Edited version of private advice

Authorisation Number: 1052041665872

Date of advice: 1 June 2023

Ruling

Subject: Claiming GST credits on creditable acquisitions

Question 1

Under your contract with the non-resident entity are your supplies of:

a)    services taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and

b)    goods taxable supplies under section 9-5 of the GST Act?

Answer 1(a)

Yes, your supply of services to the non-resident entity are taxable supplies which are not GST-free under table item 2 of subsection 38-190(1) of the GST Act upon application of subsection 38-190(3) of the GST Act.

Answer 1(b)

Yes, your supply of goods to the non-resident entity are taxable supplies unless they are GST-free supplies of food, beverages, ship's stores or water.

The supply of food is GST-free under section 38-2 of the GST Act, if it does not fall under any of the items in the table of Schedule 1 of the GST Act (table provided below in the detailed reasoning section).

The supply of beverages is GST-free under section 38-2 of the GST Act if it falls under any of the items in the table of Schedule 2 of the GST Act (table provided below in the detailed reasoning section).

The supply of 'stores' including consumable goods such as food, beverages and any goods taken to be sold on board a ship on a voyage with a destination outside the indirect tax zone will be GST-free under table item 5 of subsection 38-185(1) of the GST Act if you hold the required documentary evidence (explained in detail reasoning below).

Your supply of water to fill ship tanks is GST-free as it is supplied or transferred into a container that has a capacity of more than 100 litres as per subsection 38-285(2) of the GST Act.

Your supply of water (as a beverage for human consumption) is GST-free under table item 14 of Schedule 2 to the GST Act.

Question 2

Under your contract with the non-resident entity' are your supplies to its resident agent of:

a)    services taxable supplies under section 9-5 of the GST Act and

b)    goods taxable supplies under section 9-5 of the GST Act?

Answer 2(a)

Yes, your supply of services to the non-resident's resident agent are taxable supplies which are not GST-free under table item 2 of subsection 38-190(1) of the GST Act upon application of subsection 38-190(3) of the GST Act.

Answer 2(b)

Yes, your supply of goods to the non-resident's resident agent are taxable supplies unless they are GST-free supplies as outlined in Answer 1(b).

Question 3

Can you claim GST credits for acquisitions of goods and services you make in carrying on your business in Australia under section 11-5 and 11-20 of the GST Act?

Answer

Yes, you can claim GST credits for the goods and services you acquire in carrying on your business where the requirements of section 11-5 and 11-20 of the GST Act are satisfied.

Relevant facts and circumstances

You carry on an enterprise of supplying logistics services and goods to a non-resident entity, which is provided to individuals on board a ship whilst they are in Australia.

You are currently registered for GST.

The non-resident entity is not registered for GST.

You source the required goods and services from other Australian businesses, who charge you for these goods and services. You then provide these goods and services to the non-resident entity at the same cost plus a management fee.

All the Australian businesses are registered for GST.

All the Australian business, with the exception of one charge you GST for the supply of their goods and services.

Sometimes you supply the goods and services to a resident agent of the non-resident entity in Australia. The non-resident entity is not registered for GST. The resident agent is registered for GST.

You acquire the goods in your own right (as principal) and not as agent of the non-resident entity or any other entity.

The types of services and goods you provide to the non-resident entity include food, beverages, water, waste removal, bunkering etc.

All food is consumed on the vessel while in Australia. However, large food stores to replenish the vessels can be purchased and not consumed in Australia.

The final destination of the ship is outside of Australia.

Your supply of water to the non-resident entity is into a container with capacity greater than 100 litres.

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 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 9-25

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-2

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-285

Reasons for decision

Detailed reasoning

Question 1(a)

Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts provides information of differentiating between mixed and composite supplies.

GSTR 2001/8 states:

16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

...

45. In many circumstances, it will be a matter of fact and degree whether the parts of a supply are separately identifiable, and retain their own identity.

