1 Is the entity entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it acquires information technology services supplied by off-shore non-resident contractors?
No, the entity is not entitled to input tax credits on the acquisitions of information technology services by off-shore non-resident contractors because the contractors are not making taxable supplies. Question 2 Is the entity liable to pay GST under the reverse charging section 84-10 of the A New Tax System (Goods and Services Tax) Act 1999 when it acquires information technology services from off-shore non-resident contractors? Answer No, the entity is not liable to pay GST when it acquires information technology services from off-shore non-resident contractors. Question 3 Does the entity include payments made to foreign resident off-shore contractors in its Taxable Payment Annual Report (TPAR) under section 396-55 of Schedule 1 to the Taxation Administration Act 1953 ? Answer Yes, the entity will have to have to include payments made to off-shore foreign residents in their Taxable Payment Annual Report. This ruling applies for the following periods : All tax periods ending on or after 3 August 20XX The scheme commences on: 3 August 20XX
The entity is registered for GST with effect from 3 August 20XX. The entity provides information technology services to their clients in Australia including a superannuation fund and a racing club. The entity does not make input tax supplies (e.g. financial supplies) The entity has engaged two non-resident contractors based in India to provide information technology services including consultation, software development, preparation of training materials, testing and maintenance and support. The contractors do not have Australian Business Numbers and the entity expects to pay each contractor more than $75,000 per annum. The contractors do not supply services to any other business in Australia and have not visited Australia for work purposes.
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 9-5 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 9-25 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 9-27 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 11-5 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 11-20 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 84-5 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) Section 84-10 Taxation Administration Act 1953 section 396-55 of Schedule 1
Detailed reasoning Question 1 Input Tax Credits Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to the input tax credits on any creditable acquisition that it makes. Section 11-5 of the GST Act explains that an entity makes a creditable acquisition if: • the entity makes an acquisition that is for a creditable purpose; and • the supply to the entity was a taxable supply (i.e. subject to GST); and • the entity provides, or is liable to provide consideration (i.e. payment) for the acquisition; and • the entity is registered, or required to be registered for GST.
The entity is entitled to the input tax credits (the GST paid) on any purchase that it makes that satisfies all of the above conditions. When the entity acquires the services of the non-resident contractors, those services are made for a creditable purpose, because they are made in the course of the entity's enterprise and do not relate to making input taxed supplies. As the entity is registered for GST and pays the contractors for the services provided, the entity would be entitled to input tax credits if the supplies by the contractors are taxable supplies. Taxable Supply Section 9-5 of the GST Act provides that the supply of services by the contractors will only be a taxable supply if: • the contractor makes the supply for consideration (payment); and • the supply is made in the course of an enterprise (business); and • the contractor is registered, or required to be registered for Australian GST; • the supply is connected with the indirect tax zone (Australia); and • the supply is neither GST-free, nor input taxed;
The supplies by the contractors are for payment and are made in the course of an enterprise that the contractors each carry on. However, if the supplies are not connected with the indirect tax zone (Australia), then their supplies of services to the entity are not taxable supplies. Supplies connected with the Indirect Tax Zone Subsection 9-25(5) of the GST provides that a supply of services is connected with the indirect tax zone if the services are: • performed in Australia; or • the supplier makes the supply through an enterprise that the supplier carries on in Australia. Paragraph 37 of the Goods and Services Tax Ruling, Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia) (GSTR 2019/1) explains that the location of the entity performing a service is relevant in considering whether a supply is connected with the indirect tax zone.
37. If the 'thing' being supplied is a service, the service is typically done where it is performed. If the service is performed in Australia, the service is done in Australia and the supply of that service satisfies paragraph 9-25(5)(a) even if the recipient of the supply is outside Australia. You have advised that the contractors are not located in Australia and the services they provide are done in India, Therefore, their supplies will not be connected with the indirect tax zone if they are not provided through an enterprise that they carry on in Australia. Enterprises carried on in the indirect tax zone Section 9-27 of the GST Act provides that an enterprise is carried on in Australia if: • the enterprise is carried on through a fixed place (premises) within Australia; or • the enterprise has been carried on through on or more places within Australia for more than 183 days in a 12 month period; or • it is intended that the enterprise is carried on through one or more places in the indirect tax zone for more than 183 days in a 12 month period. The Law Companion Ruling, GST and carrying on an enterprise in the indirect tax zone (Australia)
(LCR 2016/1) provides a detailed explanation of when a supplier carries on an enterprise in Australia, within the meaning of section 9-27 of the GST Act. As the contractors do not provide their services within Australia and do not provide those services thorough an enterprise that is carried on through a place within Australia, their services are not connected with the indirect tax zone. Therefore, the supplies of services by the contractors are not taxable supplies. Consequently, your acquisitions of the services provided by the contractors are not creditable acquisitions and there is no GST charged on the acquisitions. There is also no entitlement to any input tax credits (GST paid) on those acquisitions. Question 2 Offshore supplies - reversed charged Item 1 in the table in section 84-5 of the GST Act provides that a supply of an intangible thing such as an information technology service is a taxable supply if: • the supply is for consideration; and • the recipient is registered, or required to be registered for GST; and • the supply is not connected with the indirect tax zone; and
• the recipient acquires the thing in the course of its enterprise but does not acquire the thing wholly for a creditable purpose. Section 84-10 provides that the GST payable on a supply that is taxable because of section 84-5 is payable by the recipient and is not payable by the supplier. As mentioned above, an acquisition is not made for a creditable purpose if the acquisition relates to making input taxed supplies (such as financial supplies or supplies of residential premises) or the acquisition is not made in the course or furtherance of an enterprise. The acquisition of services by the entity from the off-shore non-resident contractors are not taxable supplies under section 84-5 of the GST Act as they are made wholly for a creditable purpose. Consequently, the entity is not required to pay GST on its acquisitions of services from the non-resident contractors under the reverse charging rules in section 84-10 of the GST Act. Question 3 Taxable Payments Annual Reporting Section 396-55 of Schedule 1 to the Taxation Administration Act 1953
(TAA) requires certain entities to prepare a report setting out information about any specified transactions described that happened during the stated period. Item 14 in the table in section 396-55 of Schedule 1 to the TAA provides that an entity that makes a supply of an information technology service and has an Australian Business Number (ABN) is required to report information about the provision of consideration (payment) to another entity wholly or partly for the supply by the other entity of an information technology service. As the entity makes supplies of information technology services and has an ABN, it is required to report information about payments to contractors for acquisitions of information technology services. Even though the contractors are located outside of Australia, there is no exclusion based on the location or tax residency of the payee.