Edited version of private ruling

Authorisation Number: 1011632027029

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Ruling

Subject: GST and supplies to non-resident

Questions

Are the following supplies made by you to a non-resident entity taxable:

§ supply of the products to a vessel that has a destination outside Australia

§ the on-charge of delivery of the products to the ship providore

§ the on-charge of off-site storage and handling of the non-resident entity's accessories and storage of stocks by third parties

§ storage and handling of accessories at your warehouse in Australia

§ rental of pallet space

§ the collection of the full gas bottles owned by the non-resident entity

§ the on-charge of refilling of gas bottles

§ refurbishment of exterior of the gas bottles

§ the on-charge of the cost of freight to transport the gas bottles to the ship providore plus an administration fee, and

§ supply of miscellaneous goods onto the vessels?

Advice/Answers

The following supplies made by you to the non-resident entity are taxable:

§ rental of pallet space, and

§ storage and handling of accessories at your warehouse in Australia.

The following supplies made by you to the non-resident entity are GST-free supplies:

§ supply of products onto a vessel that has a destination outside Australia

§ the on-charge of delivery of the products to the ship providore

§ the on-charge of off-site storage and handling of the non-resident entity' accessories and storage of stocks by the third parties

§ collection of the gas bottles owned by the non-resident entity

§ the on-charge of refilling of gas bottles

§ the on-charge of freight to transport the gas bottles to the ship providore, and

§ supply of miscellaneous goods onto the vessels.

The following supply is GST-free if the non-resident entity is not required to be registered for GST. Please refer to reasons for decisions

§ refurbishment of exterior of the gas bottles.

Relevant facts

You are an Australian resident entity and registered for GST.

You entered into an agreement with a non-resident entity (A) to provide goods and services on vessels which have berthed in Australian port and have a destination outside Australia (outgoing vessels).

The outgoing vessels are commercial vessels and are not for private and recreational purposes. The outgoing vessels are owned by various global entities.

You manufactured most of the products in Australia for A and supply them to the outgoing vessels under the agreement. The products are used on the outgoing vessel.

The delivery of the products is within 60 days of raising the invoice to A.

You also provide the following goods and services to A:

§ On-charge of delivery of products to the ship providore

o Instructions are received from A as to where to deliver the products. The delivery point is always to a ship providore who has a license to deliver goods onto the outgoing vessel.

o You arrange for the ship providore to deliver the goods to the vessels and on-charge A for the delivery to the providore.

§ On-charge of off-site storage and handling of A's owned accessories and stocks by third parties

o The third parties store the stocks and accessories at their sites for A and invoice you for the storage.

o The handling of accessories involved the removal of the accessories from the warehouse onto the transport vehicle.

o You on-charge the costs plus an administration fee.

§ Storage and handling of accessories at your warehouse

o You provide a particular storage space and handling of the accessories at your warehouse in Australia and invoice A for rental.

§ Pallet space rental

o You provide pallet space at your warehouse for A and you invoice A for the rental on a monthly basis.

§ On-charge of refilling of gas bottles

o You pay for the refilling of gas bottles and you on-charge the costs to A.

§ Collection of gas bottles owned by A

o You invoice A for the collection of full gas bottles from the supplier.

§ Refurbishment of the exterior of A owned gas bottles

o You charge A for your service of refurbishing the exterior of their gas bottles.

o The services include the cleaning and repairs to the gas bottles.

§ On-charge of cost of freight for gas bottles

o The third party charges you for the transport of the gas bottles to the ship providore. You on-charge the cost of freight plus an administration fee.

§ Supply of miscellaneous goods to the vessels

o A may request you to supply miscellaneous goods to be used on the outgoing vessels.

o You purchase the goods from local suppliers and supply them onto the outgoing vessels. The goods are generally delivered to the ships providore within 60 days of raising the invoice to A. You invoice A at cost plus a margin.

A is an overseas company. It does not have an office, agent or representative in Australia and is not registered with ASIC. It is not registered for GST and you have no knowledge on whether A is required to be registered for GST.

You have not entered into any agency agreement with A or acting as its representative in Australia.

Reasons for decisions

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Taxable supply

Section 9-5 of the GST Act states:

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.

(* denotes a defined term in section 195-1 of the GST Act)

From the information provided, your supplies to A meet the requirements of paragraphs 9-5(a) and 9-5(b) and 9-5(d) of the GST Act, as:

§ you receive consideration from A for the supplies

§ the supplies are in the course or furtherance of an enterprise that you carry on, and

§ you are registered for GST.

Therefore, it is necessary to determine whether your supplies to A are connected with Australia under paragraph 9-5(c) of the GST Act.

