Edited version of private advice

Authorisation Number: 1051802730882

Date of advice: 18 February 2021

Ruling

Subject: GST and supply of repair services to a foreign vessel

Question

Is the supply of parts and labour in the repair of the generators on board the cargo ship (the Vessel) a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

The supply of parts and labour in the repair of the generators on board the Vessel is GST-free under item 6 in the table in subsection 38 185(1) of the GST Act and item 5 in the table in subsection 38-190(1) of the GST Act where suitable documentary evidence is available to show that at the time the repair is done the Vessel is from outside Australia and has a destination outside Australia.

Relevant facts

You provide parts and labour for the repairs conducted on the Vessel. The work is carried out in Australia.

You are registered for GST.

The Vessel is owned by an entity based overseas.

The Vessel picks up cargo in Australia and delivers to various islands outside Australia on a route (for example the South Pacific Islands). It berths in Australia for a few hours each month to take on cargo only.

You provide parts and labour in the repair of the onboard generators when the Vessel is berthed in Australia during the loading time.

You obtain information on the Vessel's origin and intended destination through myshiptracking.com. The website shows the location of the Vessel at any particular time.

It shows that the Vessel arrives in Australia from a place outside Australia and leaves Australia for a destination outside Australia.

You do not have a copy of a Customs entry for home consumption for the generator.

There is no ongoing agreement between you and the Vessel. The repair work done is on a "as requested" basis when a breakdown occurs.

You supply engine parts in the course of repairing the generator. These parts become part of the generator. Once the parts have been used on the generator, they become unusable on anything else without being overhauled or refurbished.

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 38-185.

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

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

Summary

The supply of parts and labour in the repair of the generators on board the Vessel is GST-free under item 6 in the table in subsection 38 185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (item 6) and item 5 in the table in subsection 38-190(1) of the GST Act (item 5) where suitable documentary evidence is available to show that at the time the repair is done the Vessel is from outside Australia and has a destination outside Australia.

Detailed reasoning

GST is payable on any taxable supply that a supplier makes.

Section 9-5 of the GST Act provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed.

Relevant to the supply of goods and services made in the repair of goods from outside Australia and whose destination is outside Australia is item 6 and item 5.

Item 6 is about export of goods used to repair etc imported goods. Under item 6, a supply of goods in the course of repairing, renovating, modifying or treating other goods from outside Australia whose destination is outside Australia is GST-free only if:

a)    the goods supplied are attached to, or become part of, the other goods or

b)    the goods become unusable or worthless as a direct result of being used to repair, renovate, modify or treat the other goods.

However, the supply in item 6 will not be GST-free if the supplier of the goods used in the repair, renovation, modification or treatment reimports the goods into Australia.

Item 5 is about export of services used to repair etc imported goods. Under item 5, a supply is GST-free if it is a supply that is constituted by the repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia.

Goods and Services Tax Ruling GSTR 2005/2 Goods and services tax: supplies of goods and services in the repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia, explains the requirements for a supply to be GST-free under item 6 and item 5.

Both items 5 and 6 require there to be a repair, renovation, modification or treatment. The terms 'repair', 'renovation', 'modification' and 'treatment', and their derivatives, are not defined in the GST Act and therefore take their ordinary meaning.

Paragraph 34 GSTR 2005/2 state:

34. The ordinary meaning of 'repair' is 'to restore to a good or sound condition after decay or damage; mend'. Repairing includes replacing defective or worn parts or re-attaching parts that have become detached.

To satisfy the requirements for a GST-free supply under item 6 and item 5, the goods to be repaired must satisfy the description of 'from outside Australia whose destination is outside Australia' when the supply is made. Therefore, the supplier needs to determine at the time of supply that this requirement has been met and can seek documentation from the recipient to make the decision.

'Australia' is defined in section 195-1 as follows:

Australia does not include any external Territory. However, it includes an installation (within the meaning of the Customs Act 1901) that is deemed by section 5C of the Customs Act 1901 to be part of Australia.

From outside Australia

Paragraph 52 of GSTR 2005/2 provides that ships and goods on board the ship are from outside Australia if they arrive in Australia from a place outside Australia.

Customs documents may evidence the arrival of goods from a place outside Australia. Customs laws require most arriving goods to be entered, or otherwise reported to Customs. For example, the ship itself will be reported on an arrival report and granted authority to enter port. If no Customs documents exist, other evidence may demonstrate that goods are from outside Australia. If no Customs documents exist, other evidence may demonstrate that goods are from outside Australia (refer to paragraphs 74 to 92 of GSTR 2005/2 on documentary evidence).

Paragraphs 55 to 60 discuss the requirement of goods whose destination is outside Australia.

55. The use of the phrase 'whose destination is outside Australia', when directly following the initial phrase that identifies the goods as 'goods from outside Australia', implies that the duration of the stay of the goods in Australia is temporary or transitory. There is a temporal link or nexus between the goods arriving in Australia and the goods departing Australia if on arrival in Australia, the goods have a destination outside Australia.

56. Goods (normally aircraft or ships) that pass through Australia in transit to another country have a destination outside Australia. For example, a ship will be reported on an arrival report, and granted authority to enter port. It is in transit.

57. Goods may be brought into Australia temporarily without the payment of duty or taxes. Clearance can be by way of what is colloquially known as a 'cruising permit', or by providing a security for temporary importation. Another means of temporary importation is under the cover of a 'carnet'.

58. At the time the goods are being repaired, it must be intended that the goods will have a destination outside Australia. It is the Commissioner's view that the items require the supplier to determine whether the goods have a destination outside Australia when the supply is made. A Customs cruising permit or other Customs documentation provides evidence that the goods are from outside Australia with a destination outside Australia.

59. If there is a genuine intention when the supply is made, supported by documentary evidence, that the goods are destined for a place outside Australia, but the intention later changes such that the goods do not depart Australia, the requirement that the goods had a destination outside Australia is met. That is, the item requires the intended destination to be a place outside Australia. However, the absence of actual departure of the goods may be evidence that the intended destination was not outside Australia.

60. If goods do not depart Australia, or the supplier cannot show that they have departed, other evidence will be required to demonstrate that the goods were intended for a destination outside Australia. Other evidence which may indicate this could include Customs evidence of temporary importation, written contracts for repair and transportation into and out of Australia, and evidence of foreign ownership or registration of the goods.

Application to this case:

The Vessel berths in Australia to pick up cargo and delivers to various islands outside Australia on a route. It berths in Australia for a few hours each month to take on cargo only.

You undertake repair of the onboard generators when the Vessel is berthed in Australia during the loading time. You supply engine parts in the course of repairing the generator. These parts become part of the generator and once the parts have been used on the generator, they become unusable on anything else without being overhauled or refurbished.

You obtain information on the Vessel's origin and intended destination through myshiptracking.com.

The Vessel's stay in Australia is transitory. At the time of repair, the Vessel has the character of good from outside Australia whose destination is outside Australia. Hence, the supply of parts and labour in the repair of the generators on board the Vessel, is therefore GST-free under item 5 and item 6.

Documentary evidence

The onus is on the supplier to be satisfied that goods being repaired are from outside Australia and have a destination outside Australia. The supplier will also need to have sufficient evidence to demonstrate that all the other requirements in item 6 and item 5 are met.

Paragraphs 74 to 92 of GSTR 2005/2 provide guidance on documentary evidence to hold for the purposes of item 6 and item 5, and paragraph 82 provides guidance on what suitable documentary evidence the supplier can ask to show that goods being repaired are from outside Australia and have a destination outside Australia.

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