Edited version of your written advice

Authorisation Number: 1012696351903

Ruling

Subject: GST and supplies to a non-resident entity

Question

Is goods and services tax (GST) payable on your supplies of storage space, packing and delivery services to a non-resident entity?

Answer

Yes. Your supplies of the storage space and delivery services (including packing) are taxable supplies, and therefore GST is payable on these supplies.

Relevant facts

You are an Australian-based entity registered for GST.

You have entered into an agreement with a company based overseas (NR), to provide order fulfilment services. An Australian-based customer places an order on NR's website and you deliver the goods to the customer in accordance with your agreement with NR. The agreement provides that you agree to the following:

• rent a warehouse in Australia to provide the services

• employ workers to handle the services

• arrange the cargos to be picked up from the airport and seaport

• store the goods (owned by NR) in the warehouse safely

• process the order on time and correctly

• communicate with the couriers to deliver the goods to Australian customers.

The information available to you indicates that NR is not a resident of Australia for income tax purposes and is not registered for GST. NR has no offices in Australia and does not carry on their business in Australia through another entity. All dealings that NR has with their Australian customers are done through their website which is hosted overseas.

When the goods are imported into Australia, the customs documents show NR as the owner of the goods. The goods remain their property until they are delivered to their customers.

In accordance with your agreement with NR, an area in your warehouse is set aside to specifically store their goods.

You provided a sample copy of an invoice issued to NR which contains the following:

Item	Description		Units	Unit price (ex GST)	Tax Type	Amount (ex GST)
PKG	Package	Qty	X	X	GST	X
PTG	Postage	Qty	X	X	GST	X
STG	Storage	Qty	X	X	GST	X

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 9-10.

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3).

Reasons for decision

GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 term defined in section 195-1 of the GST Act.)

In order to determine the GST treatment of your supply (or supplies) of storage space, packing and delivery services, we need to consider the characteristics of the supply.

Goods and Services Tax Ruling GSTR 2001/8, amongst other things, describes the characteristics of supplies that contain a combination of separately identifiable taxable and non-taxable parts, which is referred to as mixed supplies. GSTR 2001/8 also describes the characteristics of supplies that appear to have more than one part but that are essentially supplies of one thing, which is referred to as composite supplies.

Based on the information provided, your supplies of the storage space, packing and delivery services are mixed supplies. We consider that you are making the following supplies which will be considered separately:

1. supply of storage space

2. supply of delivery services (with the packing service being integral, ancillary or incidental to the dominant supply of the delivery services).

Supply of storage space

Before we determine the GST status of the storage space, we need to consider all aspects of the transaction to ascertain the essential character of the supply, that is, whether it is a supply of services or of real property.

Paragraphs 105 and 106 of Goods and Services Tax Ruling GSTR 2003/7 provide the ATO view on 'storage' and state:

Rental of particular secure storage space

105. If a licence to occupy a particular secure storage space is supplied along with security services but those services are ancillary to the licence to occupy land, the supply is of real property.

Provision of storage services, without rental of a particular site

106. Where the supply is of storage services only, there being no right to occupy particular storage space, the real property is merely the setting for the service performed. The supply is the service of storing goods. There is no supply of real property.

Under your agreement with NR, you are required to rent a storage space, being a warehouse, to store their goods. You allocate a specific area in your warehouse for the storage of their goods. We consider that the rental of particular storage space, is a licence to occupy land and therefore your supply of the storage space is a supply of real property.

Having established the character of the supply, we can now consider the GST status of the supply of the storage space.

The supply of the storage space satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance of your business

(c) the supply is connected with Australia as the supply of storage space (being real property) is in Australia and

(d) you are registered for GST.

The supply of the storage space, in the circumstances described, is neither GST-free nor input taxed under any provision of the GST legislation. Therefore, your supply of the storage space to NR is a taxable supply.

Supply of delivery services (including packing)

Based on the information provided the supply of delivery services (including packing) satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

(a) you make a supply for consideration

(b) the supply is made in the course or furtherance of your business

(c) the supply is connected with Australia because the delivery services (including packing) are performed in Australia and

(d) you are registered for GST in Australia.