Connected with Australia

Section 9-25 of the GST Act provides definition on supplies connected with Australia.

A supply of goods is connected with Australia includes the goods that are delivered, or made available, in Australia to the recipient of the supply, or being removed from Australia.

A supply of real property is connected with Australia if the real property, or the land to which the real property relates, is in Australia.

A supply of anything other than goods or real property is connected with Australia includes the thing that is done in Australia or the supplier makes the supply through an enterprise that the supplier carries on in Australia.

Based on the information provided, your supplies to A including real property, goods and services are considered to be connected with Australia and the requirements in paragraph 9-5(c) of the GST Act are satisfied.

Your supplies to A are taxable to the extent that they are not input taxed or GST-free. Your supplies are not input taxed under the GST Act or the provision of another Act. Therefore, what is left to determine is whether the supplies are GST-free.

Your supplies to A are considered comprised of different categories and each category will be discussed below.

Supply of pallet space rental, storage and handling of accessories at your warehouse in Australia

Section 38-190 of the GST Act provides that certain supplies of things 'other than goods or real property', for consumption outside of Australia are GST-free.

You advised that you supply storage space to A. In addition, you also supply the handling service together with the storage for the accessories. The handling service includes the removal of the accessories onto the transport vehicle. The invoice you issued to A for this supply does not itemise the rental and the handling fees for the accessories.

Paragraph 59 of Goods and Services Tax Ruling GSTR 2001/8 provides that if you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then it is a composite supply. You treat a composite supply as a supply of a single thing.

In this case, the dominant part of the supply is the storage of the accessories. The supply of the handling service is ancillary and incidental to your supply of the storage for the accessories. Therefore, it is a composite supply and is considered as a single supply of storage space.

Therefore, it needs to be determined whether your supply of storage to A is a supply of real property.

1. Supply of real property

Real property is defined in section 195-1 of the GST Act to include:

§ any interest in or right over land

§ a personal right to call for or be granted any interest in or right over land; or

§ a licence to occupy land or any other contractual right exercisable over or in relation to land.

In determining whether a supply is properly characterised as a supply of real property or something else, it is necessary to consider all the circumstances of the transaction to ascertain its essential character.

Goods and Services Tax Ruling GSTR 2003/7 illustrates the importance of this characterisation issue. Paragraphs 105 and 106 of GSTR 2003/7 state:

Rental of particular secure storage space

105. If a licence to occupy a particular secure storage space is supplied along with security services but those services are ancillary to the licence to occupy land, the supply is of real property.

Provision of storage services, without rental of a particular site

106. Where the supply is of storage services only, there being no right to occupy particular storage space, the real property is merely the setting for the service performed. The supply is the service of storing goods. There is no supply of real property.

In your case, you provide the rental of a particular pallet and storage space to A. As such, it is a supply of real property and section 38-190 of the GST Act does not apply to your supply.

Your supply of storage space in Australia is also not GST-free under any other provisions of the GST Act. Therefore, the supply is taxable and is therefore subject to GST.

Supply of services

The following supplies are considered as a supply of services to A:

§ on-charge of delivery of the products to the ship providore

§ on-charge of off-site storage of A's stock, accessories and handling at the third parties' site

§ collection of gas bottles owned by A

§ on-charge of refilling of gas bottles

§ refurbishment of exterior of the gas bottles, and

§ on-charge of transportation costs of the gas bottles by third parties to the ship providore.

Since the supply of your services to A is neither a supply of goods nor a supply of real property, section 38-190 of the GST Act is relevant for consideration. In particular, items 2 and 3 in the table in subsection 38-190(1) of the GST Act (Item 2 and 3) are relevant in this circumstance.

GST-free

Under item 2 in the table in subsection 38-190(1) of the GST Act (Item 2), a supply is GST-free where 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.

Under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3), a supply is GST-free where it is:

a supply:

a) that is made to a recipient who is not in Australia when the thing supplied is done; and

b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with real property situated in Australia.

Item 2 is applicable to supplies made to non-resident recipients. Item 3 is applicable irrespective of the residency of the recipient.

Item 2

A supply that is made to a non-resident who is not in Australia

A is a non resident company. In order for a supply to be GST-free under item 2 or 3 of subsection 38-190(1) of the GST Act, A must not be in Australia when your services are performed. 

In accordance with the Goods and Services Tax Ruling GSTR 2004/7, the pre-condition that the non-resident is not in Australia when the thing supplied is done requires that neither the

non-resident, nor a representative acting on behalf of the non-resident if the non-resident is a company, is in Australia 'in relation to the supply'.

