Edited version of your written advice

Authorisation Number: 1051214859749

Date of advice: 20 April 2017

Ruling

Subject: GST and supply of international shipping transport services

Question 1

Are the supplies of international shipping transport services made by the non-resident company GST-free in accordance with section 38-355 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, based on the information received, the supplies of international shipping transport services made by the non-resident company to the non-resident charterers are GST-free under item 5 in the table in subsection 38-355(1) of the GST Act.

Question 2

For tax periods starting on or after 1 October 2016, are the supplies of international shipping transport services made by the non-resident company to the non-resident charterers disconnected from the indirect tax zone under section 9-26 of the GST Act and therefore not a taxable supply under section 9-5 of the GST Act?

Advice

For tax periods starting from 1 October 2016 the supplies of international shipping transport services made by the non-resident company to the non-resident charterers are not connected with the indirect tax zone under section 9-26 of the GST Act where the non-resident charterers carry on their businesses outside the indirect tax zone and the acquisitions are for the purpose of the businesses that the non-resident charterers carry on outside the indirect tax zone. In this instance, the supplies are not subject to the goods and services tax (GST) as they are outside the scope of GST.

Question 3

Prior to 1 October 2016, where additional goods are loaded onto the tankers at Australian ports and discharged at Australian ports during the tankers' presence in Australian waters, is the non-resident company required to register for GST and remit any GST.

Advice

Where additional goods are loaded onto the tankers at Australian ports and discharged at Australian ports prior to 1 October 2016, this additional domestic voyage is considered to be part of the supply of the international voyage based on the information received.

Prior to 1 October 2016 the supply of the international voyage is connected with the indirect tax zone as it is done in the indirect tax zone. The non-resident company Ltd will be required to be registered for GST where its current and/or projected annual turnover is $75,000 or above.

However where the non-resident company is registered for GST, it will not be liable for GST as its supply of international shipping transport services is GST-free under item 5 in the table in subsection 38-355(1) of the GST Act as discussed in question 1.

Question 4

For tax periods starting on or after 1 October 2016, where additional goods are loaded onto the tankers at Australian ports and discharged at Australian ports during the tankers' presence in Australian waters, will this additional load made by the non-resident company be excluded from GST due to the operation of section 9-26 of the GST Act?

Advice

From 1 October 2016 where additional goods are loaded onto the tankers at Australian ports and discharged at Australian ports, this additional domestic voyage is considered to be part of the international voyage based on the information given.

As discussed in question 2, from 1 October 2016 the supplies of international shipping transport services made by the non-resident company to the non-resident charterers are not connected with the indirect tax zone under section 9-26 of the GST Act where the non-resident charterers carry on their businesses outside the indirect tax zone and the acquisitions are for the purpose of the businesses that the non-resident charterers carry on outside the indirect tax zone. In this instance the supplies are not subject to GST as they are outside the scope of GST.

Question 5

For the tax periods starting on or after 1 October 2016, is the non-resident company required to be registered for GST?

Advice

From 1 October 2016, the non-resident company is not required to be registered for GST where the supplies of international shipping transport services made by the non-resident company to the non-resident charterers are not connected with the indirect tax zone under section 9-26 of the GST Act and this is the only supplies that it makes.

Relevant facts

You are a non-resident company and currently you are not registered for GST.

You are the disponent owner of various vessels. You enter into contracts with various charterers to transport goods from overseas locations to multiple Australian ports. There are also instances where the vessels enter Australian waters but do not enter a port.

The whole vessel will be chartered and you will supply the vessel and the crew. The charterers are non-residents of Australia.

An option is generally available within the charter contract for the charterer to reload and discharge en route. For example, the original contract for a voyage may be from an overseas port to an Australian port. At the Australian port, additional product may be loaded and then delivered to another Australian port where it is then unloaded. This additional loading is available where the charterer exercises the option under the contract. This option is usually exercised either before the sea voyage has commenced, or before the vessel arrives in Australia.

The vessels are in the Australian port for less than 183 days annually.

You have contracts with Australian contractors for port services of loading and discharging of the goods. The contractors will also coordinate and organise fuel, water and food when required. The cost of such port services required to facilitate the loading and discharging of the goods are borne by you.

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 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-355

Reasons for decisions

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Questions 1 and 3

Relevant to the supply of international shipping transport services is item 5 in the table in subsection 38-355(1) of the GST Act (Item 5).

