Edited version of private ruling

Authorisation Number: 1011678914787

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Ruling

Subject: GST and importation of parts for re-assembling of an aircraft

Questions

1. Is the importation of the disassembled aircraft parts by you a taxable importation, where you are named the 'owner' on the Customs declaration?

Answer: Yes, the importation of disassembled parts of an aircraft is a taxable importation under subsection 13-5(1) of the GST Act.

2. Are you entitled to input tax credits on the taxable importation of goods where you act as a resident agent for a non-resident client in relation to the importation?

Answer: No, you are not entitled to input tax credits for the importation of disassembled aircraft parts under Division 57 of the GST Act.

3. Are you making a taxable supply when you supply assembly services to a non-resident company?

Answer: No, your supply of assembly services to the non-resident company is not a taxable supply. The supply would be GST-free under subsection 38-190(1) of the GST Act if the non-resident company is not registered and not required to be registered for GST in Australia.

4. Does the reimbursement for expenses on delivery incurred while providing your services to the non-resident company 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 aircraft manufacturing and repairs and are registered for goods and services tax.

You are registered for the GST deferral scheme.

A non-resident client purchased a fully operational aircraft, a single engine piston propeller from overseas. The aircraft was disassembled into parts so that they can be shipped by ocean shipping container into Australia.

Your agreement/arrangement with the non-resident client is to re-assemble the aircraft back to its original form (return it to an airworthy condition) and flight-test before it departs permanently for a destination outside Australia. You are also required to facilitate the importation of the disassembled aircraft parts into Australia.

The aircraft is foreign registered and is not on the Australian Civil Register. It is not owned by an Australian entity nor will it be used domestically.

You arrange with an Australian freight forwarding company to ship the disassembled aircraft parts to Australia. The freight forwarding company provides a door-to-door transportation service to you.

Your details are shown on the Customs declaration as owner/importer for the disassembled aircraft parts and are liable to pay the GST and any Customs duty associated with this importation.

As you are registered for the GST deferral scheme the GST payment on this importation has been deferred.

You have invoiced your client for a deposit (inclusive of GST) on for the costs incurred on delivery.

You have advised that your client will reimburse you for any GST and Customs duty paid on the importation.

On completion of assembling the aircraft, your client will physically navigate the aircraft out of Australia.

You will be provided with documentation in relation to the aircraft leaving Australia e.g. export declaration.

Your client is not registered for GST in Australia and does not have an office in Australia.

The aircraft will only be used in your client's business overseas.

Reasons for decision

Agency

Firstly, we need to determine if an agency relationship exists between you and your non-resident client.

Goods and Services Tax Ruling GSTR 2000/37 "agency relationships and the application of the law" describes what is meant by principal/agent relationships.

Paragraph 10 of GSTR 2000/37 states:

An intermediary may be authorised by another party to do something on that party's behalf. Generally, the intermediary is called an agent. The party who authorises the agent to act on their behalf is called the principal…

Further, paragraph 15 of GSTR 2000/37 states:

When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal.

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.

A non-resident entity may make taxable supplies, taxable importations, creditable acquisitions or creditable importations through a resident agent.

Division 57 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) contains a special rule that overrides the general law agency principles and makes resident agents acting for non-residents responsible for the GST consequences of supplies and acquisitions the non-residents make through their resident agents. If the entity that makes a taxable importation is a non-resident and that non-resident makes the taxable importation through a resident agent, the resident agent is liable to pay the GST on the taxable importation, not the non-resident principal.

Where there is no documentation which formalises the relationship between parties, an agency relationship may still exist where the conduct of the parties necessarily implies it.

An indicator of an agency relationship is the ability of an agent to make a principle liable for the expenses that it incurs on their behalf. GSTR 2003/15 "importation of goods into Australia" discusses our view on importation. Paragraph 148 of GSTR 2003/15 provides that an arrangement for the principal to reimburse the agent for GST paid on the taxable importation or to be put in funds by the principal to enable the agent to pay the GST on behalf of the principal is indicative of agency.

In this case you have an agreement with a non-resident client to oversee the importation and the delivery of the disassembled aircraft parts to Australia. You arrange with a freight forwarding company to ship the disassembled aircraft parts to Australia. Your name appears on the Customs declaration as owner of the goods. You are liable to pay for the GST, Customs duty and delivery cost associated with this importation and will be reimbursed by the non-resident client for these costs.

