required to be registered; and (d) the supplier and the recipient agree that the GST on the supply be payable by the recipient. You are a non-resident supplier. You do not make your supplies through an enterprise that you carry on in Australia. Therefore, if your Australian client is registered or required to be registered for GST and you and the client agree that the GST on your taxable supplies be payable by the client, the GST on your taxable supplies will be reverse charged to the client. In accordance with subsection 83-25(1) of the GST Act, you need not apply to be registered for GST if your GST turnover would not meet the registration turnover threshold if your reverse charged taxable supplies were disregarded.