Item 5 appears as follows:

Supplies of transport and related matters
Item	Topic	These supplies are GST-free ...
5	Transport etc. of goods	subject to subsection (2), the *international transport of goods: (a) from their *place of export in Australia to a destination outside Australia; or (b) from a place outside Australia to their *place of consignment in Australia; or (c)  from a place outside Australia to the same or another place outside Australia.

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

Subsection 38-355(2) of the GST Act states the following:

2. Paragraphs (a) and (b) of item 5, and item 5A, in the table in subsection (1) do not apply to a supply to the extent that the thing supplied is done in Australia, unless:

(a) the *recipient of the supply:

(i) is a *non-resident; and

(ii) is not in Australia when the thing supplied is done in Australia; or

(b) the supply is done by the supplier of the transport of the goods from or to Australia (whichever is relevant).

The supply of international shipping transport services is GST-free where it meets the requirements in item 5.

Goods and Services Tax ruling GSTR 2003/4 provides guidance on international and domestic voyage.

According to paragraph 52 in GSTR 2003/4 an international voyage may include places in Australia as a stage or leg of the overall voyage. However, it is necessary to determine whether the journey is part of the international voyage or is a voyage with its own destination.

Paragraph 19 in GSTR 2003/4 provides that a domestic journey is a separate voyage if it has a different purpose to that of the ultimate international voyage, if its route is disconnected geographically to that of the international voyage, or if the timing of the journey is distinct and independent of the international voyage.

Examples 1, 2 and 3 in GSTR 2003/4 provide guidance when a domestic voyage is connected or disconnected with an international voyage and state:

Example 1 - international voyage that involves a journey between places in Australia.

62. A foreign registered cargo vessel travels on a set route from Singapore to Sydney, discharging overseas cargo on the way in Brisbane and then in Sydney. Foreign bound cargo is loaded in Sydney and the ship returns to Singapore. This entire voyage is an international voyage, even though part of the voyage involves a journey within Australia between Brisbane and Sydney.

63. On the same route the ship loads domestic cargo in Brisbane to be unloaded in Sydney. As the ship still carries overseas cargo to be unloaded in Sydney, the entire voyage retains its international character. The purpose of the international voyage is to unload and load cargo for international trade. While the Brisbane to Sydney leg has an additional purpose, it remains part of the international voyage.

64. Even if the ship discharges all of its overseas cargo in Brisbane and carries domestic cargo to Sydney, the voyage retains its international connection at all times, as the ship is required to travel to Sydney to load cargo for export to Singapore. The journey from Brisbane to Sydney is made as part of the international voyage.

Example 2 - separate voyage that is not an international voyage.

65. A ship from Singapore is bound for Sydney to load cargo for export. The ship does not carry cargo for discharge at an Australian port. The ship arrives at Brisbane and takes on a load of domestic cargo to be discharged in Sydney. The voyage from Brisbane to Sydney is disconnected from the ultimate international voyage, as it is not concerned with the collection or discharge of any international cargo. The transport of domestic cargo within Australia is a purpose separate from the purpose of the international voyage. As there is no international cargo on board, the Brisbane to Sydney leg is a separate voyage disconnected from and not part of the international voyage.

Example 3 - separate voyage that is not an international voyage.

66. On the same route, the Singaporean ship arrives in Brisbane and unloads some international cargo. It travels on to Newcastle and discharges the balance of its international cargo. Whilst in Newcastle it secures a contract for an urgent delivery of domestic cargo to Wollongong. The sole purpose of travelling between Newcastle and Wollongong is to transport domestic cargo. The ship travels from Wollongong to Sydney, and loads goods for export to Singapore. The ship then departs Australia. The journey from Newcastle to Wollongong is disconnected from the international voyage as the diversion is solely for a non-international purpose. This leg of the route is not an international voyage.

From the information given you are contracted by non-resident charterers to supply international shipping transport of goods from overseas locations to multiple Australian ports. In this instance the international shipping transport of goods to Australia is GST-free under item 5 as the paragraphs in section 38-355(2) of the GST Act are satisfied.

Further, under the charter contract the charterers have the option to request for additional loading and discharging of domestic cargo in the voyage orders and this option is exercised either before the sea voyage has commenced or before the vessel arrives in Australia. In this instance, the additional domestic voyage is considered to be part of the international voyage and therefore is GST-free under item 5.

Questions 2, 4 and 5

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a) the supplier makes the supply for consideration; and

b) the supply is made in the course of an enterprise that the supplies carries on; and

c) the supply is connected with Australia; and

d) the supplier is registered for GST.

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

You must satisfy all the above for tits supply to be a taxable supply and liable for the Australian GST.

Connected with Australia

The connection with Australia is one of the elements required to be satisfied before a supply is a taxable supply.