We consider that, in relation to the importation of the disassembled aircraft parts, an agency relationship exists between you and your non-resident client. You are a resident agent acting on behalf of the non-resident principal under section 57 of the GST Act. Therefore you will be liable for the GST payable on a taxable supply or taxable importation made by the non-resident through you. You may also be entitled to the input tax credits for a creditable acquisition or creditable importation made by the non-resident through you.

Question 1 - Importation

Under subsection 13-5(1) of the GST Act you make a taxable importation if:

(a) goods are imported; and

(b) you enter the goods for home consumption (within the meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent that it is a non-taxable importation.

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if:

(a) it is a non-taxable importation under Part 3-2; or

(b) it would have been a supply that was GST-free or input taxed if it had been a supply.

Taxable importation

Goods are imported when they are brought into Australia from abroad. This requires that the goods are unloaded here in Australia. Disassembled aircraft parts are goods for GST purposes. As they are brought to Australia to be unloaded here they are goods that are imported. Therefore paragraph (a) of subsection 13-5(1) of the GST Act is satisfied.

Imported goods are entered for home consumption, within the meaning of the Customs Act, by an 'owner' as defined in that Act, entering imported goods for home consumption. The imported goods are entered by lodging an import entry in the name of the 'owner'.

At paragraph 13 of GSTR 2003/15 it provides that if you as 'owner' lodge an import entry in your name, you enter imported goods for home consumption within the meaning of the Customs Act and you are liable to pay GST on that importation if the importation is a taxable importation.

Typically, the 'owner' that enters imported goods is the legal owner of the goods, or the importer, exporter, consignee, agent or other person with an interest in, or control of, the goods. When an entry is made in the name of the 'owner' and if it is a taxable importation, it is the owner that makes the taxable importation and is liable for GST.

Paragraph 40 of GSTR 2003/15 provides that if a non-resident makes a taxable importation through an Australian resident agent where the non-resident appoints the agent to make the entry and the resident agent is entered as 'owner' on the customs entry. This agent may be the 'owner' for customs entry purposes (and also liable to pay the GST on the taxable importation).

Paragraph 210 of GSTR 2003/15 states that:

Taxable importations are made by an entity entering imported goods for home consumption. A non-resident entity makes a taxable importation through a resident agent if the agent, on behalf of the non-resident, enters the goods as 'owner' on the customs entry form. Entering the goods as 'owner' means that the agent's name is shown on the entry form as the 'owner'. An agent is within the statutory definition of 'owner' in the Customs Act. In this case, section 57-5 makes the agent liable for GST on the taxable importation.

As discussed in the paragraphs above, you are a resident agent acting on behalf of a non-resident client. You are entered as the 'owner' on the customs entry and are liable to pay the GST in relation to these imports. Your non-resident client therefore makes a taxable importation through you, their resident agent.

Therefore paragraph (b) of subsection 13-5 of the GST Act is satisfied. The imported goods are imported for home consumption. Accordingly, the importation is a taxable importation under subsection 13-5(1) of the GST Act.

Non-taxable importation

GST is payable on taxable importations. Importations are not taxable importations to the extent that they satisfy the requirements for a non-taxable importation.

Section 13-10 of the GST Act provides that an importation is a non-taxable importation if it is a non-taxable importation under Part 3-2 of the GST Act or it would have been a supply that was GST-free or input taxed if it had been a supply.

Non-taxable importation under Part 3-2 of the GST Act

An importation is a non-taxable importation if it is an importation of a kind set out in Division 42 under Part 3-2 of the GST Act. Section 42-5 of the GST Act refers to items in Schedule 4 of Customs Tariff Act 1995.

The Tax Office is not in the position to issue you with advice in relation to the Customs Tariff Act 1995. The Australian Customs Service (Customs) administers this Act. You will need to contact Customs for more information.

Non-taxable importations of goods that would be GST-free or input taxed if supplied

An importation is also a non-taxable importation to the extent that, had it been a supply, the supply would have been a GST-free or input taxed supply. For example, a wheelchair is GST-free therefore an importation of a wheelchair is a non-taxable importation.

Paragraph 251 of GSTR 2003/15 provides that in determining whether an importation, if it had been a supply, would have been GST-free or input taxed, we need to hypothesise that the importation were a supply to the importer. If this hypothetical supply to the importer would have satisfied one of the exemptions in Chapter 3 of the GST Act, the importation is non-taxable.

