Edited version of your private ruling

Authorisation Number: 1012541160061

Ruling

Subject: GST and supplies of goods and services made onboard cruise ships

Question 1

Are supplies of goods by Aus Co on domestic journeys made whilst the ships are outside Australia's 12 nautical mile limit, connected with Australia pursuant to section 9-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and therefore taxable supplies under section 9-5 of the GST Act?

Answer

No. As the ship is outside the 12 nautical mile limit the goods being supplied are not connected with Australia under section 9-25 of the GST Act. Accordingly the supplies of goods made by Aus Co are not taxable supplies under section 9-5 of the GST Act.

Question 2

Are supplies of goods by Aus Co on domestic journeys made whilst the ships are within Australia's 12 nautical mile limit, connected with Australia pursuant to section 9-25 of the GST Act and therefore taxable supplies under section 9-5 of the GST Act?

Answer

Yes. The supplies of goods made on domestic cruises whilst the ship is inside the 12 nautical mile limit are connected with Australia under section 9-25. Accordingly the supplies of goods made by Aus Co are taxable supplies under section 9-5 of the GST Act.

Question 3

Are supplies of goods by Aus Co on an international voyage, always GST-free pursuant to item 5 of subsection 38-185 (1) of the GST Act (Item 5) regardless of whether the ship is within Australia's 12 nautical mile limit?

Answer

The goods supplied by Aus Co on an international voyage, 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 12 nautical mile limit.

Question 4

Are supplies of onboard services by Aus Co on both domestic and international journeys GST-free under section 38-190(1) of the GST Act, where the services are provided whilst the ship is outside the 12 nautical mile limit?

Answer

The services supplied by Aus Co on both domestic and international journeys are GST-free under section 38-190(1) where the services are provided whilst the ship is outside the 12 nautical mile limit.

Relevant facts and circumstances

Aus Co is a cruise company group and operates under a listed company structure.

Aus Co portfolio of cruise brands are operated by a number of group subsidiary entities (ship operators), that provide transportation to passengers embarking in Australia.

All the ship operators are registered for GST.

All the ship operators are non-residents of Australia.

Aus Co has established an Australian branch that performs sales, operational and administrative functions ancillary to its operation of overseas ships.

Aus Co predominantly provides international passenger transport on cruises with destinations outside Australia. However, Aus Co's itineraries also include a range of international and domestic cruises. For the purpose of this ruling request the cruises can be classified as follows:

International Cruises

The International cruises operated by Aus Co which are the subject of the ruling request have the following features:

· A voyage that starts or ends at a port outside Australia, or

· a voyage that starts and ends at a port inside Australia and has an intermediate stop at a destination outside Australia where passengers can disembark the vessel, whether or not that voyage also transports passengers between places in Australia; or

· the ship lays anchor at one or more places which are either outside Australia or an external Territory of Australia.

Domestic Cruises

The Domestic cruises operated by Aus Co which are the subject of the ruling request have the following features:

· the cruise starts and ends the cruise at a port located in Australia; and

· the ship travels for a significant or predominant portion of the total voyage (having regard to the distance travelled) in international waters outside Australia; and

· the ship does not lay anchor at any destination or port outside Australia's 12 nautical mile limit (i.e. 12 nautical miles beyond the territorial sea baseline of Australian land masses); and

· the ship may or may not stop at one or more other Australian ports during the voyage.

Sale of goods and services on cruises

Aus Co sells 'all-inclusive tickets to passengers for the cruises. The ticket entitles the passenger to embark on the cruise, disembark at intermediate ports and embark for transit to the next port of call, accommodation, food and certain other goods and services provided throughout the cruise (for example access to live entertainment events and sports facilities). No additional fee is payable for these goods and services.

In addition Aus Co makes optional onboard supplies of goods and services to passengers (and crew) during the voyages. The passenger or crew are required to pay for these goods and services in addition to the original ticket price, these supplies may include:

(a) meals at alternative restaurants

(b) beverages (including alcohol)

(c) souvenir photos

(d) babysitting

(e) medical services (specifically, emergency treatment or clinic consultation by doctors and nurses, in respect of medical conditions arising onboard) and

(f) laundry services.

