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Ruling

Subject: supply of goods by way of lease

Question

Do you make a taxable supply when you lease goods to the recipient?

Decision

No, you do not make a taxable supply when you lease the goods to the recipient.

Relevant facts and circumstances

You are a non-resident company. You do not have an office or any employees in Australia and do not have an ABN or a Tax File number and are not registered for GST in Australia.

You lease the goods to the recipient, and the contractual arrangements were largely negotiated and entered into with the recipient outside of Australia.

The goods may be situated at any of a number of locations around the world depending on the recipient's operational requirements.

The lease document states that the expected delivery location for the goods to be outside of Australia. You do not direct or otherwise require that the goods be used by the recipient in Australia.

The Lease Agreement states that the recipient (as lessee) has operational control over the goods (that is, it will determine where the goods are to be located and will conduct the necessary repairs and maintenance and will assume all associated risks of damage and loss). Your activities are therefore primarily confined to the collection of lease payments.

You are not responsible for bringing any of the goods into Australia. At the time of your entering into the relevant lease agreement, all of the goods were located offshore. However, you have been advised by the recipient that the recipient may bring the goods into Australia when their operational requirements require them to do so. In which case, the recipient will be responsible for import or export of the goods as required.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5(a)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 (c)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-25(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-25(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 9-25(3)

ATO view documents

GSTR 2000/31

Reasons for decision

A supply will be a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied. Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply *is connected with Australia; and

(d) you are *registered or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed

(* denotes a defined term under section 195-1 of the GST Act)

Based on the facts provided, you satisfy the requirements under paragraphs 9-5(a) and 9-5(b) of the GST Act as your supply of leasing the goods to the recipient is for consideration and the supply is made in the course of an enterprise that you carry on.

The next step we need to consider is whether your supply of leasing the goods is connected with Australia (paragraph 9-5(c) of the GST Act).

Connected with Australia:

Paragraphs 110, 111 and 114 of Goods and Services Tax Ruling GSTR 2000/31 discuss a supply of goods by way of lease as follows:

110. Where tangible personal property is the subject of a lease or hire arrangement the GST Act contemplates that the supply is a supply of goods rather than the supply of use of the goods. For example, section 38-187 provides that a supply of goods is GST-free if the supply is by way of lease or hire and the goods are used outside Australia.

111. Further, a supply of goods by way of lease involves goods being made available on an on-going basis to the lessee. The treatment of a supply of goods by way of a lease as a supply of goods is consistent with the notion that a supply of goods is connected with Australia, if the goods are delivered, or made available, in Australia to the recipient of the supply.

114. We consider that the better view is that a supply of goods by way of lease or hire is a supply of goods and not a supply of a thing that is a supply of the use of the goods. This means that for the purposes of determining whether a supply of goods by way of lease or hire is connected with Australia, the relevant subsections are subsections 9-25(1), (2) and (3), which set out when a supply of goods is connected with Australia.

Hence your supply of leasing the goods to the recipient is a supply of goods. Subsections 9-25(1), (2) and (3) of the GST Act state as follows:

· 9-25 Supplies connected with Australia

Supplies of goods wholly within Australia

A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply.

Supplies of goods from Australia

(2) A supply of goods that involves the goods being removed from Australia is connected with Australia.

Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

From the facts in the leasing arrangement, the goods were located outside of Australia at the time of the Lease Agreement. The location of the goods at any point in time during the lease depends on the recipient's service and operational requirements. The recipient advises you (as the current lessor) that according to their operational requirements, they are likely to move some of the goods into Australia at some point in time.

Paragraphs 118, 119, 120 and 129 of GSTR 2000/31 state as follows:

118. In the context of subsection 9-25(1) the phrase 'delivered, or made available' takes the meaning that the goods are either physically delivered, or if not physically delivered, physically made available in Australia.

119. Made available refers to the situation where goods are not actually delivered to the recipient but rather the supplier makes the goods physically available to the recipient in Australia. For example, a supplier may make goods available for collection by the recipient. This is the case where a supplier of sand sells a load of sand to a customer and the customer takes away the sand which the supplier makes available.

120. Thus, goods are 'delivered' in Australia if the goods are actually physically delivered in Australia. Goods are made available in Australia if the goods are physically available for the recipient in Australia. Both 'delivered' and 'made available' look at the place where the physical goods are at the relevant time.

129. A supply of goods that involves the recipient importing the goods into Australia is not connected with Australia under subsection 9-25(1) as the goods are not delivered, or made available, in Australia to the recipient of the supply. Also, the supply of goods is not connected with Australia under paragraph 9-25(3)(a) because the supplier does not import the goods. However, the recipient importer will make a taxable importation.

We do not consider that the goods you lease to the recipient were delivered, or made available, in Australia to the recipient. Therefore you do not satisfy subsection 9-25(1) of the GST Act.

Your supply of leasing the goods does not involve the goods being removed from Australia or brought into Australia for the purpose of leasing since no clauses in the respective lease agreement specify this requirement. The recipient has the right to remove the goods from Australia or bring the goods into Australia for their operational requirements, and the subsequent entry/exit of the goods would amount to taxable importation/export by the recipient. The Lease Agreement states that the recipient is the exporter or importer of record if and when required.

In addition, you are not responsible for installing or assembling the goods in Australia, it is the recipient who does this in their maintenance centres in Australia. Hence you do not satisfy subsection 9-25(2) nor 9-25(3) of the GST Act.

Therefore, your supply of the leasing of the goods is not connected with Australia.

We do not need to discuss whether you are required to be registered for GST or not.

In any case, you are required to be registered for GST when you meet the GST turnover threshold, and in calculating your current GST turnover and projected GST turnover, supplies that are not connected with Australia are excluded from the calculation.

Taxable importation

You do not make the taxable importation according to the Lease Agreement. Paragraphs 140 to 144 of Goods and Services Tax Ruling GSTR 2000/31 demonstrate that if the arrangement between the parties does not involve the goods being brought to Australia and the supplier is not the party which imports the goods into Australia, then the supply is not connected with Australia.

140. US Co, a US company sells a tractor to Tract Co, an Australian earthmoving operator, on a DDP basis. US Co has to import the tractor into Australia. The supply made by US Co to Tract Co is a supply connected with Australia as the tractor (goods) is brought to Australia and it is US Co (the supplier) that imports it into Australia.

141. If a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia. The supply is not a taxable supply under section 9-5. However, the importation is a taxable importation and the recipient is liable to pay GST on the taxable importation.

Example 13 - Goods imported into Australia by recipient

142. If in Example 12 US Co sells the tractor to Tract Co on an FOB basis, the tractor is imported into Australia by the recipient and the supply of the tractor is not connected with Australia under paragraph 9-25(3)(a). As the tractor is not delivered, or made available, in Australia to Tract Co, the supply of the tractor is not connected with Australia under subsection 9-25(1). However, the supply is a taxable importation made by Tract Co and Tract Co is liable to pay GST on the taxable importation.

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