Importer

The entity that imports goods within the meaning of Division 15 of the GST Act, in the context of a taxable importation under Division 13 of the GST Act, is the entity that:

(a) causes the goods to be brought to Australia for application to its own purposes after importation, whether by way of supply, use or otherwise; and

(b) completes the customs formalities for the entry of the goods.

From the facts given, the aircraft was disassembled overseas and shipped to Australia for you to re-assemble it back to its original form and flight-test before it leaves Australia permanently. In this instance you have caused the goods to be brought to Australia to use in your business. That is, you arrange the disassembled parts of the aircraft to be sent to Australia so that you can re-assemble it in Australia. As discussed in the paragraphs above, you are the resident agent that imports the disassembled aircraft parts into Australia on behalf of a non-resident. If there is a hypothetical supply of disassembled aircraft parts, the supply would be made to you (the importer). If this hypothetical supply to you satisfies one of the exemptions in Chapter 3 of the GST Act, the importation will be a non-taxable importation.

Supply that was GST-free or input taxed if it had been a supply

Section 38-185 of the GST Act sets out a range of situations in which goods for export can be supplied GST-free. Section 38-190 of the GST Act sets out the circumstances in which things, other than goods or real property, for consumption outside Australia can be supplied GST-free.

Section 38-185 of the GST Act

For a supply of goods to be GST-free under section 38-185 of the GST Act, the supply must satisfy the requirements of one of the seven items listed in the table in subsection 38-185(1) of the GST Act.

Relevant to this case is item 6 in the table in subsection 38-185(1) of the GST Act (Item 6) which states:

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 re-imports the goods into Australia.

GSTR 2005/2 "supplies of goods and services in the repair, renovation, modification or treatment of goods from outside Australia whose destination is outside Australia" explains our view on the operation of Item 6.

The requirements of Item 6 are:

(a) there is a supply of goods;

(b) the supply is in the course of repairing, renovating, modifying or treating of the other goods;

(c) the other goods are goods from outside Australia whose destination is outside Australia; and

(d) the goods supplied are attached to or become part of the other goods or become unusable or worthless as a direct result of being used to repair the other goods.

The supply of disassembled parts of the aircraft is a supply of tangible personal property and therefore the requirement in (a) is met.

The terms 'repair', 'renovation', 'modification' and 'treatment', and their derivatives, are not defined in the GST Act and therefore we take their ordinary meaning.

Paragraphs 34 to 37 of GSR 2005/2 provide the ordinary meaning of 'repair', 'renovation', 'modification' and 'treatment':

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.

35. The ordinary meaning of 'renovate' is 'to make new or as if new again; restore to good condition; repair'. Renovation changes the character or enhances efficiency of function, while a repair merely restores the character or efficiency of function.

36. The ordinary meaning of 'modify' is 'to change somewhat the form or qualities of; alter somewhat'.

37. The ordinary meaning of 'treat' is 'to subject to some agent or action in order to bring about a particular result, for example, to treat a substance with an acid'. Processes such as cleaning, sterilising, waterproofing or rust proofing goods are examples of treating goods.

The use of the word 'whose' in Item 6, where the legislation refers to 'goods from outside Australia whose destination is outside Australia' indicates that the goods departing Australia should be essentially the same goods as the goods that are brought into Australia. This excludes the process of manufacture from the provision.

In this case, the supply of dissembled aircraft parts is not made in the course of 'repair', 'renovation', 'modification' and 'treatment other goods'. Further, the goods (an aircraft) departing Australia is not the same goods (disassembled aircraft parts) that were brought into Australia. The original goods (disassembled aircraft parts) being components of an aircraft are subsumed into new goods (the aircraft) with their own identity. The requirements in (b) and (c) are thus not satisfied.

Therefore the hypothetical supply to you does not satisfy the requirements of Item 6. Accordingly, the hypothetic supply to you will not be GST-free under section 38-185 of the GST Act.

Subsection 38-190(1) of the GST Act

Alternatively, item 5 in the table in subsection 38-190(1) of the GST Act (Item 5) (which is an exemption in Chapter 3 of the GST Act) may also be of relevance in this circumstance.