Paragraph 38 of GSTR 2004/7 provides that a non-resident company is in Australia if the company is registered with ASIC, or if the company has a permanent establishment in Australia for income tax purposes.

Pursuant to the information you have provided, A is neither registered with ASIC, nor does it have a permanent establishment in Australia for income tax purposes. Therefore it is not in Australia for the purposes of Item 2 and Item 3(a). As A is not in Australia for GST purposes, we do not need to consider whether it is in Australia in relation to the supply that you make.

Where a non-resident entity is not in Australia when the supply is done, the supply must still meet the requirements in either paragraph (a) or (b) of Item 2.

Paragraphs (a) of Item 2

For the purposes of paragraph (a) of Item 2, the supply must be analysed to determine whether it is properly characterised as a supply of work physically performed on goods or is directly connected with real property situated in Australia. This is examined in Goods and Services Tax Ruling GSTR 2003/7.

On-charge of delivery of the products to the ship providore, on-charge of refilling of gas bottles, collection of gas bottles owned by A, on-charge of transportation cost of gas bottles provided by third party to the ship providore

Goods and Services Tax Ruling GSTR 2003/7 discusses about the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods'.

Paragraph 61 of GSTR 2003/7 states that the supply of transport services is not a supply of work physically performed on goods. Although the goods are moved from one location to another, the supply does not have any physical effect on the goods themselves.

Therefore, the supplies listed in (a) above satisfy the requirements in paragraph (a) in Item 2 as they are not a supply of work physically performed on goods.

(b) On-charge of offsite storage of A's chemical stock and handling of accessories at a third party's site

Paragraphs 44 in GSTR 2003/7 discusses about supplies of things that are not directly connected with goods or real property. It states that a direct connection does not exist where the supply does not relate to particular goods or real property or only indirectly relates to such goods or real property. It includes services of merely arranging supplies between two other parties.

Based on the facts provided, you on-charge the rental of offsite storage of A's goods at the third parties' site plus an administrative fee. It is considered you provide the services of arranging the supplies between A and the third parties for the storage of goods and this supply is not directly relates to real property in Australia.

Therefore, this service satisfies the requirement of paragraph (a) in Item 2.

(b) Refurbishment of the exterior of gas bottles owned by A

The refurbishment includes the cleaning and repairs to the gas bottles. Paragraph 58 in GSTR 2003/7 states that a supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way.

Paragraphs 56 to 69 in GSTR 2003/7 discuss the meaning of 'a supply of work physically performed on goods'. Cleaning and repairs to goods are considered as a supply of work physically performed on goods.

As such, your service to refurbish the exterior of the gas bottles fails to meet the requirement in paragraph (a) in Item 2. Therefore, we have to consider whether this supply satisfies the requirements in paragraph (b) of Item 2.

Paragraph (b) of Item 2

Under paragraph (b) of the Item 2, a supply is GST-free if the non-resident acquires your supply in carrying on its business, and is neither registered nor required to be registered for GST in Australia.

You advised that A is not registered for GST and you have no knowledge on whether A is required to be registered for GST.

Under section 23-5 of the GST Act, an entity (including non-resident) is required to be registered for GST in Australia if:

§ it is carrying on an enterprise, and

§ its GST turnover from supplies, that are connected with Australia and made in the course of its enterprise, meets or exceeds the registration turnover threshold of AUD $75,000 (or AUD $150,000, if it is a non-profit body).

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2.

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the non-resident has provided a signed written statement, declaring that they are not required to be registered. This is only accepted where the supplier has no reasons to believe the statement is not accurate.

Hence, your supply of refurbishment of gas bottles will satisfy the requirements in paragraph (b) in Item 2 if A is not required to be registered for GST in Australia.

However, the scope of Item 2 is limited by subsection 38-190(3) of the GST Act.

Limitations to Item 2

Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 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.

Goods and services Tax Ruling GSTR 2005/6 explains the operation of subsection 38-190(3) of the GST Act. This ruling provides that subsection 38-190(3) only applies if there is a supply of something, being a supply that is made to a non-resident and is covered by Item 2, and that same supply is provided, or is required to be provided to another entity in Australia. That is the contractual flow of the supply is to one entity (the non-resident) and the actual flow of the supply is to another entity in Australia.

Pursuant to the information that you have provided, paragraph 38-190(3)(a) of the GST Act is satisfied as the supply of your services is under an agreement entered into with A, a non-resident.

In order to determine whether the requirement of paragraph 38-190(3)(b) is met, it must be established to which entity the supply is 'provided'.

For your supplies of off-site storage of A's stocks and accessories, refurbishment, collection and refilling of gas bottles owned by A, the supplies are provided to A, not to any other entity in Australia. As such, subsection 38-190(3) of the GST Act does not apply for these supplies.

