Is your supply of services to Entity A GST-free under subsection 38-190(1) of the A New Tax System (Goods and Service Tax) Act 1999 (Cth) (GST Act)?
Yes, your supply of services to Entity A is GST-free under item 2(a) under subsection 38-190(1) of the GST Act.
You are registered for GST and are carrying on your enterprise in Australia. You supply a certain supply for consideration to Entity A. This supply is connected with Australia. Entity A is non-resident company located outside of Australia. Under the contract with Entity A you are not required to provide your supply to another entity in the indirect tax zone.
A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 9-30 A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 38-190 A New Tax System (Goods and Service Tax) Act 1999 (Cth) section 195-1
A supply is GST-free if it is covered under Division 38 of the GST Act. [1] Subsection 38-190(1) of the GST Act comprises of five items which set out supplies of things, other than goods or real property, that are GST-free when they are consumed outside the indirect tax zone. If the requirements of one of those items are met, the supply is GST-free, provided subsections 38-190(2), (2A) or (3) do not negate that GST-free status. Indirect tax zone means Australia but does not include external territories and certain offshore areas. [2] Item 2 in the table under subsection 38-190(1) of the GST Act ( Item 2 ) provides that a supply of anything, other than goods or real property, made to a non-resident who is not in Australia when the thing supplied is done is GST-free if: (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 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.
A non-resident means an entity that is not an Australian resident for the purposes of the Income Tax Administration Act 1936 (Cth). [3] Company in Australia in relation to the supply Goods and Services Tax Ruling GSTR 2004/7 discusses, among other things, when a non-resident company is in Australia in relation a supply for the purposes of Item 2. Unlike an individual, a company does not have a precise location and its presence can only be established through the presence of its representatives. Even if a company is in Australia, it may not be in Australia in relation to the supply and so can still satisfy the 'not in Australia' requirement in Item 2. [4] To determine whether a company is in Australia in relation to a supply, it is necessary to examine the role the presence of the company in Australia plays in relation to the supply. [5]
A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor. [6] If the involvement of the Australian presence is limited to the carrying out of simple administrative tasks on behalf of the company, as a matter of administrative convenience, that involvement is minor. The connection between the supply and the presence is so minor in nature that it is reasonable to conclude that the presence of the company in Australia is not in relation to the supply. [7] Tasks of a simple administrative nature include: [8] • payment of, or arranging for payment of, the supplier's invoice on behalf of the company; • passing on an e-mail to the company; • being a point of telephone contact to pass on messages to the company; • being a mailing address or delivery contact on behalf of the company;
• being a point of contact for a visiting representative of the company; and • on-forwarding information to the company. Based on the information provided, Entity A is not in Australia when the thing supplied is done. Item 2(a) Based on the information provided, your supply of services is GST-free under Item 2(a) as: § Entity A is a non-resident company and is not in Australia in relation to the supply at the time your supply is done; and § Your supply is neither a supply of work performed on goods located in Australia nor a supply that is directly connected with real property in Australia. Since Item 2(a) has been satisfied, it is not relevant to consider Item 2(b). Therefore, your supply of the services will be GST-free under Item 2 unless a provision applies to negate its GST-free status. Limitations of Item 2 Subsection 38-190(2) of the GST Act Subsection 38-190(2) of the GST Act provides: (2) However, a supply covered by any of items 1 to 5 in the table in subsection (1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be *connected with the indirect tax zone and would not be *GST-free.
Your supply to Entity A is neither a supply of a right nor an option to acquire something, the supply of which would be connected with Australia and would not be GST-free. Subsection 38-190(2) does not apply to negate the GST-free status of your supply. Subsection 38-190(2A) of the GST Act Subsection 38-190(2A) of the GST Act provides: (2A ) A supply covered by any of items 2 to 4 in the table in subsection (1) is not *GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of *real property situated in the indirect tax zone that would be, wholly or partly, *input taxed under Subdivision 40-B or 40-C. Your supply to Entity A does not relate to the making of a supply of real property situated in the indirect tax zone. Subsection 38-190(2A) does not apply to negate the GST-free status of your supply. Subsection 38-190(3) of the GST Act Subsection 38-190(3) of the GST Act provides: (3) Without limiting subsection (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 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. Based on the information provided, subsection 38-190(3) does not apply to negate the GST-free status of your supply as you are not required to provide your supply to another entity in the indirect tax zone. > [1] GST Act subsection 9-30(1)(a). [2] GST Act subsection 195-1 (definition of 'indirect tax zone'). [3] GST Act sections 195-1 (definition of 'non-resident' and 'Australian resident'). [4]
See paragraphs 229 and 347 of GSTR 2004/7. [5] See paragraphs 348 of GSTR 2004/7. [6] See paragraphs 41 and 349 to 350 of GSTR 2004/7. [7] See paragraph 351 of GSTR 2004/7. [8] See paragraph 352 of GSTR 2004/7.