Subsection 38-190(1) of the GST Act provides that a supply of things, other than goods or real property, for consumption outside Australia will be GST-free where the requirements of one of the items in the table in subsection 38-190(1) are met.

Item 5 states:

The requirements of item 5 are:

(a) the supply is in the course of repairing, renovating, modifying or treating of the other goods; and

(b) the other goods are goods from outside Australia whose destination is outside Australia

These requirements are discussed above in relation to the application of item 6 of subsection 38-185(1) of the GST Act. As expressed in paragraph 10 of GSTR 2005/2:

A supply of goods is GST-free under item 6 in subsection 38-185(1) if all the requirements of the item are satisfied unless the supplier reimports the goods according to subsection 38-185(2). A supply of services is GST-free if all the requirements of item 5 in the table in subsection 38-190(1) are satisfied unless the supply is a right or option to acquire something the supply of which would not be GST-free as it be connected with Australia according to subsection 38-190(2). It follows that if item 6 is satisfied, any services that are supplied at the same time by the same supplier will satisfy item 5.

As Item 6 does not apply in your circumstances, it follows that Item 5 would not be applied. Therefore the hypothetical supply to you does not satisfy the requirements of Item 5. Accordingly, the hypothetic supply to you will not be GST-free under section 38-190 of the GST Act.

Conclusion

As the hypothetical supply of disassembled aircraft parts does not satisfy the requirements in either Item 6 or Item 5, the importation is therefore not a non-taxable importation under section 13-10 of the GST Act. The importation is a taxable importation under subsection 13-5(1) of the GST Act.

As you are a resident agent acting for a non-resident under section 57 of the GST Act, you are liable for the GST payable on the taxable importation.

Question 2 - creditable importation and input tax credit

Section 15-5 of the GST Act provides that there are three requirements that must be satisfied for an importation to be a creditable importation.

You make a creditable importation if:

(a) You import goods solely or partly for a creditable purpose; and

(b) The importation is a taxable importation; and

(c) You are registered, or required to be registered.

GSTR 2003/15 provides that an Australian resident agent of a non-resident principal is entitled, under Division 57, to the input tax credits for creditable importations made by the non-resident through the agent.

Paragraphs 215 to 217 of GSTR 2003/15 provide:

215. A non-resident makes a creditable importation where all the requirements for making a creditable importation are satisfied. That is, the non-resident must be the entity that imports the goods and must do so for a creditable purpose, and be registered or required to be registered. The importation must also be a taxable importation.

216. A non-resident makes a creditable importation through a resident agent if the non-resident makes a taxable importation through the agent and the importation is for a creditable purpose and otherwise satisfies the requirements for a creditable importation. This occurs where the resident agent is named as 'owner' on the customs entry for the goods.

217. It is important to note that a resident agent is not entitled to an input tax credit under section 57-10 simply because it is liable for GST under section 57-5. A taxable importation made through a resident agent does not necessarily result in a creditable importation being made. The requirements for a creditable importation must be satisfied by the non-resident. That is, the non-resident must import the goods for a creditable purpose and be registered or required to be registered.

What that means is that if the non-resident principal makes a creditable importation for a creditable purpose through a resident agent, the resident agent is entitled to claim input tax credits provided that the non-resident principal is registered or required to be registered for GST.

Goods are imported for a creditable purpose when they are imported for the purpose of an enterprise, and not for some other purpose (such as private use or to the extent that the importation relates to making supplies that would be input taxed).

In this case, goods are imported through you as a resident agent for the purposes of carrying on the non-resident's business overseas. The goods are therefore imported for a creditable purpose. However, the non-resident principal is not registered for GST. The requirements of section 15-5 of the GST Act are not satisfied. You are therefore not entitled to input tax credits for the importation of disassembled aircraft parts under Division 57 of the GST Act.

Question 3 - assembly services

GST is payable on a taxable supply. Section 9-5 of the GST Act provides 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.

In this situation, you make a supply of services that satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as follows:

(a) You make a supply of assembly services for payment as consideration;

(b) The supply of assembly service is made in the course or furtherance of your enterprise;

(c) The supply of assembly services is connected with Australia because the assembly services are performed in Australia and you make the supply of assembly services through an enterprise that you carry on in Australia; and

(d) You are registered for GST.

As the supply of assembly services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act, consideration is given as to whether one of the GST-free provisions or input taxed provisions are applicable.

