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  • Issue 8 Imports exports

    8.1 Will taxpayers who opt to lodge returns monthly and electronically be entitled to take advantage of the payment deferral on importation of goods?

    Only taxpayers who lodge monthly and electronically will be entitled to the payment deferral on importation of goods.

    8.2 Exporting goods from Australia

    Section 38-185(3) of the A New Tax System (Goods and Services Tax) Act 1999 is apparently intended to 'ensure that exports are GST-free when ownership passes to an overseas purchaser, who is not registered or required to be registered, before the goods are removed from Australia' (para 1.69 of the EM to A New Tax System (Indirect Tax and Consequential Amendments) Bill 1999).

    Overseas purchasers who take title to goods worth $50,000 or more before the goods leave Australia seem to have to register - assuming that they are carrying on an "enterprise". See sections 9-25(2), 23-5, 23-15, 188-10 and 188-15, even including subsection 188-15(3). It could be argued that the mere taking of the goods from Australia by a non-resident is not a 'supply', but if the goods are taken from Australia for the purpose of supply to someone else it would seem that (assuming that they are worth more than $50,000) the non-resident would have to register. This creates a practical problem, for an Australian manufacturer which sells FOB from its premises to an offshore party, in that the manufacturer will not necessarily know whether they are supplying to an entity which is registered or required to be registered under the above mentioned provisions. It will therefore not be aware of all facts which may be relevant to whether it is making a GST-free export or a taxable supply.

    Subsection 38-185(3) ensures that exports are GST-free when a supply of goods is made to a purchaser who is neither registered nor required to be registered before the goods are removed from Australia, provided the purchaser enters the goods for export under section 113 of the Customs Act 1901, exports the goods without Australian use or alteration, and the supplier has sufficient documentary evidence that the goods were exported.

    Manufacturers selling offshore will ordinarily know whether or not the person they are dealing with is carrying on an enterprise in Australia and therefore registered or required to be registered.

    The explanatory memorandum for the amendment which inserted reverse charge rules for non-residents' supplies that are connected with Australia comments as follows in relation to the question of satisfaction:

    3.23 The amendments in relation to the supply of 'tooling' and also to item 2 in subsection 38-190(1) have a requirement that the non-resident is not registered and not required to be registered. The Australian supplier will need to be satisfied that this is the case before they can treat a supply as GST-free. The requirement for an Australian supplier to determine whether a non-resident is registered will not be as difficult as determining whether the non-resident is required to be registered.

    3.24 While a statement to this effect from the non-resident is not required in the legislation, in some cases it may be appropriate for the Australian supplier to obtain some notification to the effect that the non-resident is not registered and also that they do not make supplies connected with Australia. The Australian supplier needs to be reasonably satisfied that the non-resident they are dealing with is not registered or required to be registered. A statement or knowledge to the effect that the non-resident does not make supplies connected with Australia will generally be sufficient for the Australian supplier to be satisfied that the non-resident is not required to be registered.

    The test is in effect one of 'reasonable cause to believe' that the non-resident is not registered or required to be registered. It would be prudent for the exporter to retain in written form the relevant statement, or a record of that statement, or a note of the conclusion that the non-resident is not required to be registered and of the knowledge on which the exporter bases the conclusion.

    8.3 Exports are GST-free provided they are physically sent overseas within 60 days of creating an invoice

    If a business has most of its sales to overseas countries goods are usually sent FOB (free on board) to the carrier such as freight forwarding agent and not directly to the vessel, such as a ship or plane. Would these sales be GST-free export sales, provided they ship within 60 days of creating an invoice?

    ATO position

    There is no definition of "export" contained within the GST legislation which establishes a precise time when goods have been exported. For customs purposes, goods are taken to be exported when the vessel has been cleared to leave the final port of loading. The ATO is currently reviewing the meaning of 'export' within the context of the GST legislation. An announcement, possibly in the form of a public ruling, is expected soon.

    The bill of lading gives proof of delivery of goods on board the vessel, evidence that there is a contract of carriage overseas, and can be used to transfer rights to the goods while they are in transit. Bills of lading are often replaced by other documents like waybills or freight receipts or other variations. Electronic commerce is also used in some respects to replace paper documents.

