Edited version of private advice

Authorisation Number: 1051705071473

Date of advice: 23 June 2020

Ruling

Subject: GST and sale of goods to be exported from Australia

Question

Based on the information you have given, will the sale of the barrels of spirits to the overseas company be a GST-free supply under section 38-185 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Based on the information you have given. your sale of the barrels of spirits to the overseas company will be a GST-free supply under item 2 in the table in subsection 38-185(1) of the GST Act where you hold evidence that the barrels of spirits have been exported within the 60 day period from the date you receive the final instalment payment.

Relevant facts

You make and sell a range of premium spirits. One product you sell is barrels of spirits to independent bottlers. You are registered for GST and account your GST on a cash basis.

You are considering selling barrels of spirits to an overseas company. The overseas company will be purchasing new make spirit that will be matured at your site. The overseas company will be responsible for exporting the spirits to its country once the spirit is matured.

The overseas company is not registered or required to be registered for GST.

You currently do not have a contract or draft contract in place. You advised that the following conditions will be in the contract with the overseas company:

·         The contract will state there will be payment instalments and at the final payment the product will need to be exported. Proof will need to be shown that the export arrangements have been made.

·         When it is determined that the spirit has matured the overseas will then have 60 days to organise the export of the product from Australia and make the final payment.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-185

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

A supply of goods is GST-free under item 2 in the table in subsection 38-185(1) of the GST Act (item 2) where:

·         the consideration of the supply is provided in instalments under a contract that requires the goods to be exported; and

·         the supplier exports the goods from Australia either before or within 60 days of the first of the following two events:

-        the supplier receiving any of the finals instalment payment for the goods; or

-        if on an earlier day - the day on which the supplier issues an invoice for the final instalment of the goods.

The supplier can apply for the Commissioner's discretion to extend the 60-day period where the goods cannot be exported within the 60-day period.

Goods and Services Tax Ruling GSTR 2002/6 explains when supplies of goods are GST-free exports under item 2 and what evidence the supplier needs to keep when treating their supply as GST-free export of goods.

Consideration is provided in two or more instalments under a contract that requires the goods to be exported

Item 2 applies where the consideration for the supply is provided in two or more instalments under a contract where it is an express or implied terms that the goods are to be exported.

A contract requires the goods to be exported where there is an express or implied term in the contract that the goods are to be exported. Information contained in the contract which supports the requirement to export the goods may include:

a)    the overseas destination where the goods are to be delivered;

b)    the identity and location of the buyer;

c)    obligations to carry out export clearance formalities;

d)    obligations in respect of transport costs;

e)    obligations in respect of import costs and formalities in a foreign country; and

f)     use of an incoterm.

You advised your proposed contract with the overseas company will have the following information:

·         The contract will state there will be payment instalments and at the final payment the product will need to be exported. Proof will need to be shown that the export arrangements have been made.

·         When it is determined that the spirit has matured the overseas company will then have 60 days to organise for the export of the product from Australia and pay the final instalment.

In this instance we accept that the requirement in item 2 for the consideration to be provided in two or more instalments under a contract that requires the goods to be exported will be satisfied.

Supplier exports

Item 2 requires, not only that there is an export of goods, but that the supplier must be the entity that exports them.

The requirement that the supplier is the entity that exports the goods is satisfied where either:

a)    the supplier contracts at the supplier's own expense with an international carrier for the transportation of the goods to a destination outside Australia; or

b)    the supplier is responsible for delivering the goods to the operator of a ship or aircraft who, or that, has been engaged by another party to transport those goods to a destination outside Australia; or

c)    the requirements of subsection 38-185(3) are met

You advised that the overseas company will be responsible to export the matured spirit from Australia. In this instance you may still be treated as the exporter where the overseas Company exports and the requirements of subsection 38-185(3) of the GST Act are met. If so, the supply can still be GST-free under item 2.

Subsection 38-185(3) of the GST Act

Subsection 38-185(3) of the GST Act provides the following:

3)    Without limiting items 1 and 2 in the table in subsection (1), a supplier of goods is treated for the purposes of those items, as having exported the goods from Australia if:

a)    before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered for GST; and

b)    that entity exports the foods from Australia; and

c)     the goods have been entered for export with Customs within the meaning of section 113 of the Customs Act 1901; and

d)    since their supply to that entity, the goods have not been altered or used in any way, except to the extent (if any) necessary to prepare them for export; and

e)    the supplier holds sufficient documentary evidence to show that the goods were exported by the purchaser; and

f)      if that entity is covered by paragraph 168-5(1A)( c) - the supplier has a declaration by that entity stating that:

-         a payment has not been sought under section 168-5 for the supply; and

-         if the goods are wine - a payment has not been sought under section 25-5 of that Act for the supply.

However, if the goods are reimported into Australia, the supply is not GST-free unless the reimportation is a taxable importation.

In addition to satisfying all the elements in subsection 38-185(3), a supplier must also satisfy the other requirements of item 2 for the supply to be GST-free.

As part of demonstrating that the supply of goods is a GST free export, a supplier also needs sufficient documentary evidence to show that all the requirements of paragraphs 38-185(3)(a) to (d) are met. The supplier should obtain such documentary evidence either before the goods are exported or within a reasonable period of time after the goods have been exported.

Accordingly, you will be the exporter of the barrels of spirit sold to the overseas company where the requirements for subsection 38-185(3) of the GST Act are met as followed:

a)    the overseas company (purchaser) is not registered or required to be registered for GST

b)    the purchaser exports the goods before or within 60 days of receiving an invoice, or making a payment for the goods

c)     the goods have not been altered or used in any way (other than preparation necessary for export) before being exported

d)    the goods have been entered for export with Customs;

e)    you hold sufficient documentary evidence to show that the goods were exported by the purchaser; and

For information on how the above must be satisfied refer to paragraphs 248 to 290B in GSTR 2002/6.

From the facts given to us we accept that the requirements in subsection 38-85(3) of the GST will be satisfied with the onus on you to obtain evidence that the barrels of spirits will be/have been exported within the 60 day period from the date of receiving the final instalment payment.

Where you hold evidence that the barrels of spirits have been exported within the 60 day period, your sale of the barrels of the spirits to the overseas company will be GST-free under item 2.

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