On 26 May 2016, the Australian Taxation Office released a Law Companion Guideline 2016/1, providing more information on the new GST test for carrying on an enterprise in the indirect tax zone (Australia). As mentioned in our latest Global VAT/GST Newsletter, these new rules apply from 1 October 2016.
Applying the new test to non-resident entities has two main consequences:
- where the non-resident entity has a GST enterprise presence, it will be treated in the same way as a domestic entity; and
- where they do not have a GST presence, then a non-resident will generally only be subject to GST on supplies to unregistered entities in Australia (e.g. Business-to-Consumer supplies). A reverse charge on Business-to-Business (B2B) supplies may be required.
The new test narrows the scope of what activities constitute carrying on an enterprise in Australia, with a greater emphasise on aligning the GST nexus test with the income tax concept of permanent establishment. In this regard, an entity will have a GST enterprise presence if the enterprise is carried on by one or more specified individuals that are in Australia, and:
- the enterprise is carried on through a fixed place in Australia;
- the enterprise has been carried on through one or more places in Australia for more than 183 days in a 12 month period; or
- the entity intends to carry on the enterprise through one or more places in Australia for more than 183 days in a 12 month period.
As a result of the new rules, a non-resident may no longer be carrying on an enterprise in Australia and should review their existing arrangements to determine whether any adjustment to their GST status is required. Where an entity no longer carries on an enterprise in Australia it maybe entitled to enter into voluntary reverse charge agreements.