    According to the document Incoterms 2000, FOB means that the seller delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risks of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. This term can be used only for sea or inland waterway transport.

    As mentioned above, the ATO is reviewing the wider meaning of 'export' for GST purposes including delivery over the ship's rail under an FOB contract

    8.4(a) Would a sale to a customer based in Australia who then delivers the product to an overseas customer be GST-free?

    ATO position

    In general, an exportation of goods will be GST-free only if the supplier exports them from Australia before, or within 60 days of the earlier of consideration being received or an invoice issued.

    The supply of goods to a customer in Australia who then exports the goods can be considered as a GST-free export (see 38-185(3)) in the following special circumstances:

    • before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered; and
    • that entity exports the goods from Australia; and
    • the goods have been entered for export within the meaning of s.113 of the Customs Act 1901; and
    • since their supply to that entity, the goods have not been altered or used in any way, except to the extent (if any) necessary to prepare them for export; and
    • the supplier has sufficient documentary evidence to show that the goods were exported.

    However, if the goods are reimported into Australia, the supply is not GST-free unless the reimportation is a taxable importation.

    8.4(b) What if we send the goods overseas ourselves then invoice the customer based in Australia?

    ATO position

    If you are the supplier and you export the goods within the 60 days (ie send them overseas), this will be a GST-free export.

    8.5 If the vendor (supplier) uses a shipping agent, how does the vendor meet the 60 day requirement to make it GST-free if they don't know that the shipping agent will ship it within 60 days?

    ATO position

    Suppliers should seek advice from their shipping agents as to whether their agents will be able to export before or within 60 days of the supplier receiving payment or issuing an invoice.

    If a supplier is concerned that their shipping agent cannot be relied upon to export within 60 days it would be open to the supplier to seek approval from the Commissioner for an extension. Applications for approval should explain why the 60 day requirement cannot be met. The ATO will consider granting such extensions in cases where it is impossible or too impractical for a supplier or their shipping agent to meet the 60 day export requirement. The ATO will consider applications in particular cases but is unlikely to grant 'blanket' or industry extensions.

    8.6 Export of goods - a case study from a member:

    The current GST law requires that all overseas parties who export goods to Australia on a free-into-store basis in excess of $50,000 per annum are required to register for GST purposes.

    This is the case notwithstanding they might have no presence in Australia nor related affiliates in this country and that the goods are subject to GST on entry for home consumption. The reason for this requirement is that an entity carrying on an enterprise (wherever) must register for GST if it makes the supplies connected with Australia in excess of $50,000 per annum.(s.23-15) Supplies are connected with Australia, among other things, where the goods are delivered or made available, in Australia to the recipient of the supple. (s.9-25(1))

    The problem emerges where the terms of trade are FIS or CIF. The issue would generally not arise in an FOB contract where delivery is generally at the place of export. In this note I have not dealt with the added complexity as to whether goods delivered in bonded store are delivered "in Australia" but they may well be. It can be seen that this issue is almost the opposite to the problem in the earlier GST law dealing with exports from Australia vis the differing result as to whether they were sold on FOB or FIS terms which problem has now been broadly rectified.

    ATO position

    Taxable supplies

    To be a taxable supply, the supplier must make the supply for a consideration and in the course of an enterprise, the supplier must be registered or required to be registered, and the supply must be connected with Australia. Also, the supply must not be GST-free or input taxed.

    Taxable importations

    You make a taxable importation if goods are imported and you enter goods for home consumption. However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

    Taxable importations may also be taxable supplies

    Generally, a taxable importation is distinguishable from a taxable supply. However, some taxable importations may also be taxable supplies. For example, a supply of goods from offshore may be both a taxable supply and a taxable importation if the supply is connected with Australia. GST legislation provides that goods being brought to Australia are connected with Australia if the supplier either imports the goods into Australia, or installs or assembles the goods in Australia. If a supplier imports goods or installs the goods in Australia, or both, GST will apply on the importation and will also apply on the supply if it meets the other three criteria mentioned above.

