Edited version of private ruling

Authorisation Number: 1011773638546

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Subject: GST and export of goods

Question 1

Is a supply of goods by an Australian company (you) to a non-resident entity GST-free, where an original order was cancelled and a new order was placed for the goods to be delivered overseas?

Answer 1

Yes, the supply of the goods by you to the non-resident entity is GST-free under Items 1 in the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 2

Will the Australian Taxation Office (ATO) refund overpaid good and services tax (GST) where you have incorrectly treated the supply of the goods as a taxable supply and remitted an amount of GST to the ATO?

Answer 2

Yes, you can correct GST mistakes and obtain a refund for any overpaid GST, where you reimburse the amount of GST incorrectly included in the price to the non-resident entity.

Relevant facts and circumstances

You are an Australian company which is registered for GST. You supply goods to Australian residents and non-residents.

A non-resident entity from overseas is neither registered nor required to be registered for GST in Australia. The non-resident entity ordered the goods from you to export overseas. You advised the non-resident entity that your policy is that you will not despatch the goods overseas until you have received payment in full.

You issued a tax invoice for the goods and received 50% deposit. Under the terms of the tax invoice, the buyer has to pay 50% immediately and 50% of the balance when the goods are ready to be delivered to the freight forwarding agent. Once the payment has been made in full the goods will be delivered to the freight forwarder as soon as possible.

After more than a year, you received e-mails from the non-resident entity requesting that they would like to take the half of the goods that they have paid for and did not want to take the second half of the order. After some email contacts and negotiations with you, the non-resident entity changed and cancelled the original order and placed a new revised order using the amount which they have paid for (that is, an order for half the amount of goods).

It was your understanding at the time that the non-resident entity will have to pay GST as the allowable period for GST-free export of the goods has passed for the original order.

You issued a new tax invoice including GST for the new revised order in April 20XX. The non-resident entity paid the amount of GST on this new tax invoice. You have remitted GST on the export of the goods in your activity statement.

Copies of the tax invoices have been provided to the ATO.

The non-resident entity advised you details of the shipping agent. In April 20XX, you received an e-mail from the shipping agent advising you of the expected shipping date and the cut off date for the delivery to the shipping agent in May 20XX. You sent the goods to the shipping agent before that cut off date.

You have provided a copy of the Bill of Lading which shows that the goods were shipped from Australia to overseas.

Although the non-resident entity paid the GST amount to obtain the goods, the non-resident entity complained several times to you about the GST and requested a refund.

Reasons for decisions

Question 1

Taxable supply

GST is payable on a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). From the facts provided, you have satisfied the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as follow:

(a) you make the supply of the goods to the non-resident entity and in return you receive consideration for the supply by way of payment(s);

(b) you make the supply in the course or furtherance of your business;

(c) the supply involves goods being removed from Australia (and therefore the supply is connected with Australia); and

(d) you are registered for GST in Australia.

Hence, your supply of the goods to the non-resident entity will be taxable to the extent that it is not GST-free or input taxed.

From the facts provided, your supply of the goods does not satisfy the input taxed provisions under the GST Act. The next step is to determine whether the supply of goods will be GST-free.

Section 38-185 and GST-free supply

Section 38-185 of the GST Act covers the GST-free exports of goods.

Items 1 and 2 in the table in subsection 38-185(1) of the GST Act (Items 1 and 2) are relevant in this circumstance, which state:

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

Accordingly, your supply of the goods will be GST-free if all the requirements of either Item 1 or 2 above are satisfied.

Goods and Services Tax Ruling GSTR 2002/6 discusses the export of goods and the requirements of Items 1 and 2. Under Items 1 and 2, a supply of goods is GST-free where the supplier exports them from Australia and the export occurs within a specified time period. Item 1 applies to export of goods generally. Item 2 applies where the consideration for the supply is provided in two or more instalments under a contract where it is an express or implied term that the goods are to be exported.

For a supply of goods to be GST-free under Items 1 or 2, the supplier must export the goods before, or within a 60-day period (or such further period as the Commissioner allows). Both items require, not only that there is an export of goods, but that the supplier is the entity that exports the goods.

Supplier is the entity that exports

The requirement that the supplier is the entity that exports the goods is satisfied where:

· the supplier contracts at their own expense with an international carrier for the transportation of the goods to a destination outside Australia; or

· the supplier is responsible for delivering the goods to the operator of a ship or aircraft that has been engaged by another party to transport those goods to a destination outside Australia; or

· the requirements of subsection 38-185(3) of the GST Act are met.

A supplier who is not the exporter may still be treated as the exporter where the recipient exports and the requirements of subsection 38-185(3) of the GST Act are met. If so, the supply can still be GST-free.

