Is the entity making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it charges international students an all-inclusive fee for a study tour?
The entity is making taxable supplies in relation to: • commissions or income it earns from collecting the course fees on behalf of the course provider; and • amounts it collects for supplies that it makes in its own right; and • commissions or fees it earns from acting as agent for Australian suppliers. The entity is not making taxable supplies in relation to: • commissions or fees it earns from acting as agent of the overseas students when they are not in Australia. Amounts that are collected by the entity on behalf of the course provider or other suppliers when the entity is acting as agent are not consideration for supplies that the entity makes. This ruling applies for the following periods : All tax periods ending on or after November 20YY The scheme commenced on: 1 November 20YY
The course provider provides short courses through a range of programs. The entity arranges study tours for international students to come to Australia and undertake the courses with the course provider. The entity is registered for GST. In November 20YY, the entity entered into an agreement with the course provider to provide a range of services in relation to attracting and managing international students to the courses provided. Amongst other things, the agreement requires the entity to: • market the courses to overseas students; • facilitate the application of students for admission to the courses; • administer payments from students and to pay the course provider and third parties; • Arrange accommodation, transportation and recreational activities. The entity does not supply the courses to the students. The courses are provided by the course provider. The course provider issues an invoice to the entity in relation to students who enrolled in courses provided by the course provider under the agreement. The invoices indicate that the courses are subject to GST.
The entity issues invoices to student groups with a single, all-inclusive amount which is for the course plus other ancillary expenses in relation to the trip. The entity arranges with third party providers of things such as accommodation, transportation, or entry into recreational activities and attractions. The entity may enter into these agreements as: • principal - where the entity negotiates with land product providers such as hotel operators, restaurateurs etc, for the supply of the required study tour package components; • agent of the students - where the entity enters into agreements with land product providers on behalf of the students; or • agent of the land product providers - where the entity is authorised to enter into agreements with the students on behalf of the third party, land product suppliers in Australia.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 38-190
Generally, an entity makes a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when: • the entity makes a supply for consideration (payment); and • the supply is made in the course or furtherance of an enterprise (business); and • the supply is connected with the indirect tax zone (Australia); and • the entity is registered, or required to be registered for GST; and • the supply is neither GST-free, nor input taxed. The entity has an agreement with the course provider to organise and manage study tours in Australia for international students. They undertake a range of activities. The entity invoices the overseas entity one amount for the study tour tuition and program fee which relates to multiple supplies made under the agreement with the course provider. The supplies will meet the requirements of a taxable supply as they are made in the course or furtherance of an enterprise that the entity carries on, the supplies are for consideration, they are connected with Australia, and the entity is registered for GST.
There are no provisions in the GST Act that would make the supplies input taxed. We need to consider whether the supplies may be GST free. Section 38-190 of the GST Act Section 38-190 of the GST Act provides rules in relation to whether supplies of things, other than goods or real property, that are for consumption outside of Australia are GST-free. The table in subsection 38-190(1) of the GST Act contains a range of circumstances in which supplies of services may be GST-free. Table item 2 in subsection 38-190(1) of the GST Act may be relevant to the activities undertaken by the entity, and provides that a supply is GST-free if it 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.
Also, table item 3 in subsection 38-190(1) of the GST Act provides that a supply is GST-free if it is a supply: (a) that is made to a recipient who is not in the indirect tax zone when the thing supplied is done; and (b) the effective use or enjoyment of which takes place outside the indirect tax zone; For the supply to be GST free under table item 1 or table item 2 of subsection 38-190(1) of the GST Act, the recipient must not be in the indirect tax zone when the thing supplied is done. Whether a non-resident is in Australia is discussed in Goods and Services Tax Ruling 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999: • When is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'? • When is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'? (GSTR 2004/7) Paragraph 31 provides further information in relation to when a non-resident is not in Australia and states:
31. The requirement that the non-resident in item 2, or the recipient in item 3, is not in Australia when the thing supplied is done is a requirement, in our view, that the non-resident or recipient is not in Australia in relation to the supply when the thing supplied is done. Furthermore, subsection 38-190(2) of the GST Act provides that if an item in the table in subsection 38-190(1) of the GST Act 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. Where supplies are made by the entity to the students and the supply is the right or option to acquire something in Australia then the supply will not be GST free. The entity provides a number of supplies under the agreement. Each supply needs to be looked at separately. The entity may make supplies: • in its own right (to the students); • in its capacity as an agent (either for the students or the course provider).