You make separately identifiable supplies to the non-resident entity, which are significant in their own right and not merely ancillary to the provision of a single dominant supply. We can break down your supplies as either falling under a supply of goods or a supply of services.

Taxable supplies (services)

Section 9-5 of the GST Act states that you make a taxable supply if:

(a)  you make the supply for consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is connected with Australia; and

(d)  you are registered or required to be registered.

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

Your supply of services to the non-resident satisfies the conditions in paragraphs 9-5(a), (b) and (d) of the GST Act as follows:

•         you supply the goods and services for consideration

•         the supply is made in the course of an enterprise that you carry on, and

•         you are registered for GST.

Therefore, we have to consider whether the supply of services to the non-resident entity is connected with Australia under paragraph 9-5(c) of the GST Act.

Connected with Australia

Under subsection 9-25(5) of the GST Act, a supply of services is connected with Australia if:

(a)  the thing is done in the indirect tax zone; or

(b)  the supplier makes the supply through an enterprise that the supplier carries on in the indirect tax zone; or

(c)   all of the following apply:

a.    neither paragraph (a) or (b) applies in respect of the thing;

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

c.     the supply of the other thing would be connected with the indirect tax zone; or

(d)  the recipient of the supply is an Australian consumer.

The service is supplied to the non-resident entity while they are in Australia. This satisfies the requirement of paragraph 9-25(5)(a) of the GST Act and therefore the provision of services is connected with Australia.

Based on the information provided, there is no provision in the GST Act that makes the supply to the non-resident entity input taxed. We will need to consider whether your supply of services is GST-free under subsection 38-190(1) of the GST Act.

Section 38-190 of the GST Act (GST-free supplies)

Table item 2 of subsection 38-190(1) of the GST Act (item 2) is relevant to your supply of services.

Item 2: supply to a non-resident outside the indirect tax zone

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST free if it is a supply that is made to a non-resident, who is not in Australia when the thing supplied is done, and:

a)    the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia; or

b)    the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

Only one of the paragraphs in item 2 needs to be satisfied.

Paragraph (b) of item 2

Your supply of services will satisfy paragraph (b) of item 2 since:

•         the non-resident entity acquires the goods and services in carrying on its enterprise of supplying goods and services to foreign defence forces.

•         the non-resident entity is a non-resident.

•         the non-resident entity is not registered for GST.

Your supply of services to non-resident entity will be GST-free under paragraph (b) of item 2 to the extent that the supply is not negated by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act provides that without limiting subsection 38-190(2) or (2A), a supply covered by item 2 in that table is not GST-free if:

a)    it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and

b)    the supply is provided or the agreement requires it to be provided to another entity in Australia; and

c)    for a supply other than an input taxed supply - none of the following applies:

                                      i.        the other entity would be an Australian-based business recipient of the supply, if the supply had been made to it;

                                     ii.        the other entity is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

                                    iii.        the other entity is an individual who is provided with the supply as an employee or officer of the recipient, and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense.

All of the requirements in this subsection have to be satisfied for the GST-free status of your supply under item 2 to be negated.

Your supply satisfies all the requirements of this provision because:

•         you have entered into an agreement with a non-resident entity; and

•         the supply is to be provided to the non-resident entity whilst they are in Australia; and

•         none of the paragraphs under c) apply.

Therefore, your supply of services to the non-resident entity is a taxable supply and is not GST-free under table item 2 of subsection 38-190(1) of the GST Act.

Question 1(b)

Taxable supplies (goods)

As per Answer 1(a), your supply of goods will satisfy paragraphs 9-5(a), (b) and (d) of the GST Act.

We have to consider whether the supply of goods to the non-resident entity is connected with Australia under paragraph 9-5(c) of the GST Act.