Under subsection 38-185(3) of the GST Act, the supplier who is not an exporter of the goods, is treated as having exported the goods if each of the following conditions have been met:

(a) Before the goods are exported, the supplier supplies the goods to a purchaser that is not registered or required to be registered for GST. The supplier can check GST registration on the Australian Business Register (www.abr.gov.au). If the purchaser is not registered, the supplier needs to determine if the purchaser makes supplies that are connected with Australia worth $75,000 or more in a 12-month period.

(b) The purchaser exports the goods from Australia. If documentary evidence demonstrates that the goods have been exported, but (in fact) the goods have not been exported, the supplier will be liable to remit GST to the ATO.

(c) The goods have been entered for export with the meaning of section 113 of the Customs Act 1901. The supplier needs to see the export entry lodged with the Australian Customs Service (Customs) by the exporter in order to check the description of the goods being exported. The supplier also needs a copy of the Customs export entry advice that includes the export declaration number (EDN).

(d) The goods are not altered or used in any way, except to the extent necessary to prepare them for export. Evidence could include a declaration by the purchaser that the goods were not altered or used, or knowledge of the purchasers business could also be of assistance.

(e) The supplier has sufficient documentary evidence to show that the goods were exported. After export has taken place, the purchaser can provide documents to substantiate that export actually occurred (e.g. bill of lading, other transport documentation, customs declaration that the specific goods were received in a foreign country).

From the facts provided, you have supplied the goods to the non-resident entity that is neither registered, nor required to be registered, for GST in Australia. The non-resident entity contracted the shipping agent, and arranged for you to deliver the goods to this shipping agent before the cut off date to transport the goods from Australia to overseas. The goods were exported in May 20XX. You have sufficient documentary evidence that the goods were exported to overseas. On the basis of these facts, you are deemed to have exported the goods to a destination outside Australia and the requirement that the supplier is the entity that exports the goods is satisfied.

The next step is to determine whether the goods were exported from Australia within the 60-day period.

60-day period for export of goods

The supply of goods is GST-free under Item 1 if the goods are exported by the supplier from Australia before or within 60 days (or such further period as the Commissioner allows) after:

(a) the day on which the supplier receives any consideration for the goods; or

(b) the day on which the supplier issues an invoice for the goods.

The supply of the goods by you to the non-resident entity will be GST-free if you export the goods before, or within the 60-day period.

From the facts provided, the non-resident entity ordered the goods from you to export overseas. You issued a tax invoice for the original order of the goods and received 50% deposit. At that time, the payment arrangement was by instalments. However, after more than a year the non-resident did not proceed with making the payment of the balance for the original order. It was considered that the original order for the goods was changed and cancelled, and a new revised order for half the amount of goods was agreed in April 20XX.

You have treated the revised order as a new order and issued a new tax invoice in April 20XX. The consideration for the new revised order was paid using the deposit already taken, that is credited/applied to the revised order of half of the goods on the new tax invoice in April 20XX. You delivered the goods to the shipping agent that was engaged by the non-resident entity. The goods have already been exported from Australia in May 20XX. You have a copy of the Bill of Lading which shows that the goods were exported to overseas in May 20XX. Therefore, the goods were exported from Australia within 60 days after the day on which you issued the invoice and applied the consideration to the new revised order of the goods.

Accordingly, the supply of the goods by you to the non-resident entity satisfies all the requirements in Item 1 and the supply is GST-free under subsection 38-185(1) of the GST Act.

Question 2

Under subsection 105-65(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA), the Commissioner of Taxation (Commissioner) has a discretion to refund or credit the GST amount that was incorrectly included in the price of a supply that is not taxable if certain requirements are met.

As a general rule, the Commissioner will exercise the discretion to allow a refund or credit in accordance with subsection 105-65(1) of Schedule 1 to the TAA if the supplier first reimburses the GST incorrectly included in the price to the recipient of the supply. Accordingly, to be able to recover the GST incorrectly included in the price of the supply that was GST-free, you must first reimburse the GST incorrectly included in the price to the recipient(s) and notify us when this is done.

As stated in question 1, your supply of the goods to the non-resident entity is a GST-free supply of goods. However, you treated the supply as a taxable supply and have incorrectly remitted GST to the ATO. You must first reimburse the GST incorrectly included in the price to the non-resident entity and notify us when this is done in your activity statement(s).

Where you have made a GST mistake on an earlier activity statement, resulting in you paying too much GST or claiming too much GST credits, you may be able to make a correction on a subsequent activity statement if the net effect (that is the total GST effect of all the errors) is within the correction limits. Where the net effect of mistakes from your earlier activity statements exceeds the appropriate limit, you must revise your original activity statements for the tax period that the mistakes occurred in.

For further information on correcting GST mistakes, please refer to the enclosed publication Correcting GST Mistakes (NAT 4700).