Edited version of private ruling

Authorisation Number: 1011635585853

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Ruling

Subject: GST and export of goods

Question 1

Is your supply of goods to an Australian entity a taxable supply where you export the goods on behalf of Australian entity to their overseas customers?

Answer

Yes, your supply of goods to an Australian entity is a taxable supply under section 9-5 of the GST and is therefore subject to GST.

Question 2

Are you making a taxable supply of despatch services when you arrange delivery of the goods to the overseas customers of the Australian entity on its behalf?

Answer

Yes, note that your supply of despatch services to an Australian entity forms part of the greater taxable supply of goods that you make to that entity.

Question 3

Does the reimbursement for expenses on delivery (postage) incurred while providing your despatch services to an Australian entity form part of the consideration for a taxable supply that you make?

Answer

No, the reimbursement does not form part of the consideration for a taxable supply that you make.

Relevant facts

You are carrying on an enterprise of selling and distributing X and are registered for goods and services tax (GST).

To expand your product range, you have begun selling and distributing X related goods (goods) to the retailers.

You initially purchased these goods from an Australian supplier who has the product manufactured overseas.

To minimize import and freight costs you import the goods yourself. You consolidate the deliveries of the Australian entity with delivery of your own products from other overseas based manufacturers. You are the owner of these goods.

As well as supplying the goods to your own customers, you are now also a distributing agent for the Australian entity.

The Australian entity places purchase orders with you indicating the overseas destinations for the goods to be delivered on their behalf.

You send the goods via the Australian Post to their overseas customers with a copy of their invoice attached to the parcel. When you complete the Customs Duane - Sender's/Lodger's Declaration form, you entered the Australian entity as the senders of the goods but use your address. You also attach a senders ID label to the parcel which includes the same details.

The value declared on the Customs Duane is the price you charged to the Australian entity for the goods and your service fee.

You issue a tax invoice to the Australian entity for the cost of the goods, a handling fee for arranging the delivery and the cost for delivery which is the same amount the Australian Post charge you.

The Australian entity invoice their customers for the supply of the goods and the customers pay directly to them.

Reasons for decision

Question 1

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.

A supply of goods is a taxable supply if all the requirements of section 9-5 of the GST Act are met. Under section 9-5 of the GST Act 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.

In your case, you make a supply of goods to an Australian entity for consideration and in the course of an enterprise of selling and distributing X that you carry on. The supply is connected with Australia as you carry on your business in Australia and you are registered for GST. All the requirements in paragraph 9-5(a) to 9-5(b) of the GST Act are satisfied. Therefore, your supply of goods to the Australian entity is a taxable supply unless the supply is GST-free or input taxed.

Your supply of goods is not input taxed under any provision of the GST Act. As such, what remains to be determined is whether the supply is GST-free.

Under subsection 38-185(1) of the GST Act, a supply of goods is GST-free if the supplier exports the goods from Australia before, or within a specified time.

The supply of goods by export is GST-free where the supply meets the requirements of one of the items in the table in subsection 38-185(1) of the GST Act.

Item 1 in the table of subsection 38-185(1) of the GST Act (Item 1) provides that an export of goods is GST-free if the supplier exports the goods from Australia before, or within 60 days (or such further period as the Commissioner allows) after:

· the day on which the supplier receives any of the consideration for the supply; or

· if, on an earlier day, the supplier gives an invoice for the supply the day on which the supplier gives the invoice.

Item 1 not only provides that an export must take place within a certain time but it must also be the supplier that exports the goods.

Supplier exports

The application of section 38-185 of the GST Act is examined in Goods and Services Tax Ruling GSTR 2002/6 'Exports of goods, item 1to 4 of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999'. This ruling sets out the requirements necessary for the supplier to be the entity that exports the goods.

The meaning of the phrase 'supplier exports' is explained in paragraphs 106-163 of GSTR 2002/6. The following explanation is based on these paragraphs.

The question of whether the supplier exports, that is, whether the supplier sends or takes goods from Australia, is answered by examining the role the supplier plays in bringing about the removal of the goods from Australia.

The supplier is the exporter if the part played by the supplier in bringing about the removal of the goods from Australia is sufficient to justify the supplier being described as the sender of those goods out of Australia.

Where the supplier:

(a) contracts at its 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,

the supplier will be regarded as the entity that exports goods from Australia.

According to paragraph 115 of GSTR 2002/6 the determining factors, at a practical level, are:

· the name of the entity that appears on the international transport document as 'shipper' and

· whether the shipper pays the transport operator. This is the case even if the supplier recoups the transport costs from the buyer.

In some cases, a supplier may engage another party such as a freight forwarder, consolidator, express courier or other intermediary to deliver the goods to the ship or aircraft operator. Although that other party delivers the goods on behalf of the supplier, it is considered that the supplier is responsible for the delivery. The supplier is still considered to be the exporter where the supplier's agent makes the necessary delivery of the goods to the international transporter engaged by another.