    GST Payable on Taxable Supplies Made by Overseas Residents Can Be Reverse-Charged To Local Entities
    Division 83 in the GST Act says that GST on a taxable supply is payable by the recipient of the supply and is not payable by the supplier if:

    • the supplier is a non-resident; and
    • the supplier does not make the supply through an enterprise the supplier carries on in Australia,
    • the recipient is registered or required to be registered, and
    • the supplier and the recipient agree that the GST on the supply be payable by the recipient.

    Please note this division only applies to taxable supplies and not taxable importations.

    GST Payable on Taxable Importations Made by Overseas Residents Can be Paid by Local Entities.
    Australian Customs Notice No. 2000/30 says that either the overseas supplier or the local recipient can enter goods for home consumption, and therefore take responsibility for Customs clearance and paying the GST on importations under certain circumstances.

    Duty free importations

    Situation 1 Overseas Supplier elects to account for the GST
    In this Option, the Overseas Supplier retains control of the goods and elects to enter them in his own name at the time of importation. That is, there is an FIS (or DDP = delivered duty paid) supply. As such, two (2) distinct GST transactions are created viz:

    • A Taxable Importation, and
    • A Taxable Supply when the goods are sold by the overseas supplier to the Australian Buyer.

    As such, the following processes are involved:

    The Overseas Supplier is the owner for Customs Entry Purposes and the Importer for the purposes of the GST Act.
    To claim back GST on the taxable importation, the overseas supplier must have an ABN and register for GST. They either pay GST at the time of import, or, if granted deferral, defer.
    They must acquit their BAS each month by claiming the GST as input tax credits (if there has been a creditable importation).
    In relation to the taxable supply, when the overseas supplier invoices the Australian Buyer he must raise a tax invoice on that buyer charging them GST (if the overseas supplier is registered for GST).
    The overseas supplier collects the GST from the Australian Buyer.
    The overseas supplier remits the GST to the ATO in the appropriate accounting period.
    The Australian buyer would claim the GST paid to the overseas supplier as input credits within the appropriate accounting period and would remit any GST charged by them on any sales of the goods made during the same period.

    Situation 2 The Australian Purchaser Elects to Account for GST on the Taxable Supply
    The purchaser and the overseas supplier agree that the GST payable on the taxable supply will be reverse charged to the Australian recipient under Division 83 of the GST Act.

    The Australian purchaser, instead of paying the GST to the overseas supplier, enters it on his Business Activity Statement (BAS) and claims the input tax credit for this amount on the same statement.
    The overseas supplier pays GST on the importation and, if he is registered, claims an input tax credit.

    The overseas supplier still pays GST on the taxable importation and claims input tax credits (if registered).

    Situation 3 The Australian Purchaser Elects to Account for the GST on the Importation.
    Under this option, the Buyer in Australia elects to accept the responsibility to clear the goods in his name. In doing so, the Australian purchaser becomes the importer for the purposes of the GST Act. Such a supply could be FOB or CIF (or DDU = delivered duty unpaid). Hence the supply will not be connected with Australia and will not be a taxable supply.

    The buyer and the overseas supplier enter into an agreement whereby the buyer elects to take on the responsibility for entry of the goods.
    To be able to claim back GST, the buyer must have an ABN and be registered for GST (and make a creditable importation).

    The buyer must pay or defer GST at the time of import. The buyer acquits his BAS each month by claiming GST as input tax credits.

    The buyer remits any GST charged on any subsequent sales of the imported goods made during the accounting period to the ATO when completing his BAS.

    Situation 4 Overseas Supplier elects to appoint an Australian Agent
    There is an option in the above circumstances for the overseas supplier to appoint an Australian Agent to act on their behalf under Division 57. The agent pays GST on taxable importations and taxable supplies made through them and claims input tax credits on these amounts. Under Division 57, the non-resident is still required to be registered, although will not need to lodge BASs.

    Importations Where Duty is Payable
    If the overseas supplier is the importer, there may be both a taxable supply and a taxable importation on the same movement of goods. If a local entity is the importer, the supply will not be connected with Australia and will not be a taxable supply. There will, however, be a taxable importation.

    Situation 1 The Overseas Supplier elects not to appoint an Agent in Australia and retains control of the entry of the goods. (FIS/DDP)
    The same procedure applies in this instance as outlined in Situation 1 for duty free importations.