For the supply of delivery of the products and arranging the transportation of gas bottles by third party to the ship providore, it is considered the supplies are provided to A even though the goods might ultimately been delivered to the outgoing vessels. The subsequent delivery of goods to the outgoing vessels is not supplied by you. We consider that your services are only provided to A, not to the ship providore or to any other entity in Australia.

Therefore, subsection 38-190(30 of the GST Act does not exclude the supply of these services from being GST-free under Item 2.

Item 3

Paragraph (a) of Item 3 has already been addressed above.

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is, whether the place is outside Australia). We take a two step approach to work out whether effective use or enjoyment of a supply takes place outside Australia. Firstly, we determine the entity to which the supply is provided (the providee entity). We then determine whether provision of the supply to the providee entity is outside Australia. 

As paragraph (b) of Item 3 refers to the effective use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply. According to paragraph 41 in GSTR 2007/2, a supply is made to a recipient and provided to another entity if in the performance of the service (or in the doing of some thing) the actual flow of that supply is to an entity that is not the recipient entity with which the supplier made the agreement for the supply. That is while the contractual flow of the supply is to the recipient entity, the actual flow of the supply is to another entity.

In this case, where you have made and provided your services directly to A and A is the providee entity. We consider that in all circumstances A has the actual use or enjoyment of your supply. Our conclusion is that the actual flow of your supply is to A, not any other Australian resident entities.

The next step is to determine whether the effective use or enjoyment of the supply takes place outside Australia. Effective use or enjoyment of a supply only takes place outside Australia if there is provision of the supply to the providee entity outside Australia.

In relation to when the supply of your services are made to and provided to A, it is not in Australia in relation to your supply when you provide your services. In this circumstance the use and enjoyment of your supply is outside Australia.

For the supplies of delivery of the products to the ship providore, on-charge of refilling of gas bottles, collection of gas bottles owned by A, on-charge of transportation cost of gas bottles provided by third party to the ship providore, they are neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia. Therefore, the supply of these services is GST-free under Items 2 and/or 3.

However, as discussed above, the supply of refurbishment to exterior of gas bottles is a supply of work physically performed on goods situated in Australia. As such, this supply fails to meet all the requirements in paragraph (b) of Item 3.

3. Supply of goods to the vessels that have a destination outside Australia

(a) Products and other miscellaneous goods for use on the vessels

Section 38-185 of the GST Act covers the GST treatment of supplies of goods that are to be exported. The table in subsection 38-185(1) lists the supplies of goods that are GST-free. For your supplies of chemical products and other miscellaneous goods onto the outgoing vessels, item 5 in the table in subsection 38-185(1) of the GST Act (Item 5) is relevant in this circumstance.

Item 5 is reproduced below:  

Accordingly, a supply of ships stores or spare parts is GST-free where paragraph (b) of Item 5 is satisfied as follows:

§ there is a supply of goods that are ships stores

§ the goods are for use, consumption or sale on a ship, and

§ the ship is to depart on a voyage which 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 discusses stores and spare parts for international flights and voyages.

Paragraph 11 of GSTR 2003/4 provides that ship's stores means stores for the use of the passengers or crew of a ship, or for the service of a ship.

You advised that the products and are used to service the outgoing vessel. The miscellaneous goods are for use on the outgoing vessel. As such, they are the ship's stores and the requirements in paragraph (b) of Item 5 are satisfied.

However, subsection 38-185(2) of the GST Act provides that a supply covered by Item 5 is not GST-free if the supplier reimports the goods into Australia. In this case, you have not indicated that you will reimport the goods into Australia. As such, subsection 38-185(2) of the GST Act does not apply to your supply of goods to the outgoing vessels.

Therefore the supply of the products and other miscellaneous goods to the outgoing vessels is GST-free under Item 5.

Summary

The supplies of pallet space rental, storage and handling of accessories at your warehouse in Australia is a supply of real property in Australia and is taxable under section 9-5 of the GST Act.

The supplies of arranging offsite storage of A's stocks and handling of accessories at third parties' sites, the collection and refilling of gas bottles owned by A, on-charge of delivery of the products and arranging transportation of gas bottles by third parties to the ship providore are GST-free under items 2 and 3 in the table in subsection 38-190(1) of the GST Act.

The supply of the refurbishment of the exterior of gas bottles is GST-free provided A is not required to be registered for GST under paragraph (b) of Item 2.

The supplies of products and other miscellaneous goods to the outgoing vessels are GST-free under Item 5.

All GST rulings mentioned in this ruling are available on our website at www.ato.gov.au