Connected with Australia

Section 9-25 of the GST Act outlines when a supply is connected with Australia. In determining whether a supply of goods is connected with Australia, a distinction is made between supplies of goods wholly within Australia (subsection 9-25(1) of the GST Act), supplies of goods from Australia (subsection 9-25(2) of the GST Act), and supplies of goods to Australia (subsection 9-25(3) of the GST Act).

As your supply of goods is made to the non-resident entity while they are in Australia, we will consider the issue under subsection 9-25(1) of the GST Act, which are supplies of goods wholly within Australia.

Subsection 9-25(1) of the GST Act provides that a supply of goods is connected with Australia if the goods are 'delivered or made available' in Australia to the recipient of the supply.

The goods are made available to the providee under your contract with the non-resident entity while they are in Australia and as such the supply is connected with Australia under paragraph 9-5(c) of the GST Act.

Based on the above, each of the four elements of a taxable supply under section 9-5 of the GST Act are satisfied. However, the supply is not taxable to the extent that it is GST-free or input taxed.

Section 38-185 of the GST Act (ship stores and consumable goods)

Your supplies of goods to be consumed on the ship may be GST-free under table item 5 of subsection 38-185(1) of the GST Act, which states:

a supply of: (a) aircraft stores for use, consumption or sale on an aircraft on a flight that has a destination outside Australia; or (b) ship's stores for use, consumption or sale on a ship on a voyage that has a destination outside Australia; whether or not part of the flight or voyage involves a journey between places in Australia.

Goods and Services Tax Ruling GSTR 2003/4 Goods and services tax: stores and spare parts for international flights and voyages explains the operation of table item 5 of subsection 38-185(1) of the GST Act and the requirements for a GST-free supply of ship's or aircraft's stores, or spare parts, for international flights and voyages.

GSTR 2003/4 states:

11. ... Ship stores means stores for the use of passengers or crew of a ship, or for the service of a ship.

12. The term 'stores' includes all consumable goods such as food, water and beverages intended for consumption on board an aircraft or ship, and any goods taken on board to be sold, such as souvenirs, photographic film, confectionery and tobacco products. 'Stores; also includes consumables necessary for the operation and maintenance of an aircraft or ship, such as fuel and lubricants.

...

16. To be GST-free, the stores or spare parts must be supplied for a flight or voyage which has a destination outside Australia (that is, an international flight or voyage). An international flight or voyage may include a journey between places in Australia.

...

20. Stores supplied for use on an aircraft or ship embarking on an international flight or voyage, where the stores will be exported on board the ship or aircraft are taken to be for use on the flight or voyage. This is so even if it is known that some of the stores may be used, sold or consumed on a subsequent flight or voyage, such as a return journey to Australia

22. For a supplier to demonstrate that supplies made are GST-free under item 5, the supplier needs to retain sufficient documentary evidence to show that:

(a)  the goods supplies are aircraft's or ship's stores or spare parts; and

(b)  those stores or spare parts are for use, consumption or sale on board an aircraft or ship which is on, or is embarking on, an international flight or voyage.

...

44. Item 5 does not require that the goods are actually used as stores on an international flight or voyage. However, evidence that the goods were intended to be used for the requisite purpose is required - see paragraphs 74 to 87. The actual use of the goods may be relevant as evidence of the intended use when the goods are supplied.

46. However, stores which are to be taken on board a ship or aircraft embarking on an international voyage are taken to be for use on an international flight or voyage. The supply of these stores is GST-free. There is no requirement to apportion supplies of stores that are to be exported, even if it is known that the stores may not be completely consumed before the ship or aircraft returns to Australia. Re-imported stores may be subject to customs duty and GST upon importation if they are unloaded and entered for home consumption in Australia.

You have stated that the destination of the ships is outside Australia and that most of the food and beverages will be consumed whilst the providee of the non-resident entity is in Australia. However, you will supply large food stores that will be stored on the ship for consumption on the ship outside of Australia. The supply of consumable goods (i.e. food and catering, beverages and goods sold on board) and food stores (including goods which aren't consumed) will be GST-free under table item 5 of subsection 38-185(1) of the GST Act if you keep documentary evidence to support this.

