1 Is GST payable by you under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on your supply of services to facilitate sales of software made by your non-resident client to their Australian customers?
No. Question 2 Are you liable under section 57-5 of the GST Act for the GST (if any) payable on sales of software made by your non-resident client to their Australian customers? Answer No.
You are registered for GST. You are a resident of Australia. You operate your business in Australia. You have a customer who is a non-resident. The non-resident entity is not located in Australia. You generate commission income by facilitating the sale of software by the non-resident entity to Australian customers. The commission income is paid by the non-resident entity to you. What the facilitation service involves is introducing Australian entities to the non-resident entity and getting everything ready so that the non-resident entity and their Australian customer can then sign the software sale contract. You do not provide software, technical support or any services other than facilitating the sale of software by the non-resident entity to their Australian customers.
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 A New Tax System (Goods and Services Tax) Act 1999 section 57-5
s Question 1 Summary Your supply of the sales facilitation services to the non-resident entity is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act as: • services are not goods or real property; and • your customer is a non-resident who is not in Australia; and • the service does not involve work on goods situated in Australia nor is it directly connected with real property situated in Australia; and • subsection 38-190(3) of the GST Act does not exclude the services from being GST-free as you are not providing the services to a third party who is in Australia; and • no other exclusions from GST-free status apply. As your supply of the services is GST-free, GST is not payable on these services. Detailed reasoning GST is payable on supplies that are taxable. Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with the indirect tax zone (Australia), and
(d) you are registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed A supply of something other than goods or real property is GST-free under item 2 in the table in subsection 38-190(1) of the GST Act (item 2) if the customer is a non-resident who is not in Australia and the requirements of (a) or (b) below are met (a) the supply is not a supply of work physically performed on work situated in Australia when the work is done nor is the supply directly connected with real property situated in Australia; or (b) the non-resident acquires the thing in carrying on their enterprise but is not registered or required to be registered for GST. However, there are a number of exclusions from GST-free status under item 2. You are supplying sales facilitation services to your non-resident client who is not in Australia. Services are not goods or real property. You are not working on goods nor is your supply directly connected with real property.
In accordance with subsection 38-190(3) of the GST Act, there is a possible exclusion from GST-free status if both of the following requirements are met: • the supply of the services is made under an agreement entered into with a non-resident entity; and • the supply is provided, or the agreement requires it to be provided, to another entity in Australia. Goods and Services Tax Ruling GSTR 2005/6 Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are 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 (GSTR 2005/6)provide guidance on the exclusion in subsection 38-190(3) of the GST Act. Paragraphs 224 and 225 of GSTR 2005/6 provide guidance on the meaning of 'providing a supply to another entity'. They state:
224. Therefore the expression a supply is 'provided to another entity' means that in the performance of a service (or in the doing of some other thing supplied), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity. 225. For example, if a supply of entertainment services is made to a non-resident company and in the performance of that service the employees are entertained, the actual flow of that service is to another entity, each employee. In the scenario in paragraph 307 of GSTR 2005/6 a supply of services was considered to be provided to a particular entity because that entity availed itself of the services.
In accordance with GSTR 2005/6, the fact that a supplier of services interacts with a given entity in the course of performing the services is an indicator that the service may be being provided to that entity. However, the fact that a service provider interacts with a given entity in the course of performing the service will not in every case mean that the supply is being provided to the given entity. Your non-resident client sells software and they hire you to facilitate the making of those sales. As such, your non-resident client is availing themselves of your sales facilitation services. Therefore, you are providing your services to your non-resident client. Hence, you are making a supply of services under an agreement you have with a non-resident entity, and you are not providing these services to another entity who is in Australia. Therefore, the exclusion in subsection 38-190(3) of the GST Act does not apply. The other provisions providing exclusions from GST status are not relevant to your situation. Therefore, your supply of sales facilitation services to your non-resident client is GST-free under item 2.
Hence, GST is not payable on your supply of sales facilitation services to your non-resident client. Question 2 Summary Section 57-5 of the GST Act does not operate to make you liable for GST on any taxable supplies that your US client may be making to its Australian customers. This is because you are not acting as an agent for GST purposes in relation to the sales of the software. Detailed reasoning In accordance with section 57-5 of the GST Act, if GST is payable on a taxable supply made by a non-resident entity through a resident agent, the GST is payable by the agent and not the non-resident entity. There are two exceptions to this rule. We shall first consider whether your non-resident client makes a sale of software through a resident agent where you provide facilitation services in relation to the sale of the software. Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) provides guidance on the concept of an agent. Paragraph 45 of GSTR 2000/37 explains when a sale is made by a principal through an agent. It states:
45. Divisions 57 and 153 apply when a principal makes a relevant transaction (i.e., taxable supply, taxable importation, creditable acquisition or creditable importation) through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent. Paragraphs 10 to 12 of GSTR 2000/37 explain the meaning of agent for GST purposes. They state:
10. An entity may be authorised by another party to do something on that party's behalf. Generally, the authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal. For an insurance policy, the authorised entity is often called an insurance broker. The party who authorises an insurance broker to act on their behalf is called the insured (the recipient of the supply). Also, if appropriately authorised, an insurance broker could act as an agent on behalf of the insurer. 11. For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties. 12. The principal is bound by the acts of an agent as a result of the authority given to the agent. In cases of actual authority, the relationship between a principal and an agent is a consensual one so that no party can claim to be a principal's agent unless both parties consent to the creation of the agency.
Based on the information provided, you are not an agent for your non-resident client as you do not have the power to enter into software sale contracts on their behalf. You are not authorised to act for your non-resident client to create or affect legal relations between your non-resident client and third parties. Your service comprises of introducing Australian entities to the non-resident entity and getting everything ready so that the non-resident entity and their Australian customer can then sign the software sale contract. In accordance with paragraph 45 of GSTR 2000/37, as you are not an agent authorised to undertake a transaction (sales of software) on behalf of a principal, thereby binding a principal to the legal effects of the transaction, then the transaction (sales of software) is not made by a principal through an agent. Therefore, you are not liable for GST under section 57-5 of the GST Act on any taxable supplies of software (if any) made by your non-resident client to its customers, where you provide facilitation services relating to the sale of the software under the current arrangements.