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Edited version of private advice
Authorisation Number: 1051555219810
Date of advice: 25 July 2019
Ruling
Subject: GST and sale of goods to a non-resident company
Question
Is the income that you receive from the non-resident company consideration for a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No. You are making a supply of goods to the non-resident company which is not connected with Australia and therefore the supply is outside the scope of GST.
Relevant facts
You are a sole trader and carry on yours business in Australia. You currently are not registered for GST.
You have entered into an Agreement with a non-resident company located outside Australia. You agreed in the Agreement to provide ongoing mechanical engineering, design and manufacturing oversight for various projects of the non-resident company to be individually itemised, bid and paid.
The non-resident company periodically launchers its new products for which it often tries to source most economical packing materials outside its country to take advantages of cheap prices on large volumes. Some of the enquiries will come to you with technical specs.
You design the products in Australia, email the engineering drawings to the non-resident company approval. You do not charge any fee for the design you submitted for approval.
If the non-resident company approves the design, you will source the ideal overseas manufacturer and have the manufacturer submit their price.
You submit final quotes to the non-resident company with delivery terms and conditions and these prices are marked up for profit margin.
If the prices are attractive and well within the overseas company's budgets, you will receive an order from the overseas company with advance payment. You will take full responsibility to supply the goods to the non-resident company. Most of the time the packaging specs remains unchanged so you will receive repeated order with more volume and delivery required.
You have the ordered goods manufactured overseas and shipped directly to the non-resident company.
For the financial year 20XX your gross income was over A$75,000.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-25
A New Tax System (Goods and Services Tax) Act 1999 Division 188
Reasons for decision
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.
Detailed reasoning
Characterisation of supply
From the information provided you design and sell manufactured goods to the non-resident company.
In this instance we consider your main supply is the supply of the manufactured goods and the design you make is incidental to the supply of goods you make to the non-resident. This is because the design contributes to the supply of the goods as a whole rather than constituting as an aim in itself since you do not charge any fee for the design and it is upon approval of the design that you will have the goods manufactured and supplied to the non-resident company.
Next is to consider the GST status of your supply of goods to the non-resident company.
Supply of goods
GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if all of the following requirements are satisfied:
a) the supplier makes the supply for consideration; and
b) the supply is made in the course of an enterprise carried on by the supplier; and
c) the supply is connected with Australia; and
d) the supplier is registered or required to be registered for GST.
However the supply is not a taxable supply to the extent that it is GST-free or input taxed.
From the information provided you satisfy paragraphs (a) and (b) in section 9-5 of the GST Act as you make the supply of goods for consideration and the supply is made through a business that you carry on.
There is no provision under the GST Act that your supply of goods is GST-free or input taxed.
We will not consider the other paragraphs in section 9-5 of the GST Act.
Paragraph 9-5(c) of the GST Act
A supply of goods is connected with Australia where one of the following is satisfied:
- the goods are delivered or made available in Australia to the recipient of the supply (subsection 9-25(1) of the GST Act);
- the supply of goods involves the goods being removed from Australia (subsection 9-25(2) of the GST Act);
- the supply involves the goods being brought to Australia and the supplier imports the goods into Australia (subsection 9-25(3) of the GST Act);
- the supply is an offshore supply of low value goods (goods with customs value of A$1,000 or less) imported by consumers (purchasers not registered or registered and purchase is not for the purpose of the Australian business) into Australia (subsection 9-25(3A) of the GST Act).
From the information given your supply of goods to the non-resident company does not satisfy any of the above since the goods are manufactured overseas and delivered directly to the non-resident company.
Paragraph 9-25(5)(c) of the GST Act is not satisfied in this instance.
Paragraph 9-5(d) of the GST Act
You are required to be registered for GST if you are carrying on an enterprise and your annual turnover meets the GST registration threshold of A$75,000.
Your annual turnover is your gross income for supplies that are connected with Australia excluding GST.
Your supply of goods to the non-resident company is not connected with Australia and therefore is not included when calculating your annual turnover for GST registration purposes. If this is the only income you receive you are not required to be registered for GST.
Summary
Your supply of goods to the non-resident company is outside the scope of GST as your supply of goods is not connected with Australia.
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