We confirm that with respect to question 4 of the private ruling request, you have asked us to consider the application of items 2 and 3 of section 38-190(1) of the GST Act on the basis that the relevant supplies are connected with Australia.

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 subsection 38-185(1),

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1) and

A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decisions

Taxable supply

GST is payable on a taxable supply.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

(a) you make the supply for consideration;

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

(c) the supply is connected with Australia; and

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

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

From the facts provided, you satisfy part of the requirements of the taxable supply under paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act as follows:

(a) you supply the goods in return for consideration by way of payments;

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

(d) you are registered for GST.

To determine if a supply is connected with Australia under paragraph 9-5(c) of the GST Act, we need to consider the definition of connected with Australia in section 9-25 of the GST Act.

9-25 Supplies connected with Australia

Supplies of goods wholly within Australia

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

'Australia' is defined in 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.

'External territory' is not defined in the GST Act, but is defined in section 2B of the Acts Interpretation Act 1901 (AIA) as a Territory, other than an internal Territory where an Act makes provision for the government of the Territory as a Territory. Christmas Island, Cocos (Keeling) Islands and Norfolk Island are external Territories. 'Internal Territory' is defined in section 2B of the AIA as the Australian Capital Territory, the Northern Territory, and the Jervis Bay Territory. Section 2B of the AIA also defines 'Australia' to mean the Commonwealth of Australia and, when used in a geographical sense, includes the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands, but does not include any other external Territory, but the specific definition of 'Australia' in section 195-1 of the GST Act (which does not include an external Territory) would prevail for GST purposes.

Subsection 15B(2) of the AIA states that a reference in an Act to Australia is taken to include a reference to the coastal sea of Australia and paragraph 15B(4)(a) of the AIA defines 'coastal sea' in relation to Australia as the territorial sea of Australia, the sea on the landward side of the territorial sea of Australia and not within the limits of a State or internal Territory and includes the airspace over and the sea bed and subsoil beneath any such sea. Article 3 in Part II of the United Nations Convention on the Law of the Sea (Convention) grants every State the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles measured from baselines determined in accordance with the Convention. Section 6 of the Seas and Submerged Lands (Territorial Sea Baseline) Proclamation 2006 (Proclamation), made pursuant to section 7 of the Seas and Submerged Lands Act 1973, sets the baseline around mainland Australia from which the breadth of the territorial sea is to be measured as the low-water mark on the coast. Section 7 of the Proclamation sets a similar baseline for Tasmania.

Goods and Services Tax Ruling GSTR 2003/4 refers to the definition of 'Australia' in section 195-1 of the GST Act and summarises the effect of the provisions discussed above (paragraph 50):

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, 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.

You have asked us to rule on supplies of goods to your passengers on a domestic journey, whilst the ship is outside the 12 nautical mile limit. Therefore the goods are not delivered or made available to the recipient in Australia and thus the goods are not connected with Australia.

As this supply of the goods is not connected with Australia under paragraph 9-5(c) of the GST Act, it does not satisfy all of the elements of section 9-5 and is not a taxable supply.

Question 2

Detailed reasoning

We refer to the response in answer to question 1 and specifically the discussion concerning sections 9-5 and 9-25 of the GST Act.

Aus Co is supplying goods on board the ships whilst the ships are inside Australia's 12 nautical mile limit. Accordingly the goods are delivered or made available to the passenger in Australia. Thus this supply of goods by Aus Co to the passengers is connected with Australia under paragraph 9-5(c) of the GST Act.

As the supply of goods satisfies all of the elements of section 9-5 of the GST Act, this supply of goods is a taxable supply.

Question 3

Summary

Aus Co's onboard sales of goods will be GST-free throughout the entire voyage pursuant to Item 5 where the goods sold can be classified as 'ships 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 states:

38-185 Exports of goods  

(1)  

The third column of this table sets out supplies that are GST-free:

To summarise, Item 5 requires that:

· There is a supply of goods that are ships 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 satisfy Item 5 goods sold onboard 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 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 by 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 - fashion clothing and accessories, electronic goods, and jewellery

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 more relevant to use after the cruise.

The supply of a beach towel on a 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.

