The Australian Taxation Office released GST Ruling GSTR 2025/1 on July 23, clarifying when supplies of services made to non-resident entities lose their GST-free status under subsection 38-190(3) of the GST Act.
The ruling addresses supplies covered by item 2 of subsection 38-190(1), which generally makes supplies of things other than goods or real property GST-free when made to non-residents not in Australia when the supply is performed. However, subsection 38-190(3) can negate this exemption in specific circumstances.
Key Conditions
GST-free status is removed when three conditions are met: the supply is made under an agreement with a non-resident; the supply is provided to another entity in Australia; and for non-input taxed supplies, none of the preservation exceptions apply.
The ruling provides extensive guidance on determining whether a supply is "provided to another entity in Australia." For individuals, this requires examining whether their physical presence in Australia is integral to the supply provision, not merely coincidental. For companies and other entities, the test focuses on whether the supply serves their Australian operations.
Business Exemptions
Paragraph 38-190(3)(c), effective from October 1, 2016, preserves GST-free treatment for certain supplies. The exemption applies when the supply is provided to an entity that would qualify as an "Australian-based business recipient" if the supply were made directly to them, or to employees or officers of such entities under specific conditions.
The ruling includes 31 detailed examples covering scenarios from freight services to global audit arrangements, illustrating how apportionment works when supplies are only partially subject to the negation rule.
Context
This guidance follows amendments made by the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016, which expanded business-to-business GST-free treatment to reduce compliance burdens on non-residents. The ruling aims to provide certainty for suppliers determining when cross-border service supplies remain GST-free despite being consumed in Australia.