    Situation 2 Overseas Supplier adopts a reverse charge policy. (CIF/DDU)
    The Overseas Supplier in this instance elects to utilise Division 83 of the GST Act and reverse charge the GST. It is vital to note that any such reverse charge agreement applies only to the taxable supply aspect. As such, there are two (2) processes as follows: -

    Taxable Importation
    The overseas supplier must have an ABN and be registered to claim input tax credits. The overseas supplier pays or defers GST on import.
    The overseas supplier acquits his BAS at the end of each tax period as per normal requirements.

    Taxable Supply
    The overseas supplier enters into a reverse charge agreement with the Australian buyer. The Australian purchaser, instead of paying the GST to the overseas supplier, enters it on his Business Activity Statement (BAS) and claims the input tax credit for this amount on the same statement.

    Situation 3 The Overseas Supplier appoints an Agent in Australia under section 57-5
    As for situation 4 above, there is an option for the overseas supplier to appoint an Australian Agent to act on their behalf under Division 57. The agent pays GST on taxable importations and taxable supplies made through them and claims input tax credits on these amounts. However, under Division 57 the non-resident is still required to be registered.

    8.7 Delivered duty payable (DDP) component

    (a) May the GST component of a delivered duty payable (DDP) invoice be deducted for a taxable importation when determining customs value and the value of the taxable importation (VOTI)?

    (b) Are there any exceptions or variations other than reducing the invoice value to a VOTI plus GST amount and then stripping out the GST?

    a. The amount to be included in customs value is laid down in customs legislation. It does not include any GST payable in Australia. The GST component of a DDP invoice should be deducted for taxable importations when determining customs value and the value of a taxable importation.

    b. The method of arriving at a correct customs value depends on the particular circumstances. However, the reduction of the invoice value to a VOTI plus GST amount and then deduction of the GST is the correct approach.

    8.8 GST status of exports of goods after 60 days

    Items 1 to 4 in Section 38-185(1) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) enables GST-free status to apply to certain exports of goods. The supplies will be GST-free if the goods are exported within 60 days (or such further period as the Commissioner allows) of certain dates such as:

    • the date the supplier receives a particular part of the consideration for the supply
    • the date the supplier gives an invoice for the supply, or
    • the date the supplier gives possession (if it is an aircraft or ship).

    GSTR 2002/6 details the Commissioner's interpretation of items 1-4 in section 38-185(1) GST Act. It was issued in final in December 2002. In its 71 pages, GSTR 2002/6 does not include any commentary to outline ATO policy when the extension of the 60-day period will be granted.

    The ICAA is aware of instances where tax practitioners have applied to the Commissioner to exercise his discretion to grant an extension to the 60-day time period and they have been denied.

    Example

    An entity in the business of manufacturing ocean racing yachts was manufacturing a yacht for an overseas purchaser. The overseas purchaser intends to enter the yacht in a short race in Australia soon after taking possession to enable its fitness for ocean racing purposes to be determined. The manufacturer will inspect the yacht and make repairs and modifications after the race before it is loaded on board a ship for export. This common practice was developed because it is usually not practicable for the purchaser to return a yacht to Australia for warranty repairs, hence the purchaser and manufacturer agree on the process of race then inspection to reveal any defects before the yacht leaves Australia. As a result of the race, the subsequent inspection and repairs and the infrequency of available ships to export single items of non-containerised cargo, the manufacturer is not sure the purchaser will be able to export the goods within the relevant 60 days.

    End of example

    In denying the extension of time the ATO stated the following:

    "The Commissioner will exercise his discretion to extend the period to export goods wherever it is impossible or impractical for the supplier to export the goods within the 60 day period."

    And,

    "Generally, the Commissioner will use his discretion only when the need for an extension was not foreseeable at the time of sale of the goods."

    The ATO also commented that the Commissioner's discretion will rarely be exercised where the goods are used in Australia prior to export.

    Clarification on the following points is sought:

    1. The clarity of the correctness of the above comments in respect of the Commissioner's policy re: granting extensions? Assuming this policy is correct then the ICAA recommends that the GST Ruling be amended to include these views and ATO policy.