The supply of delivery services (including packing) is not input taxed under any provision of the GST legislation. It remains to be determined if the supply is GST-free.

Subsection 38-190(1) of the GST Act specifies the circumstances where the supply of things other than goods or real property, for consumption outside Australia, is GST-free. Of particular relevance to your supply is item 2 in the table in subsection 38-190(1) of the GST Act (item 2).

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that is made to a non-resident who is not in Australia when the thing supplied is done, and:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

Accordingly, where the provisions in either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done (that is, when the services are performed).

Precondition of item 2 - recipient is 'not in Australia'

Goods and Services Tax Ruling GSTR 2004/7 provides guidance on when a non-resident is 'not in Australia' for the purposes of item 2.

Under paragraph 37 of GSTR 2004/7, we consider that a non-resident company is in Australia if that company carries on business (or in the case of a company that does not carry on business, carries on its activities) in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time, or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

In addition, if a non-resident company is determined to be in Australia on the basis of the above test, it is necessary to determine if the company is in Australia in relation to the supply when the supply is done (that is, when the services are performed).

From the information provided, NR does not carry on any business through a representative in Australia and does not have any presence in Australia in relation to your supply. As such, NR is 'not in Australia' in relation to your supply of the delivery services (including packing) when such supply is performed.

Paragraph (a) and/or (b) of item 2

The supply of your services must also satisfy the requirements of either paragraph (a) or paragraph (b) of item 2 for the supply to be GST-free.

GSTR 2003/7 examines the meaning of the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' as used in subsection 38-190(1) of the GST Act.

Paragraph 59 of GSTR 2003/7 provides that a supply of transporting goods is not work physically performed on goods because the supply only changes the location of the goods, not the goods themselves.

Hence, your supply of delivery services (including packing) is not considered to be a supply of work physically performed on goods situated in Australia. Furthermore, the supply of delivery services (including packing) is not a supply directly connected with real property situated in Australia. As such, paragraph (a) of item 2 is satisfied.

As the requirement of paragraph (a) of item 2 is satisfied, there is no need to consider if the requirement of paragraph (b) of item 2 is met. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations of item 2

If the supply covered by item 2 is under an agreement entered into, whether directly or indirectly, with a non-resident entity and that supply is provided or the agreement requires that it be so provided to another entity in Australia, subsection 38-190(3) of the GST Act negates the GST-free status of that supply.

Goods and Services Tax Ruling GSTR 2005/6 which provides the ATO view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of some thing), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

GSTR 2005/6 states that it is necessary to establish the exact nature of the supply to determine to which entity that service or thing is provided. In relation to delivery or freight services paragraph 75 states:

75. In the case of delivery or freight services where goods from one entity are addressed for delivery to another entity, we accept that the delivery or freight services are provided to that addressee entity…

Further, paragraph 119 of GSTR 2005/6 provides:

119. In the case of delivery or freight services which are provided to an entity other than an individual in the circumstances described at paragraph 75, we accept those services are provided to that entity in Australia, if the goods are addressed to that entity in Australia. Alternatively, if the goods are addressed to that entity outside Australia, we accept those services are provided to that entity outside Australia. This outcome is not dependent upon the residency status of the entity to which the goods are addressed…

In your case, you have a contractual obligation to NR, a non-resident company, to store their goods and then pack and deliver those goods to their customers located in Australia. The exact nature of the supply is to deliver the goods to the specific customers at locations within Australia. It is the customers who are availing themselves of the delivery services. Although the contractual flow of your delivery services is to a non-resident company, the flow of the actual services is to NR's customers, as the delivery of the goods is to specific customers at particular locations in Australia. That is, the supply of the delivery services (including packing) is provided to NR's customer(s), which is another entity in Australia.

Therefore, subsection 38-190(3) of the GST Act excludes the delivery services (including packing) from being GST-free under item 2 because this supply is provided to an entity in Australia.

The supply of the delivery services (including packing) is not GST-free under any other provisions of the GST legislation.

Accordingly, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of the delivery services (including packing) is a taxable supply.

In summary, your supplies of storage space and delivery services (including packing) to NR are taxable supplies, and GST is payable on these supplies.

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