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When is the export of services GST-free?
Export of Services
In this episode Simon Dorevitch of A & A Tax Legal Consulting will give you a comprehensive overview about the GST treatment of export of services. Here are our notes from that episode. But please listen in as Simon explains all this much better than we ever could.
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When Is the Export of Services GST-free?
The table in s 38-190 (1) of the GST Act sets out five circumstances that make a supply of ‘anything else’ GST-free. Anything else is anything other than goods and real property.
s38-190 (1)
A supply of anything else is GST-free if:
Item 1
The supply has a direct connection with goods or real property situated outside the indirect tax zone – GSTR 2003/7 deals with this issue.
Item 2
The recipient of the supply is a non-resident who is outside of the indirect tax zone when the thing is done. And the supply is either done as part of a business NOT registered for GST or it is connected with goods or real property outside of the indirect tax zone – GSTR 2004/7 and GSTR 2005/6 give further guidance.
Item 3
The recipient of the supply is outside of the indirect tax zone when the thing is done. And the effective use or enjoyment of the supply is either outside the indirect tax zone. Or the supply is in relation to goods or real property outside of the indirect tax zone – GSTR 2007/2 deals with this issue.
The important thing for Item 3 is that it doesn’t matter whether the recipient of the service is a resident or non-resident. The only thing that matters is whether the supply occurs and is used or enjoyed outside of the ITZ.
Item 4
The supply is in relation to rights. And the supply is either made to a non-resident outside of the indirect tax zone. Or it is used outside of the indirect tax zone – GSTR 2003/8 deals with this issue.
Item 5
The supply is the repair of goods with a destination outside of the indirect tax zone.
So far s38-190 (1). But now come (2) to (5).
s38-190 (2) to (5)
Section 38-190 (2) to (5) contains four subsections that override the GST-free status under subsection 38-190 (1).
The GST-free status under s 38-190 (1) is denied if:
s38-190 (2)
The supply that would otherwise be GST-free is a right to acquire something. And the supply of this something has a connection with the indirect tax zone and is not GST-free.
s38-190 (2A)
The supply that would otherwise be GST-free relates to the making of an input-taxed supply of real residential premises by the recipient.
s38-190 (3)
The supply is made to a non-resident but is provided to another entity in the indirect tax zone.
This is the most common area of concern. And so GSTR 2005/6 got plenty to say about this one.
So if an entity outside of Australia is the official recipient of the supply, but it is an entity within the indirect tax zone that actually obtains the supply, then the supply is not GST-free.
Think of s38-190 (3) as an anti-avoidance measure. A supply can’t obtain GST-free status just by sending an invoice overseas. Invoicing an entity overseas, but actually providing the supply to an entity within the ITZ is not GST-free.
s39-190 (4)
Subsection (4) is the opposite to (3) and hence doesn’t really fit into this list. Rather than denying a GST-free status, it extends it. It extends the operation of item 3 to allow GST-free status where a supply is made to a recipient in the ITZ but provided to another entity outside the ITZ. This extension only applies under one condition though. It only applies if subsection 38-190 (5) does not apply.
s38-190 (5)
Subsection 38-190 (5) excludes the GST-free status that would otherwise arise under subsection 38-190 (4). So the following supplies are subject to GST:
- Transport of goods within the indirect tax zone as part of the international transport of these goods;
- Loading or handling of goods within the indirect tax zone as part of the international transport of the goods.
Summary
So you have five scenarios in (1) that allow a GST-free status – item 1 to 5. And then you have four exceptions in (2) to (5) that deny a GST-free status in specific circumstances.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only. And it might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 27 November 2023
Tax Talks spoke to Simon Dorevitch - Corporate & International Tax Manager at A&A Tax Legal Consulting - for more details.