    2. It would appear that the 'use' test seems to have been inappropriately transferred to items 1 to 4 from section 38-185(3)(d) GST Act which is a concession applying in certain other circumstances.

    3. Tax Practitioners may be confused by the statement that the Commissioner makes that he will only use the discretion when the need for the extension was not foreseeable at the time of sale because in Example 13 (paragraph 214) of GSTR 2002/6, the Commissioner grants an extension when the need was clearly foreseeable at the time of initial supply.

    4. Example 15 in GSTR 2002/6 is placed immediately before and shortly after sections dealing with the Commissioner's granting of extensions of time for export. It outlines when the 60-day period commences but does not outline the Commissioner's views whether the extension would be granted in the circumstances. GSTR 2002/6 does not include an example of when the Commissioner will grant the extension in respect of export of aircraft and ships. If the statements communicated by the ATO to tax practitioners is correct then ATO policy, it seems, is a missed opportunity for Example 15 not to be taken to its logical conclusion with a clear statement that the Commissioner would not grant the extension if the export was not made within 60 days in the circumstances.

    Further information

    A further response to issues log item - 5.6 GST Status of Exports of Goods after 60 days (ICAA)

    The ATO response stated that:

    "It would not be appropriate to try to incorporate some prescriptive guidance about the use of a discretion in a public ruling."

    The ICAA believes that it is appropriate to include such guidance to provide clarity and certainty to taxpayers. The ICAA also believes that such guidance can be presented in such a way as to provide clarity and certainty for taxpayers without creating an inflexibility for the Commissioner that is detrimental to the revenue. The best examples of that are the multiple rulings that the Commissioner has issued over the last two decades providing guidance when the he will exercise his discretion to remit penalties (for example per section 298-20 of the Tax Administration Act 1953). With respect, the Commissioner must believe it is appropriate and it is his common practice to incorporate prescriptive guidance about the use of his discretions in public rulings.

    The ICAA was calling for the ATO to provide further clarity and guidance in relation to some circumstances of when the Commissioner will exercise his discretion to extend the period to export goods wherever it is impossible or impractical for the supplier or recipient to export those goods within the 60-day period.

    The ATO was seeking examples of instances when the Commissioner has exercised his discretion to retrospectively grant extension of time over and above the standard.

    Below are examples of relevant case laws and interpretative decisions:

    ATO ID's

    ATO ID 2003/713 - CGT small business concessions: extension of time for active asset - shares

    ATO ID 2003/26 - CGT: Small business concessions - Extension of time for active asset test

    ATO ID 2002/42 - Reasonable Benefit Limits: Extension of time to register a transitional reasonable benefit limit (TRBL).

    Case Law

    MLC Investments Ltd v Federal Commissioner of Taxation [2003] FCA 1487

    This case involved a taxpayer seeking apply a substituted accounting period to its entities. The case referred to Taxation Rulings Taxation Ruling IT 2360, IT 2497 etc where they outline for example "circumstances in which leave is granted to adopt an accounting period other than 30 June" and in relation to trusts "Only in the most exceptional circumstances will leave be granted to trusts to adopt substituted accounting periods". The taxpayer was arguing that there was an improper exercise of discretionary power in accordance with rule or policy and without regard to merits of their particular case.

    The case at paragraph 25 outlines that "The essence of the form of improper exercise of power recognised in section 5(2)(f) of the Administrative Decisions (Judicial Review) Act 1977 is that the decision-maker has concentrated attention on implementing a rule or policy to such an extent that he or she has been caused not to give proper consideration to the merits of the particular case".

    Elias v Federal Commissioner of Taxation [2002] FCA 845, 1132

    The taxpayer then applied to defer the time at which the tax was payable, pursuant to section 255-10 of Sch 1 of the Taxation Administration Act 1953 (the TAA 1953). However, the Commissioner refused the application. The Commissioner's decision was based on a Receivables Policy which provides that the Commissioner would 'only' defer payment of tax where the taxpayer was unable to make payment by the due date because of circumstances beyond their control and could demonstrate an ability to pay on the extended due date.