However, 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 that is not made available for consumption during the cruise

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 - Perfumes and cosmetics

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 4

Summary

Aus Co 's onboard supply of services will be GST-free pursuant to section 38-190(1) where the services are provided whilst the ship is outside the 12 nautical mile limit.

Detailed reasoning

Items 2 and 3 in subsection 38-190(1)

In the ruling request it was submitted that the supply of services made by Aus Co on domestic and international journeys, whilst the ship is outside the 12 nautical mile limit will be a GST-free supply pursuant to Item 2 and 3 in the table in subsection 38-190(1) of the GST Act (Item 2 and Item 3):

38-190    Supplies of things, other than goods or real property, for consumption outside Australia  

(1) The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or *real property):

An important issue in the application of these items is when is a supply made to a non-resident (or other recipient of a supply) who is 'not in Australia' or 'outside Australia' 'when the thing supplied is done'.

For the purposes of items 2 and 3 it is also necessary to determine when the thing supplied is 'done'. GSTR 2004/7 states (Para 199) that if the thing supplied is a service, 'the thing supplied is done' during the period of time when the service is performed. We consider the supply of a service whilst on board the ship is done at the time the service is performed.

Paragraph (a) of item 2

A supply is made for the purposes of Item 2 if the supply is made to an entity that is a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936. It is a requirement that the recipient of the supply is a non-resident entity.

'Recipient' is defined in section 195-1 of the GST Act to mean, in relation to a supply, the entity to which the supply is made. An entity is defined in subsection 184-1(1) to include an 'individual' and 'individual' is defined in section 195-1 to mean a natural person.

Paragraph (b) of item 2

It is also a requirement of paragraph (b) of Item 2 that if the non-resident is an entity that they acquire the service in carrying on the non-residents enterprise, but they are not registered or required to be registered for GST purposes in Australia.

Where the passenger on a ship is a non-resident for GST purposes, and the services are performed outside the 12 nautical mile limit, the services are performed whilst the recipient is not in Australia.

Where the recipient is not in Australia and is not registered or required to be registered then Item 2 may apply.

Paragraph (a) of item 3

Paragraph (a) of item 3 requires that the supply of things other than goods or real property is made to a recipient who is not in Australia when the thing supplied is done. Goods and Services Tax Ruling GSTR 2004/7 states (Para 181) that this requirement is in effect a proxy test for determining where the supply is consumed. The presumption is that if the recipient of the supply is 'not in Australia' when the thing supplied is done, the supply of that thing is for consumption outside Australia and is GST-free, provided the other requirements of item 3 are met. It is not a requirement of item 3 that the recipient is a non-resident entity.

GSTR 2004/7 discusses how to determine whether a recipient of the relevant supply who is an individual is 'in Australia' for the purposes of item 3 in subsection 38-190(1) (Para 221):

Item 3 requires that the individual to whom a supply is made is not in Australia when the thing supplied is done and, as explained at paragraphs 202 to 213 in relation to item 2 and paragraph (b) of item 4, we consider that the physical presence of an individual establishes whether that individual is in Australia when the thing supplied is done. However, unlike item 2, item 3 may apply whether the recipient of the supply is a resident of Australia or a non-resident.

GSTR 2004/7 also states (Para 222) that an Australian resident individual (i.e. an individual who is a resident of Australia as defined in subsection 6(1) of the Income Tax Assessment Act 1936, i.e. an individual who resides in Australia, including a person whose domicile is in Australia (unless the Commissioner is satisfied that his permanent place of abode is outside Australia)) is 'in Australia' for the purposes of item 3 if the individual is physically located in Australia when the thing supplied is done. GSTR 2004/7 further states (Para 224) that if a supply is made to a non-resident individual who is physically in Australia when the thing supplied is done, the non-resident individual is 'in Australia' for the purposes of paragraph (a) of item 3 if the non-resident individual is in Australia in relation to that supply. Applying the tests set out in GSTR 2004/7 (Paras 214-220) for whether an individual is in Australia in relation to a supply (i.e. whether the non-resident individuals' presence in Australia at the relevant time is merely coincidental and whether there is any contact (other than contact of a minor nature) with the supplier), we consider that the presence in Australia of a non-resident recipient, would be in relation to the supply of services on the cruise.