Where a supply is made in its own right, the entity will be required to report the GST on that sale if it is a taxable supply and does not meet the criteria under section 38-190 of the GST Act to be GST-free. Where a supply is made as an agent, the entity will be required to report the GST on its commission if the supply is a taxable supply and does not meet the criteria under section 38-190 to be GST-free. The services agreement between the course provider and the entity provides the list of services that the entity is required to provide. This includes recruitment and promotion of the courses; collection of course fees; accommodation; excursions; and paying all third-party fees amongst other things. Course Fees Although the course provider provides the courses to the students, the agreement with the entity provides that the entity makes supplies in its own right to the course provider in relation to those courses, including: • marketing and promoting the courses; • handling course application and admissions processes, • arranging course transcripts and completion certificates; and
• collecting the fees for the courses. The services agreement provides a list of fees in relation to the amount that the course provider will receive for its supplies of the courses as well as the amounts that the entity will collect from students (or intermediary third-parties). As part of the agreement, the entity collects the course fees from the students. The entity will retain a portion of the course fee (as payment or commission for the services provided) and forward the remainder to the course provider. The entity is acting as agent for the course provider when collecting the fees for the courses. This supply of the service of arranging the course is made to the course provider and is a taxable supply. The agreement is entered into with an entity in Australia and is provided to another entity in Australia. As the recipient is in Australia the supply will not be GST-free under section 38-190 of the GST Act. Example:
A University offers courses to students for $660 (including GST) and engages an entity to promote the course and enrol students. The University agrees that the entity will retain $110 of the course fees for each student it enrols. The University has made a supply of the course to the student for $660 consideration and has a GST liability of $60 for that supply. The University is providing consideration to the entity of $110 for the entity's services of promoting the course, managing enrolments and collecting the fees. The entity has a GST liability of $10 and the University is entitled to the input tax credit for that $10 amount. Even though, in practice, the entity collects the $660 and then forwards $550 to the University, the entity is collecting that amount as agent of the University - which is the supplier of the course. Other Supplies to Students
The entity may make other supplies where they are acting as an agent. For example, the entity may arrange accommodation for the students with homestay providers in Australia. In this case, the accommodation provider is making a supply of accommodation to the students. The entity is making a supply of arranging accommodation for the non-resident who is not in the indirect tax zone when the thing is supplied. The supply by the entity will be GST-free because it is covered by table item 2 in subsection 38-190(1) of the GST Act. Supplies may be made by the entity where it contracts with a supplier in Australia to acquire items to then be on-sold to the students. The supplies by the entity will generally be taxable supplies under section 9-5 of the GST Act unless they are GST-free under a provision in Division 38 of the GST Act.
Occasionally, the entity may act as agent for an Australian supplier which enters into agreements with the students. Similar to the scenario with the courses supplied by the course provider, the entity will make supplies of services (of acting as the agent) to the supplier and the supplier supplies goods or services to the students. Generally, there would be an agreement between the suppliers and the entity stating that the entity is acting as agent. Where the entity is providing a service (of acting as an agent) to an Australian supplier it will meet the requirements of a taxable supply as the supplies are made in the course or furtherance of an enterprise that the entity carries on, the supplies are for consideration (commission), the supplies are connected with the indirect tax zone (Australia) and the entity is registered for GST.