    The case at paragraph 50 expressed that "In determining whether to exercise the section 255-10 the TAA 1953 power the Commissioner is required to consider the circumstances of the taxpayer's particular case. One of those circumstances is that unless the section 255-10 the TAA 1953 power is exercised, GIC would be payable, in this case, from 14 February 2001, unless the applicant is ultimately successful in setting aside the Notice of Assessment. The scope and purpose of the section 255-10 the TAA 1953 powers is such that the Commissioner is entitled to consider, and where appropriate, to balance, the factors, which favour the exercise of the power, as well as the factors, which do not."

    Brown v Federal Commissioner of Taxation (1999) FCA 563

    In this case the taxpayer was the former Minister of Tourism, challenged a decision of the Administrative Appeals Tribunal refusing him an extension of time to lodge an objection against an assessment of income tax for the tax year 1991.

    Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348-50.

    This case concerned the exercise by the Federal Court of its discretion to extend the time for the commencement of proceedings for judicial review of administrative decisions under the Administrative Decisions (Judicial Review) Act 1977 ie "The merits of the substantial application are properly to be taken into account in considering whether an extension of time should be granted."

    At paragraph 47, Hill J stressed that an extension should be granted, "Where the justice of the case requires" and in regard to the explanation for the delay it was held that:

    "While, therefore, the explanation for delay in lodging the objection will be an important factor, it is necessary to bear in mind that the decision maker should take into account all the circumstances of the particular case against the background that Parliament has enacted a procedure to permit extensions of time being granted. An extension should be granted where the justice of the case requires, cf Wedesweiller v Cole (1983) 47 ALR 528 at 531 per Sheppard J, cited with approval in the present context by Sweeney J in Fardon v FC of T 92 ATC 4339 at 4348. Neither the Commissioner nor the Tribunal on review should approach the question of determining whether an extension of time should be granted on the basis that it will only be in an exceptional case that an extension is granted."

    Additionally it was stated that there was no prejudice for the Commissioner to have to correct an assessment, which was based on an incorrect premise. Although the mistake was caused by the applicant's own tax agent and an error in the Land Titles Office, it would be an error of law to refuse an extension of time. The fact that the statute provided the power to extend time was recognition of the fact that the loss of the procedural bar that would normally apply is not a ground for disqualification from seeking an extension.

    Ljubo Maric v Comcare (1993) 40 FCR 244 at 247-249

    In this case O'Loughlin J said, at paragraph 9: "Thus the precondition for the exercise of the discretion is not limited to the question of delay but extends to aspects of fairness and equity."

    He also went on to say that he was "prepared to accept that there may be a case where an applicant might gain an extension of time even though he fails to advance an acceptable explanation of the delay. It is difficult to imagine such a case but it must be remembered that an unfettered discretion should not be tied to any formula; each case must be decided on its merits. With that caveat in mind, the delays in this matter were too great. It would be unreasonable to require the respondent to defend its decisions of 1989 after such a long interval of time."

    Comcare v A'Hearn (1993) 119 ALR 85

    In this case the court pointed out that special circumstances need not be shown but added the caveat that the court will not grant the application unless positively satisfied that it is proper to do so and that the prescribed period, in this case of 28 days, was not to be ignored.

    Wedesweiller v Cole (1983) 47 ALR 528 at 531

    In this case the court held that the enactment of retrospective legislation does not override the principles governing the exercise of the discretion to grant extensions of time for lodgment of objections.

    Federal Commissioner of Taxation v Asiamet (No 1) Resources Pty Ltd & Ors [2004] FCAFC 73

    In this Full Federal Court case the transferee companies requested an extension of time for losses to be transferred from CPF (one of the companies in the group) under section 80G of ITAA 1936 to replace the disallowed losses. The Commissioner refused the requests, relying on the policy set out in Ruling TR 98/12. That ruling states that the application of Pt IVA of the ITAA 1936 "generally weighs heavily against a favourable exercise" of the discretion to grant an extension of time for a group loss transfer.

    In reaching their decision the Full Federal Court disagreed with the trial judge's view that to disallow an extension of time substantially on the basis of the application of Pt IVA ITAA 1936 was to give an impermissibly extended operation to Pt IVA ITAA 1936.

    Practice Statements

    Confidential Draft Practice Statement: Administration of penalties under the new tax system.