We therefore consider that, for the purposes of paragraph (a) in item 3, the supply of a service is made to a resident or non-resident recipient who is not in Australia when the thing supplied is done to the extent that the relevant ship is more than 12 nautical miles from the relevant territorial sea baseline during that cruise.

Paragraph (b) of item 3

Paragraph (b) of item 3 in subsection 38-190(1) requires that the effective use or enjoyment of the supply of things other than goods or real property takes place outside Australia. Goods and Services Tax Ruling GSTR 2007/2 deals with the application of paragraph (b) of item 3. For the purposes of determining where the effective use or enjoyment of a supply takes place GSTR 2007/2 distinguishes (Paras 38-42) between:

the entity to which a supply is made contractually (the recipient); and

the entity to which that supply is actually provided (the providee entity)

and acknowledges that a supply may be made to one entity and provided to another entity. GSTR 2007/2 then sets out the method for determining whether effective use or enjoyment of a supply takes place outside Australia (Para 49):

Thus to work out whether effective use or enjoyment of a supply takes place outside Australia we take a two step approach. First, we determine the entity to which the supply is provided - the providee entity (we explain how to determine this at paragraphs 52 to 81). We then determine whether provision of the supply to the providee entity is outside Australia (we explain how to determine this at paragraphs 82 to 136). Effective use or enjoyment of the supply takes place outside Australia if there is provision of the supply to the providee entity outside Australia.

For the purposes of the first step, GSTR 2007/2 identifies the providee entity by distinguishing between the contractual flow and the actual flow of the relevant supply. The supply of services is made by Aus Co directly to the passengers.

The second step in paragraph 49 of GSTR 2007/2 is to determine where provision of the supply of services made by Aus Co to the providee entity takes place. GSTR 2007/2 states (Para 88):

A supply is provided as and when the thing supplied is done. This is the relevant time for determining whether a supply is provided to an entity in Australia or outside Australia and thus whether effective use or enjoyment of the supply takes place outside Australia.

and (Para 91):

To determine whether effective use or enjoyment of a supply by a providee that is an individual takes place outside Australia, we determine whether there is provision of the supply to the individual in Australia or outside Australia. Only if there is provision of the supply to the individual outside Australia does effective use or enjoyment take place outside Australia.

Where the providee entity is an individual, the place where effective use or enjoyment takes place is determined by both where that individual is physically located and whether that individual's presence is integral to the provision of the supply. GSTR 2007/2 states (Para 295) that one indicator that an individual's presence at a particular location is integral to the provision of a supply is that the individual's presence at that location is integral to the performance, receipt, or delivery of the supply.

In the case of a supply of services on a cruise which is the subject of the ruling request it is in the nature of what is being supplied by Aus Co and that supply is provided to each passenger and the passenger's presence on board the relevant ship is integral to the performance, receipt and delivery of that supply. Consequently, applying the Ruling section of GSTR 2007/2, paragraph (b) of item 3 is or is not satisfied in relation to the supply of services onboard a cruise by Aus Co to a providee entity (passenger) as follows:

GSTR 2007/2 states (Paras 93-94) that where the providee entity is an individual who is an Australian resident and is physically in Australia when the thing supplied is done, the effective use or enjoyment does not take place outside Australia and paragraph 3(b) of item 3 is not satisfied.

GSTR 2007/2 also states (Paras 95-96) that where the providee entity is an individual who is an Australian resident who is not physically in Australia when the thing supplied is done and the individual's presence outside Australia is integral to the provision of the supply then the effective use or enjoyment of the supply takes place outside Australia and paragraph (b) of item 3 is satisfied.

GSTR 2007/2 further states (Paras 99-100) that where the providee entity is not an Australian resident and is not physically in Australia when the thing supplied by Carnival is done the effective use and enjoyment of the supply takes place outside Australia and paragraph (b) of item 3 is satisfied.

GSTR 2007/2 also states (Paras 101-102) that where the providee entity is not an Australian resident but is physically in Australia when the thing supplied by Aus Co is done, the effective use or enjoyment of that supply takes place in Australia because the presence in Australia of the providee entity is integral to the provision of the supply.

Therefore where the services are supplied to the passengers onboard a cruise, where the ship is outside the 12 nautical mile limit, Item 3 will apply.

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