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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of private advice

Authorisation Number: 1051670200715

Date of advice: 5 May 2020

Ruling

Subject: GST and sale of goods under the incoterm free on board

Question

Is your sale of goods to the Australian customer a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where the Australian customer will take delivery of the goods overseas and import the goods into Australia under the sale Incoterm Free On Board (FOB)?

Answer

No, your sale of baby furniture to the Australian customer is not a taxable supply under section 9-5 of the GST Act where the Australian customer will take delivery of the goods overseas and import the goods into Australia under the sale Incoterm FOB. The sale is not connected with Australia and therefore outside the scope of GST.

You will not collect GST on the sale, report the sale in your business activity statement and include the sale when calculating your GST annual turnover.

Relevant facts

You own a wholesale business in Australia and are registered for GST.

The goods you sell are manufactured by an overseas manufacturer. The manufacturer invoices you for the manufacture and the delivery of the goods to Australia.

Currently you import the goods and pay GST on the importation.

You are considering making a sale under the incoterm FOB to an Australian purchaser. Under this sale arrangement, the purchaser will take delivery of the manufactured goods at the relevant port located outside Australia, will be responsible to bring the goods to Australia and will be the importer of the goods into Australia. The Australian company will pay you for the purchase made from you.

Once the production of the goods is done the manufacturer will contact the Australian purchaser's agent for the handing over of the manufactured goods to the freight forwarder engaged by the Australian purchaser at the relevant port outside 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

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

GST is payable on a taxable supply.

One of the requirements of a taxable supply is the supply is connected with Australia.

A sale of goods is connected with Australia if one of the following applies:

  1. The goods are delivered or made available in Australia to the recipient of the supply; or
  2. The sale involves the goods being removed from Australia; or
  3. The sale involves the goods being brought to Australia and the supplier imports the goods into Australia; or
  4. The sale is an offshore supply of low value goods (goods with customs of A$1, 000 or less) and imported into Australia by the consumer (purchaser not registered for GST or registered and the purchase is not for the purpose of the Australian business carried on by the purchaser).

From the facts given none of the above applies to your sale to be made to the Australian customer. In this instance your sale of goods under the Incoterm FOB is not connected with Australia and therefore not a taxable supply. The sale is outside the scope of GST.

You will not collect GST on the sale, report the sale in your business activity statement and include the sale when calculating your GST annual turnover.

For more information on when a sale of goods is connected with Australia refer to the Goods and Services Tax Ruling GSTR 2018/2 (available at ato.gov.au).

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