Similarly, a supplier may engage another party to enter the international contract of carriage on its behalf. In this case, the supplier is still considered to be the exporter, despite the contract being arranged through their agent.

You have advised that you carry out the instructions by the Australian entity to make the necessary delivery arrangement of the goods on their behalf to their overseas customers. The Australian entity is entered as the sender of the goods (shipper) on the Customs Duane - Sender's/Lodger's Declaration form and reimburses you for the cost of the delivery (postage).

In this circumstance, you are acting as an agent for the Australian entity when you arrange and organise the delivery of the goods on their behalf to their overseas customers. This is done so to avoid the double handling which would occur if the goods were to send to the Australian entity and the Australian entity arranges for the exportation. As the Australian entity is entered as the 'shipper' on the international transport document and pays for the delivery cost, the Australian entity is considered to be the supplier that exports within the meaning of Item 1.

As you are not the 'supplier that exports' the requirements of subsection 38-185(1) of the GST Act are therefore not satisfied. Your supply of goods to the Australian entity is therefore not GST-free.

As your supply of goods to the Australian entity satisfies all the requirements of section 9-5 of the GST Act your supply is a taxable supply and is therefore subject to GST.

Question 2

A supply may be characterised as consisting of one or more things or parts. That is, the supply may be regarded as commercially distinct in its own right or it may be regarded as having several identifiable parts. A mixed supply has to be separated or unbundled and need to be individually recognised where as a composite supply is treated as a supply of a single thing.

From the facts given, the Australian entity pays you a handling fee for making the necessary arrangement for the delivery of the goods on its behalf to the overseas customers.

We need to determine whether the arranging (despatch services) forms part of the supply of goods or whether it is a separately identifiable part of the supply.

Where arranging delivery is a separately identifiable part of the supply, the supply will become what is referred to as a mixed supply. A mixed supply is a supply that is made up of taxable and non-taxable parts.

Where delivery is an integral, ancillary or incidental part of a supply, the supply is referred to as a composite supply. A composite supply is a supply where there is a dominant part of a supply (for example, taxable supply of Y insert) and subordinate parts that compliment the dominant part (for example, delivery). If the subordinate parts are insignificant in value or function, or merely contribute to or complement the use or enjoyment of the dominant part of the supply they will form part of a composite supply. A composite supply is essentially the provision of one thing.

In your circumstance, what you are supplying to the Australian entity are goods, and not a delivery service in addition to the goods. We consider that you make a supply that contains a dominant part (supply of goods) and the components (arranging delivery) which form part of the supply of the goods. The delivery is necessary for the customer to enjoy the goods and it contributes to the proper performance of the agreement you have with the Australian entity. In this instance, the 'arranging delivery' is a part of the overall supply that can be described as integral, ancillary or incidental to the dominant part of a supply of goods. The supply you make is a composite supply.

A composite supply is treated as a supply of a single thing. If a composite supply is taxable, the GST is payable on the whole supply. If a composite supply is non taxable, then no GST is payable on the whole supply.

As discussed in Question 1 above, your supply of goods to the Australian entity is a taxable supply under section 9-5 of the GST Act. As such GST will be payable on the whole supply (i.e. cost of the goods and the handling fee for arranging the delivery).

Question 3

Disbursements usually occur in connection with activities carried out by one entity as an agent for another. The application of GST to agency relationships is examined in GSTR 2000/37 'agency relationships and the application of the law'.

Paragraphs 48 and 49 of GSTR 2000/37 are of particular relevance to agency relationship and disbursements. Paragraph 48 of GSTR 2000/37 explains that agents may incur expenses on a client either as an agent of the client or as a principal in the ordinary course of providing their services to the client.

Paragraph 49 of GSTR 2000/37 provides that if a disbursement is made by an entity and incurred in the entity's capacity as a paying agent for a particular client, then no GST is payable by the entity on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the entity, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the entity.

However, if goods or services are supplied to the entity to enable the entity to perform services supplied to the client, GST is payable by the entity on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the entity's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the entity.

In summary, whether you must remit GST in respect of disbursement of expenses depends on whether you made the disbursement as paying agent or as principal in providing services to your client. You are not liable for GST on the reimbursement of expenses from your client where you acted as a paying agent on your client's behalf.

In your case, in the course of supplying goods to the Australian entity, you also provide despatch services where you arrange for the delivery of goods to the overseas customers of the Australian entity and incurred costs (postage) on the delivery. You do not provide a delivery service to the Australian entity and are merely acting as a paying agent for the Australian entity in relation to the supply of delivery. The amount you receive as reimbursement for the delivery costs (postage) by the Australian entity is not consideration you receive for your supply of goods. Accordingly, the reimbursement is not consideration for a taxable supply that you make. You are not liable for GST on the reimbursement of such expenses.