Currently, under subsection 9-25(5) of the GST Act, a supply of anything other than goods or real property is connected with Australia if:

a) the thing is done in Australia; or

b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

c) all of the following apply:

i. neither paragraph (a) nor (b) applies in respect of the thing;

ii. the thing is a right or option to acquire another thing;

iii. the supply of the other thing would be connected with Australia.

From 1 July 2017 a new paragraph (9-25(5)(d)) will be included to subsection 9-25(5) of the GST Act. Under paragraph (d) in subsection 9-25(5) of the GST Act, a supply of anything other than goods or real property is connected with Australia if the recipient of the supply is an Australian consumer.

The supply of international shipping transport services needs to satisfy only one of the paragraphs in subsection 9-25(5) of the GST Act for the supply to be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 provides guidance on when a supply is connected with Australia and is available at www.ato.gov.au

Paragraph 9-25(5)(a) of the GST Act

Under paragraph 9-25(5)(a) of the GST Act the connection with Australia requires that the 'thing' being supplied is 'done' in Australia. The meaning of 'done' depends on the nature of the 'thing; being supplied. 'Done' can mean, for example, performed, executed, completed, finished, etc. depending on what is supplied.

If the 'thing' being supplied is a service, the supply of that service is typically done where the service is performed. If the service is performed in Australia, the service is done in Australia and the supply is connected with Australia under paragraph 9-25(5)(a) of the GST Act.

When you supply the international shipping transport services in Australia, the supply is connected with Australia under paragraph 9-25(5)(a) of the GST Act as the services are done in Australia.

However, it is relevant to consider section 9-26 of the GST Act since from 1 October 2016 some intangible supplies that are done in Australia by non-residents are not connected with Australia where the requirements in section 9-26 of the GST Act are satisfied. In this instance, the supply made by the non-resident supplier is outside the scope of GST.

Section 9-26 of the GST Act

Under item 1 in the table in subsection 9-26(1) of the GST Act (item 1) a supply of anything other than goods or real property is not connected with Australia if:

● the supplier is a non-resident; and

● the supplier does not make the supply through an enterprise that it carries on in Australia; and

● the supply of the thing is done in Australia; and

● the recipient is an Australian based business recipient of the supply.

Under item 2 in the table in subsection 9-26(1) of the GST Act (item 2) a supply of any other thing goods or real property between non-residents is not connected with Australia if:

● the supplier is a non-resident; and

● the supplier does not make the supply through an enterprise that it carries on in Australia; and

● the supply of the thing is done in Australia; and

● the recipient is a non-resident that acquires the thing supplied solely for the purpose of the enterprise that it carries on outside Australia.

Subsection 9-26(2) of the GST Act defines 'Australian-based business recipient' as follows:

(2) An entity is an Australian-based business recipient of a supply made to the entity if:

a) the entity is registered; and

b) an enterprise of the entity is carried on in the indirect tax zone; and

c) the entity's acquisition of the thing supplied is not solely of a private or domestic nature.

From the information received, the charterers of the vessels are non-resident of Australia. Where these non-resident charterers carry on their business outside Australia and the acquisition is for the purpose of the businesses that the non-resident charterers carry on outside Australia, from 1 October 2016 the supply of international shipping transport services is not connected with Australia under item 2.

You have to ensure that the requirements in item 2 are satisfied before treating your supply to the non-resident charterers as not connected with Australia.

Paragraph 9-25(5)(b) of the GST Act

Under paragraph 9-25(5)(b) of the GST Act, a supply may be connected with Australia if the supplier makes the supply through an enterprise that it carries on in Australia.

Section 9-27 of the GST Act explains the concept when an enterprise is carried on in Australia for GST purposes.

9-27 When enterprises are carried on in the indirect tax zone

(1) An *enterprise of an entity is carried on in the indirect tax zone if:

a) the enterprise is *carried on by one or more individuals covered by subsection (3) who are in the indirect tax zone; and

b) any of the following applies:

i. the enterprise is carried on through a fixed place in the indirect tax zone;

ii. the enterprise has been carried on through one or more places in the indirect tax zone for more than 183 days in a 12 month period;

iii. the entity intends to carry on the enterprise through one or more places in the indirect tax zone for more than 183 days in a 12 month period.

(2) It does not matter whether:

(a) the entity has exclusive use of a place; or

(b) the entity owns, leases or has any other claim or interest in relation to a place.