Based on the facts provided, none of the input taxed provisions are applicable.

However, the GST-free provisions for certain supplies of things other than goods or real property for consumption outside Australia may be applicable.

The supply of assembly services is not a supply of goods or real property. Therefore, it is appropriately considered under section 38-190 of the GST Act.

In particular, item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done will be GST-free where:

(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.

Accordingly, where the provisions of either (a) or (b) above are met, the supply will be GST-free if the non-resident is not in Australia when the thing supplied is done.

For a supply of services to be GST-free under Item 2, there is a precondition that the non-resident must not be in Australia in relation to the supply when it is provided. A non-resident company is in Australia if the company carries on business in Australia:

(a) at or through a fixed and definite place of its own for a sufficiently substantial period of time; or

(b) through an agent at a fixed and definite place for a sufficiently substantial period of time.

GSTR 2004/7 sets out the Tax Office view on when a non-resident is 'not in Australia when the thing supplied is done'.

A non-resident company is in Australia in relation to the supply if the supply is solely or partly for the purposes of the Australian presence, for example, its Australian branch, representative office or agent. If the supply is not for the purposes of the Australian presence but that Australian presence is involved in the supply, the company is in Australia in relation to the supply, except where the only involvement is minor.

You make a supply of assembly services to a non-resident entity. The non-resident entity does not have a branch, representative office or agent in Australia through which they carry on their business in Australia. Accordingly, the non-resident entity is 'not in Australia' for the purposes of Item 2.

Where the 'not in Australia' requirement is met, it is necessary to consider if the supply of services satisfies either paragraph (a) or (b) of Item 2.

Paragraph (a) of Item 2

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done, is not GST-free if the supply is directly connected with real property situated in Australia or is a supply of work physically performed on goods situated in Australia when the work is done.

GSTR 2003/7 discusses among other things the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' for the purposes of subsection 38-190(1) of the GST Act.

In this case, we consider that paragraph (a) of Item 2 is not satisfied with respect to your assembly services because the supply of assembly services changes or affects the goods in a physical way and thus, is a supply of work physically performed on goods situated in Australia. We consider that paragraphs 37 to 38 and 58 of GSTR 2003/7 are materially similar to your circumstances:

The supply changes or affects the goods or real property in a physical way.

37. A common example of a supply of this kind is a supply of a service that is physically performed on particular goods or real property such as the repair of goods or a building.

38. Other examples of supplies of this kind include:

· the construction, alteration, demolition, repair or maintenance of a building or other structural improvement;

· the installation, alteration, repair, cleaning, restoration, modification of goods; and

· the removal of vegetation or revegetation or decontamination of land.

Each of these supplies is directly connected with goods or real property.

There is a physical interaction with the goods or real property but without changing the goods or real property.

…

58. 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. The repair of goods is an example of work that is physically performed on goods.

As an alternative to paragraph (a) of Item 2, paragraph (b) of Item 2 is also considered.

Based on the information provided, we consider that paragraph (b) of Item 2 is satisfied as the non-resident client acquires the assembly services as part of its enterprise overseas and the non-resident is not registered for GST.

Where the supply satisfies either paragraph (a) or (b) of Item 2, the supply is GST-free provided that subsection 38-190(3) of the GST Act does not operate to limit the operation of Item 2.

Subsection 38-190(3)

Subsection 38-190(3) of the GST Act provides that a supply covered by Item 2 will not be 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.

A supply is provided to another entity in Australia if the flow of the actual services you make is to another entity located in Australia.

In this situation, your supply of assembly services is not provided to another entity in Australia. Thus, the supply is not excluded by subsection 38-190(3) of the GST Act from being GST-free under Item 2.

In conclusion, your supply of assembly services to the non-resident client would be GST-free provided the non-resident client is not registered and not required to be registered for GST in Australia.

Question 4 - disbursement and reimbursement

Disbursements usually occur in connection with activities carried out by one entity as an agent for another. 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 your assembly services to the non-resident client, you arranged for the delivery of disassembled aircraft parts to the Australia and incurred cost on the delivery. In this instance you do not provide a delivery service to the non-resident client and are merely acting as a paying agent for them in relation to the supply of delivery. The amount you receive as reimbursement for the delivery costs by the non-resident client is not consideration you receive for your supply of assembly services. 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.