Edited version of your private ruling

Authorisation Number: 1012485662604

Ruling

Subject: GST and sales on the high seas

Question 1

Are your supplies of goods to passengers and crew onboard a ship (onboard sales) on an international voyage, GST-free throughout the entire voyage pursuant to item 5 of subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (Item 5) regardless of whether the ship is within Australia's coastal areas (i.e. the 12 nautical mile limit)?

Answer

Your onboard sales of items that can be classified as 'ship's stores' will be GST-free throughout the entire voyage pursuant to Item 5 regardless of whether the ship is within Australia's coastal areas.

Question 2

Specifically, are the onboard sales made by you to passengers and crew on the cruise GST-free throughout the entire voyage pursuant to Item 5, notwithstanding that the voyage includes several domestic destinations prior to, and subsequent to, the international destination?

Answer

Your onboard sales of items that can be classified as 'ship's stores' will be GST-free throughout the entire voyage pursuant to Item 5 notwithstanding that the voyage includes several domestic destinations prior to, and subsequent to, the international destination.

Question 3

If not, are onboard sales made by you when the ship is outside the 12 nautical mile limit supplies that are not connected with Australia under section 9-25 of the GST Act?

Answer

Yes.

Relevant facts and circumstances

You offer a variety of merchandise for sale to passengers and crew in your onboard gift shops.

The Australian Customs and Border Protection Service (Customs) has confirmed that the cruise was an international voyage for the purposes of section 130C of the Customs Act 1901.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-185

Customs Act 1901 section 5C

Customs Act 1901 section 130A

Seas and Submerged Lands Act 1973 section 7

Reasons for decision

Issue 1

Questions 1 and 2

Summary

Your onboard sales will be GST-free throughout the entire voyage pursuant to Item 5 where the goods sold can be classified as 'ship's stores'.

Detailed reasoning

The onboard sale of ship's stores is a GST-free export of goods where item 5 in the table in subsection 38-185(1) of the GST Act (Item 5) is satisfied. Item 5 requires that:

· there is a supply of goods that are ship's stores;

· the goods are for use or consumption on a ship; and

· the ship is on a voyage which has a destination outside Australia (international voyage).

In this case the ship is on an international voyage, therefore the third requirement is met. To meet Item 5 goods sold through a retail store on board must be properly regarded as 'ship's stores'. If the goods are of a type capable of being 'ship's stores' those goods must be supplied for the purpose of being used or consumed on board the ship by in this instance, the purchaser.

'Ship's stores' takes its meaning from section 130C of the Customs Act 1901 and is defined as 'stores for the use of the passengers or crew of a ship, or for the service of the ship'.

Paragraph 29 of Goods and Services Tax Ruling GSTR 2003/4 notes that goods of a type normally considered to be ship's stores are general provisions for the comfort and consumption of passengers and crew whilst they are on board the ship and consumables necessary for the operation and maintenance of the ship. Accordingly goods that are intended to be consumed by a person on board the ship such as food, water, beverages and tobacco, and goods that are intended to be consumed in the operation and maintenance of the ship such as fuel, are commonly regarded as ship's stores as noted in paragraph 12 of GSTR 2003/4.

Further, goods that are in the nature of general provisions including hygiene and medicinal products, accessories of a protective nature such as sunscreens, clothing relevant to a cruise, batteries for electronic goods and souvenir items are ship's stores for the purposes of Item 5

Durable goods

Durable goods have a long life span and usage period, therefore it can be expected that these types of goods will be removed from the ship by the purchaser and used over a long period of time beyond the cruise.

Goods sold that are of a durable nature will not be ship's stores if it cannot be established that the goods are specifically for the purchaser's use on the cruise. 'Use' in this context would include goods that make the cruise more comfortable for example a towel or sunhat, and excludes goods that are mainly more relevant to use after the cruise.

The supply of a beach towel on luxury cruise ship that has a swimming pool or the supply of a sunhat would be durable items that would be GST-free ship's stores because these goods would specifically be for the purchaser's use on the cruise.

Accordingly, durable goods such as fashion clothing and accessories, electronic goods, and jewellery sold on board are not ship's stores because they would be mainly relevant to use after the cruise. It follows that these goods cannot be supplied GST-free pursuant to Item 5.

Consumables

Alcohol and tobacco are normally considered to be stores when they are supplied for the consumption of passengers and crew whilst on board the ship. Where it is known when the goods are sold that the goods will not actually be used or consumed on board, for example bottles of alcohol and cartons of cigarettes which must be taken ashore when the passenger disembarks, the goods are not ship's stores and cannot be supplied GST-free pursuant to Item 5.

Consumable

These goods are sold in quantities whereby it is not reasonable to expect that they will be substantially consumed on board the ship on a cruise of a short duration. Therefore, goods of this kind are not in the nature of general provisions and are therefore not capable of being stores. Accordingly these items cannot be supplied GST-free pursuant to Item 5.

Question 3

Summary

Onboard sales made by you when the ship is outside the 12 nautical mile limit are not supplies connected with Australia under section 9-25 of the GST Act.

Detailed reasoning

Subsection 9-25(1) of the GST Act states 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.

Once outside Australia's 12 nautical mile limit, onboard sales cannot engender the goods to be delivered or made available to recipients in Australia. Australia is defined in the section 195-1 of the GST Act as follows:

Australia does not include any external Territory. However, it includes an installation (within the meaning of the Customs Act 1901) that is deemed by section 5C of the Customs Act 1901 to be part of Australia.

Australia therefore includes the entire land territory of Australia, and Australia's coastal areas and sea bed, but not any external Territories, such as Norfolk Island, Christmas Island or the Australian Antarctic Territory. Under section 5C of the Customs Act 1901, Australia also includes sea and resources installations (such as oil or gas rigs) that are attached to the sea bed within the territorial boundaries of Australia, or to an adjacent area or coastal area as defined in that Act, as note in paragraph 50 of GSTR 2003/4.

The territorial limit of the coastal seas surrounding Australia is 12 nautical miles from the territorial sea baseline of Australian land masses. This was established by proclamation under section 7 of the Seas and Submerged Lands Act 1973.

Onboard sales made beyond the 12 nautical mile limit are not connected with Australia and therefore not drawn into the GST system.

Export provisions in GST law

Item 1 allows for a GST-free supply of goods if the supplier exports those goods within 60 days of:

· the day on which it receives any of the consideration for the supply; or

· if an invoice is issued by the supplier earlier than any payment is received, the day the invoice is given.

Subsection 38-185(3) of the GST Act modifies the requirements of Item 1 somewhat, allowing supplies to remain GST-free in cases where the ships customers are the exporters. Subsection 38-185(3) of the GST Act places the following conditions on the ships supply:

(a) before the goods are exported, the supplier supplies them to an entity that is not *registered or required to be registered; and

(b) that entity exports the goods from Australia; and

(c) the goods have been entered for export within the meaning of section 113 of the Customs Act 1901; and

(d) 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

(e) the supplier has sufficient documentary evidence to show that the goods were exported; and

(f) if that entity is covered by paragraph 168-5(1A)(c)-the supplier has a declaration by that entity stating that:

(i) a payment has not been sought under section 168-5 for the supply; and

(ii) if the goods are wine (within the meaning of the A New Tax System (Wine Equalisation Tax) Act 1999) a payment has not been sought under section 25-5 of that Act for the supply.

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

Note: The entity will be covered by paragraph 168-5(1A)(c) if the entity is an individual who resides in an external Territory.

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