    ATO response

    It is correct that broadly the Commissioner will exercise his discretion to extend the period to export goods wherever it is impossible or impractical for the supplier or recipient to export those goods within the 60-day period. This is consistent with, although more narrowly expressed than, paragraph 212 of GSTR 2002/6 which states that "[t]he Commissioner will exercise this discretion where there are physical, practical or commercial circumstances which reasonably explain the delay, provided the Commissioner is satisfied that the goods will be exported."

    The broad position has also been qualified in instances to the effect that applicants should not expect extensions will be granted when the need for extensions was foreseeable at the time of sale of the goods. This is consistent with the view that goods are generally exported promptly and usually within 60 days as contemplated by the legislation.

    The ATO notes that a consistent theme in the case law examples provided by the ICAA is that each matter should be decided on its own merits and that a discretion should not be tied to a prescriptive formula. The ATO concurs with this view which is why it is reluctant to provide further additional guidance about when the discretion will or will not be used to avoid the inadvertent creation of a formula. The ATO can assure the public that each case is considered on its own merits in considering the application of the discretion.

    As each case must be considered on its own merits, examination of isolated statements from individual private rulings where the full facts are not available to all parties is not a particularly useful course of action.

    Use test

    The queries about whether the 'use' test has been inappropriately transferred from ss. 38-185(3) to ss. 38-185(1) are in the context of a particular private ruling and it would be inappropriate to comment on that particular matter.

    However, a general comment in relation to the 'use' test in ss. 38-185(3), is that if the parties to a transaction are subject to ss. 38-185(3) then this explicitly incorporates the 'use' test into Items 1 or 2 of ss. 38-185(1).

    If ss.38-185(3) is not applied, the 'use' test is not in ss. 38-185(1) under any item. The supplier (under Items 1 and 2) or the purchaser (under Items 3 and 4) would be able to use the goods prior to export and the export will still be regarded as GST-free provided export were within the 60-day period.

    However, the ATO notes that the need or desire of the supplier or recipient to use the goods before export would not, of itself, generally be sufficient grounds to grant an extension of time for export beyond the 60 days allowed in the legislation.

    In the area of customised goods it may be prudent that any demonstration that the goods are fit for purpose, if required, is undertaken by the supplier before the goods are supplied to the recipient. This would tend to enable both the supplier and recipient to be satisfied that the goods are fit for purpose before the supply for export is undertaken, allowing a full 60 days for the goods to leave Australia.

    Confusion with example 13 of GSTR 2002/6

    As noted above, practitioners will recognise that each use of the discretion to extend the period of time for export needs to be considered own its own merits and so great care must be taken when looking at isolated words in a private ruling for a different party and where the full facts are not available.

    However, looking at the words about the Commissioner exercising his discretion where it is impossible to export the goods and the qualifying words that the discretion will not generally be used where the need for the extension was foreseeable, and applying these words to example 13 in GSTR 2002/6, we arrive at the same outcome.

    In example 13 it is impossible for the later editions of the magazine to be exported within 60 days of the annual subscription so it would be reasonable to grant the extension. This is tempered by the fact that the need for the extension was foreseeable and this needs to be considered. However, on the merits of the case, that the impossibility of export was as a result of a long established, widespread and well-understood commercial practice of magazine subscriptions and that the foreseeability is just a by-product of this commercial practice, it is still reasonable to grant the extension of time.

    To contrast, if the magazines had been ordered as 12 separate monthly orders, the ATO would expect the magazines to be exported each month within 60 days of the earlier of either; the supplier receiving any consideration or the supplier issuing an invoice for the supply.

    Example 15 and possible amendments to GSTR 2002/6

    Examples are included in public rulings to illustrate particular points. Example 15 in GSTR 2002/6 is about the meaning of the words 'taking physical possession of it' in item 3 of ss. 38-185(1). Example 13 is an example dealing with extensions of time.

    The ATO has no plans to amend GSTR 2002/6 at this time. If GSTR 2002/6 is amended or replaced by another public ruling, the ATO can consider whether further examples about extensions of time may be beneficial, weighed against the need not to inadvertently create prescriptive formulas about the use of a discretion.

      Last modified: 22 May 2014QC 28063