Private ruling: GST and supply of services to a non-resident
Date of advice: 14 December 2017
Published: May 2018

Ruling: Q1: Is the supply of services by the entity to the non-resident 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)? | A1: Yes. The supply of services by the entity to the non-resident is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts and circumstances: The entity is registered for GST. The entity entered into an agreement with a non-resident trust to provide services in the indirect tax zone. The agreement does not require the services to be provided to another entity in the indirect tax zone. The non-resident is not registered or required to be registered for GST. The trustee of the trust is not a resident of Australia and does not have any presence in Australia. Its central management and control is located outside Australia.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5; and | A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision: Summary: GST is payable on a taxable supply. Section 9-5 of the GST Act 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 the *indirect tax zone; 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. The entity will provide various services to the trust under an agreement. In respect of its services provided the entity is a GST registered entity, making the supply of services to the trust in the course or furtherance of its enterprise and for consideration, being the service fee. A supply of anything else other than goods or real property (i.e. services) is connected with the indirect tax zone where the thing is done in the indirect tax zone. As the entity is based in the indirect tax zone and will be providing services in the indirect tax zone, its services will be connected with the indirect tax zone in accordance with subsection 9-25(5) of the GST Act. The services provided by the entity to the trust are, prima facie, taxable supplies. However, per section 9-5 of the GST Act, the supply will not be a taxable supply to the extent it is GST-free or input taxed. A supply may be GST-free under section 38-190 of the GST Act. Subsection 38-190(1) provides a table of supplies of things, other than goods or real property, for consumption outside of the indirect tax zone (i.e. Australia) that are GST-free. Under item 2 in the table in subsection 38-190(1) (item 2), a supply is GST-free if it the supply is made to a non-resident who is not in the indirect tax zone when the thing supplied is done and: a. the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done nor a supply directly connected with real property situated in the indirect tax zone; 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. Supply to a non-resident For the supply of services to be GST-free under Item 2, the supply must first be made to a ‘non-resident’. Under section 195-1 of the GST Act, ‘non-resident’ means an entity that is not an Australian resident. Further, section 195-1 of the GST Act provides that ‘Australian resident’ means a person who is a resident of Australia for the purposes of the ITAA 1936. Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a recipient of a supply, including a trust, is a ‘non-resident’. GSTR 2004/7 provides that a non-resident includes a trust of which no trustee is a resident of Australia as defined in subsection 6(1) of the ITAA and the central management and control of which is not located in Australia. Further, as outlined at paragraph 24 of GSTR 2004/7, in the case of trusts, the supply is made to a non-resident if the trust is a non-resident, irrespective of whether the supply is expressed as being made to the trust or the trustee of that trust. The trustee of the trust is a company based overseas and is not registered for ABN and GST purposes in its capacity as the trustee. As outlined in GSTR 2004/7, the Commissioner considers that a non-resident trust is in Australia if a trustee of that trust, acting in its capacity as trustee, carries on business (or in the case of a trustee that does not carry on business, carries on the trust’s activity) 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. A trust is an entity for GST purposes but is not a ‘person’ for the purposes of either the GST Act or the ITAA 1936. A trust does not fall within the ordinary meaning of person and is not specifically included in the definition of a person in either Act. With reference to GSTR 2004/7, when determining whether a trust is an Australian resident the Commissioner refers to the definition of ‘resident trust estate’ provided under subsection 95(2) of the ITAA 1936 given the concept of whether a trust is a resident is so closely analogous to the concept of resident trust estate. That is, a trust should be regarded as a resident for GST purposes if it is a resident trust estate for income tax purposes. Accordingly, as outlined in subsection 95(2) of the ITAA 1936, a trust is a resident of Australia if at least one of its trustees is a resident of Australia or the trust’s central management and control is located in Australia. We understand that the Trustee does not have a presence in Australia in its own right. Further, the Trustee’s central management and control is also located outside Australia. Despite the Trust being a non-resident, even where a non-resident entity does not have a presence in Australia in its own right, it could still be considered to be carrying on a business in Australia from a fixed and definite place through a duly appointed agent. This necessitates an investigation of the nature of its relationship with third parties that it contracts with in Australia, and in particular, whether that third party could be considered to be an agent of the Trust. With reference to the factors outlined at paragraph 281 of GSTR 2004/7, the entity is simply providing services to the trust under the terms of the agreement and is not an agent of the trust. As such, we consider the trust is merely one of the entity’s customers and the trust is not carrying on business in Australia through the entity acting as its agent. On this basis, the trust can be regarded as a non-resident for the purposes of the definition in section 195-1 of the GST Act. Not in Australia in relation to the supply For a supply of services to be GST-free under Item 2, there is a precondition that the non-resident must first not be in Australia in relation to the supply when it is provided. By virtue of the trust not having a presence in Australia, either in its own right or through an agent, as well as having central management and control located outside Australia, the trust is not in Australia in relation to the supply of services provided by the entity under the agreement. Paragraph (b) of Item 2 Now that we have established that the trust is not in Australia in relation to the supply of services, the supply must satisfy paragraph (b) of Item 2. That is, in addition to the supply being made to a non-resident who is not in Australia when the thing supplied is done, the following must also be satisfied: (b) the non-resident acquires the thing in carrying on the non-resident’s enterprise, but is not registered or required to be registered. The trust acquires the services from the entity for the purposes of carrying on its enterprise. Further, the trust is not registered nor is it required to be registered as it does not meet the GST registration turnover threshold. Consequently, paragraph (b) of Item 2 is satisfied. Exclusion under subsection 38-190(3) Subsection 38-190(3) of the GST Act provides that a supply covered by item 2 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 the indirect tax zone; 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. The exclusion provided for under subsection 38-190(3) of the GST Act does not apply to the services provided by the entity as the agreement does not involve a supply being made to anyone else other than the trust. | Detailed Reasoning - Conclusion: The supply of services by the entity to the trust under the agreement satisfies the requirements of paragraph (b) of Item 2 under subsection 38-190(1) of the GST Act. Further, the exclusions under subsection 38-190(2), subsection 38-190(2A) and subsection 38-190(3) of the GST Act do not apply. As such, the supply of services provided by the entity to the trust under the agreement should be GST-free in accordance with subsection 38-190(1) of the GST Act.