Documentary evidence

Paragraph 75 of GSTR 2003/4 states that:

(1) You must:

a)    Keep records that record and explain all transactions and other acts you engage in are relevant to a supply, importation, acquisition, dealing, manufacture or entitlement to which this subsection applies; and

b)    Retain those records for the longest of:

i)      5 years after the completion of the transactions or acts to which they relate; and

ii)     the period of review for any assessment of an assessable amount to which those records, transactions or acts relate; and

iii)    if such an assessment has been amended under Subdivision 155-B - the period of 4 years mentioned in paragraph 155-70(2)(a) (which provides for a refreshed period of review) that applies to the latest such amendment.

Paragraph 78 of GSTR 2003/4 further provides that for supplies to commercial ships, the documentary evidence could include a combination of:

•         purchase orders from the shipping line (for example, a stores order);

•         delivery dockets or receipts signed by the master or other officer evidencing delivery of the stores or spare parts directly to the ship; and

•         shipping routes and schedules, which may provide evidence of the international voyage.

Section 38-2 of the GST Act (food and beverages)

Section 38-2 of the GST Act states that a supply of food is GST-free.

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act.

Under subsection 38-4(1) 'Food' includes food for human consumption (whether or not requiring processing or treatment), ingredients for food for human consumption, beverages for human consumption and ingredients for beverages for human consumption.

You have stated that food and catering is supplied to the providee of the non-resident entity for consumption which may come within the definition of 'food' under subsection 38-4(1) of the GST Act.

However, subsection 38-3(1) of the GST Act states:

(1)  A supply is not GST-free under section 38-2 if it is a supply of:

(a)  food for consumption on the premises from which it is supplied; or

(b)  hot food for consumption away from those premises; or

(c)   food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind; or

(d)  a beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or

(e)  food of a kind specified in regulations made for the purposes of this subsection.

(2)  However, this section does not apply to a supply of food of a kind specified in regulations made for the purposes of this subsection.

(3)  The items in the table in clause 1 of Schedule 1 or 2 are to be interpreted subject to the other clauses of Schedule 1 or 2, as the case requires.

Food

The table in clause 1 of Schedule 1 provides that the following food is not GST-free:

If you are supplying any food listed in the above table, it will not be GST-free.

Beverages

The table in Schedule 2 of the GST Act provides that the beverages specified in the table are GST-free.

If you are supplying any beverages listed in the above table, it will be GST-free.

Subsection 38-285 of the GST Act (supplies of water)

Water (beverage for human consumption)

Natural water, non-carbonated and without any other additives is GST-free under table item 14 of Schedule 2 of the GST Act.

Water (tanks)

The supply of bulk potable water (i.e. 30,000-100,000L) is GST-free according to both of provisions of the GST Act as discussed below.

The supply of water as a 'store' under table item 5 of subsection 38-185(1) of the GST Act will be GST-free as you have stated that the destination of the ships is outside Australia and that water stored on the ship will be consumed on an international voyage.

Further to this, subsection 38-285(1) of the GST Act provides that a supply of water is GST-free under section 38-285(2) of the GST Act if the water is either supplied or transferred into a container that has a capacity of more than 100 litres.

Paragraph 3 of Goods and Services Tax Ruling GSTR 2000/25 Goods and services tax: GST-free supplies of water, sewerage and sewerage-like services, storm water draining services and emptying of a septic tank provides that this provision does not apply to water that would be GST-free under section 38-2 of the GST Act as the supply of a beverage for human consumption.

Question 2

As per Question 1, you make a taxable supply if the requirements of section 9-5 of the GST Act are satisfied.

You have stated that the resident agent is acting as agent for non-resident entity.

