Kate Law unravels some new complexity for taxpayers as a result of the changes to GST rules related to cross-border supply.
The new cross-border rules commenced on 1 October 2016 and expand the Goods and Services Tax (GST)-free treatment of services supplied to non-residents while also reducing the requirement for non-residents to register for GST.
However, the new rules create some complexities around establishing the relevant presence of the non-resident in Australia.
When determining whether a non-resident is ‘in Australia’ for the purposes of GST-free treatment of outbound supplies of services, the Commissioner’s view is unchanged and is based on whether the non-resident is carrying on a business in Australia with reference to the income tax definition of a permanent establishment.
However, a new test applies to establish whether a non-resident making an inbound supply has a ‘GST permanent establishment.’ The definition is no longer connected with the income tax definition and is based on a fixed place or the presence of individuals or dependent agents for a period of 183 days or more during a 12-month period. Therefore, non-residents who do not have employees or dependent agents in Australia and only supply to Australian-based registered businesses may no longer have a requirement to register and account for GST, regardless of where the services are performed.
Some non-resident businesses who are not ‘in Australia’ when acquiring local services may now find themselves having a GST presence under the new rules for inbound supplies, while not having a permanent establishment for income tax purposes. For example, because they may have employees in Australia for more than 6 months but less than 9 months (under the relevant treaty).
There is certainly a level of complexity here that will require due consideration when determining the GST treatment of cross-border transactions.