ATO Interpretative Decision
ATO ID 2002/530
Goods and Services Tax
GST and receipt of consideration for the export of woolFOI status: may be released
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With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, a wool exporter, receiving consideration for its supply of wool on the day that it receives a conditional letter of credit from the purchaser, for the purposes of determining the commencement of the 60 days referred to in item 1 in the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Decision
No, the entity is not receiving consideration for its supply of wool on the day that it receives a conditional letter of credit from the purchaser, for the purposes of determining the commencement of the 60 days referred to in item 1 in the table in subsection 38-185(1) of the GST Act (Item 1).
The entity receives consideration when it draws on the letter of credit.
Facts
The entity is a wool exporter. The entity enters into a sale agreement with an overseas buyer. This initial agreement specifies the approximate quantity and quality of wool that is to be sold and exported to the overseas buyer.
The entity later provides the buyer with written advice of the exact details of the quantity and quality of the wool available and the total price.
The overseas buyer then issues a letter of credit to the entity. A letter of credit is a letter written by one banker or merchant to another, requesting an extension of credit to the person named therein, up to a specified amount.
The letter of credit issued to the entity, is subject to various conditions that do not permit the entity to draw on the letter of credit until the entity supplies the overseas buyer's financial institution with formal export documentation (such as an on board bill of lading, a signed commercial invoice for the wool and details of marine insurance of the vessel).
The wool is then loaded for export and the entity prepares a commercial invoice. At this point, the entity also provides the overseas buyer's financial institution with the relevant export documentation and draws on the letter of credit.
The wool is then delivered to the overseas buyer.
The entity is registered for goods and services tax (GST).
Reasons for Decision
Item 1 provides that a supply of goods is GST-free, if the supplier exports the goods from Australia before, or within 60 days (or such further time as the Commissioner allows) after:
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- the day on which the supplier receives any of the consideration for the supply; or
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- if, on an earlier day, the supplier gives an invoice for the supply - the day on which the supplier gives the invoice.
Therefore, it must be determined whether the entity is receiving consideration when it receives a letter of credit that is not able to be drawn upon until the entity provides the overseas buyer's financial institution with the relevant export documentation.
A conditional letter of credit is merely proof given to the supplier that funds will be available for the anticipated purchase. These funds can only be accessed by the supplier when the conditions of the letter of credit are fulfilled.
GSTR 2003/12 discusses when consideration is provided and received, for various payment instruments and other methods of payment. In relation to 'direct credit' arrangements (which are initiated by the recipient of the supply), paragraph 33 of GSTR 2003/12 states that consideration is provided on the date the the payment is authorised by the recipient, and consideration is received when the payment is credited to the supplier's account.
As a letter of credit is sufficiently similar to a direct credit arrangement, the principle in paragraph 33 of GSTR 2003/12 may be equally applied. The letter of credit does not authorise payment to the entity until the entity fulfils certain requirements. Therefore, the entity did not receive consideration when it received the letter of credit, because payment was not authorised at that stage. The entity received consideration when it presented the overseas buyer's financial institution with the relevant export documentation, and was then allowed to draw on the letter of credit.
Therefore, the entity is not receiving consideration for its supply of wool on the day that it receives a conditional letter of credit from the purchaser, for the purposes of determining the commencement of the 60 days referred to in Item 1. The entity receives consideration when it draws on the letter of credit.
Date of decision: 21 January 2001
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
subsection 38-185(1) table item 1
Related Public Rulings (including Determinations)
GSTR 2003/12
ATO ID 2002/531
Keywords
Goods & services tax
Exports
Export of goods
GST supplies & acquisitions
GST consideration
ISSN: 1445-2782