(3) This subsection covers the following individuals:

a) if the entity is an individual—that individual;

b) an employee or *officer of the entity;

c) an individual who is, or is employed by, an agent of the entity that:

I. has, and habitually exercises, authority to conclude contracts on behalf of the entity; and

II. is not a broker, general commission agent or other agent of independent status that is acting in the ordinary course of the agent's business as such an agent.

Law Companion Guideline LCG 2016/1: GST and carrying on an enterprise in the indirect tax zone (Australia) which is available at www.ato.gov.au provides guidance on section 9-27 of the GST Act.

From the information received, section 9-27 of the GST Act does not apply to you. The supply of international shipping transport services is not connected with Australia as the supply is made through an enterprise that you carry on outside Australia.

Paragraph 9-25(5)(c) of the GST Act

Paragraph 9-25(5)(c) of the GST Act is not applicable as there are no supplies of rights or options to acquire other things where the supply of the other things would be connected with Australia when you supply your international shipping transport services to the non-resident charterers.

Paragraph 9-25(d) of the GST Act

From 1 July 2017 a supply of services from a non-resident company is connected with Australia if the recipient of the supply is an Australian consumer.

Under subsection 9-25(7) of the GST Act, to be an 'Australian consumer' of a supply, an entity must:

● be an Australian resident for income tax purposes (excluding residents of external Territories), and

● either:

● is not registered for GST, or

● if the entity is registered for GST, the entity did not acquire the thing solely or partly for their enterprise

If at any time the recipient of the international shipping transport services is an Australian consumer as described in subsection 9-25(7) of the GST Act, the supply of international shipping transport services is connected with Australia under paragraph 9-25(5)(d) of the GST Act.

More information on paragraph 9-25(5)(d) of the GST Act is available in the draft Goods and Services Tax Ruling GSTR 2016/D1: Making cross-border supplies to Australian consumers.

Summary

Prior to 1 October 2016 the supply of international shipping transport services is connected with Australia under 9-25(5)(a) of the GST Act.

From 1 October 2016, the supply of international shipping transport services is not connected with Australia under section 9-26 of the GST Act where the non-resident charterers carry on their business outside Australia and acquire the supply for the purposes of the overseas businesses.

GST registration

Under section 23-5 of the GST Act, you are required to be registered for GST if:

a) you carry on an enterprise; and

b) your GST turnover (current and/or projected) meets the GST registration turnover threshold (currently $75,000 and $150,000 for non-profit organisation).

You can choose to register for GST if your GST turnover is less than $75,000.

Goods and Services Tax Ruling GSTR 2001/7 (available at www.ato.gov.au) provides guidance on the meaning of GST turnover.

The current annual turnover is the sum of the values of all supplies made in a particular month plus the previous 11 months. The projected annual turnover is the sum of the value of all supplies made in a particular month plus the next 11 months.

The GST turnover is the gross business income (not the profit). Supplies that are connected with Australia are included when calculating the GST turnover.

However, from 1 October 2016 a non-resident that makes GST-free supplies through a business carried on outside Australia does not need to include the GST-free supplies when calculating their GST turnover even though the supply is connected with Australia.

Before 1 October 2016

As discussed above before 1 October 2016, the supply of international shipping transport services is connected with Australia. The turnover of this supply is included when calculating the GST current and/or projected annual turnover despite the fact the supply is GST-free. If the GST current and/or projected annual turnover is $75,000 or more, you are required to be registered for GST. However you are not liable to remit GST for the GST-free supplies it makes.

Where the GST current and projected annual turnover is less than $75,000, you are not required to be registered for GST but can choose to register for GST if you want to claim back any GST paid on acquisitions related to your business.

From 1 October 2016

As discussed above, from 1 October 2016 the supply of international shipping transport services to the non-resident charterers is not connected with Australia where the requirements in section 9-26 of the GST Act are satisfied. The turnover of this supply is not included when calculating the GST current and projected annual turnover. If this is the only supply you make you are not required to be registered for GST.

You can choose to register for GST if you want to claim back any GST paid on acquisitions related to your business.

The fact sheet 'GST registration information for a non-resident' provides information on how a non-resident can register for GST.

Input taxed supply

There is no provision under the GST Act that makes the supply of international shipping transport services input taxed.

GST-free supply

As discussed in question 1, the supply of the international shipping transport services is GST-free under item 5 in the table in subsection 38-355(1) of the GST Act.

Summary

Where you are required to be registered for GST, your supply of international shipping transport services is GST-free under item 5 in the table in subsection 38-355(1) of the GST Act.

Where the supply of international shipping transport services is not connected under section 9-26 of the GST Act, the supply is outside the scope of GST. You are not required to be registered for GST if this is the only supply that you make.

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