Resident agent

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law, paragraph 45 states:

Divisions 57 and 153 apply when a principal makes a relevant transaction (i.e., taxable supply, taxable importation, creditable acquisition or creditable importation) through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

When a non-resident entity makes a creditable acquisition of goods and services and receives these goods and services through a resident agent, it is considered that the acquisition is made by the non-resident entity (through the resident agent) not by the resident agent.

Even though the goods and services are invoiced to resident agent of the non-resident entity, the non-resident entity is still the entity who is being supplied the goods and services as principal (through its resident agent)

Question 2(a)

Taxable supplies (services)

Therefore, as per the reasoning in Question 1(a), your supplies services to the non-resident entity (through its resident agent) will be taxable supplies under section 9-5 of the GST Act and not GST-free under table item 2 of subsection 38-190(1) of the GST Act due to the application of subsection 38-190(3) of the GST Act.

Question 2(b)

Taxable supplies (goods)

Referring to the reasoning in Question 1(b):

•         the supply of ship stores and consumable goods is GST-free under table item 5 of subsection 38-185(1) of the GST Act if the documentary requirements are met;

•         the supply of food is GST-free under section 38-2 of the GST Act if it is not listed in the table in Schedule 1 of the GST Act (provided above);

•         the supply of beverages is GST-free under section 38-2 of the GST Act if it is listed in the table in Schedule 2 of the GST Act (provided above);

•         the supply of water (tank) is GST-free under subsection 38-285(1) of the GST Act; and

•         the supply of water (beverage) is GST-free under table item 14 in Schedule 2 of the GST Act.

Question 3

GST credits

Section 11-20 of the GST Act provides that you are entitled to the GST credits for any creditable acquisition that you make.

Creditable acquisition has the meaning given by section 11-5 of the GST Act.

For an acquisition to be a creditable acquisition under section 11-5 of the GST Act the following are required:

•         you acquire the goods and services for a creditable purpose

•         the supply of the goods and services to you are taxable supplies

•         you provide consideration for the supplies

•         you are registered, or required to be registered, for GST.

Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire the thing for a creditable purpose to the extent that:

•         the acquisition relates to making supplies that would be input taxed, or

•         the acquisition is of a private or domestic nature.

Section 11-25 provides that the amount of the GST credit is equal to the GST payable on the supply of the thing. However, the amount of the GST credit is reduced if the acquisition is only partly creditable.

Creditable purpose

You acquire the goods and services for a creditable purpose within the meaning provided section 11-15 of the GST Act because you make an acquisition in carrying on your enterprise which includes fulfilling the agreements/arrangements made between yourself and the non-resident (and its resident agent).

Any acquisition you make to fulfil your contract with the non-resident entity may be a creditable acquisition to you and is one transaction in the supply chain. You will be entitled to a GST credit for any creditable acquisitions you make (i.e. the tax invoice is in your name and acquired for a creditable purpose). You must consider your GST obligations for all subsequent transactions in that supply chain. When you make your supplies to the non-resident these are the next supplies in the supply chain and will not impact your eligibility for a GST credit on creditable acquisitions you have made.

The supply of goods and services to you are taxable supplies as required under paragraph 11-5(b) where:

•         the Australian businesses supply the services and goods for consideration;

•         the Australian businesses make the supplies in the course or furtherance of an enterprise that they carry on;

•         these supplies are connected with Australia; and

•         the Australian businesses are registered for GST.

You provide the consideration for the supplies as outlined in subsection 9-15(1) of the GST Act as you are responsible for monetary payment to the suppliers.

Where the acquisitions you make meet all the requirements of section 11-5 of the GST Act, you are entitled to an GST credit on your purchase of these services and goods as provided under section 11-20 of the GST Act.

However, where you acquire goods and services from a GST registered business and they do not treat that supply to you as a taxable supply, you will not be entitled to an input tax credit on your purchase of these goods and services because you do not make a creditable acquisition.

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