Edited version of private ruling

Authorisation Number: 1011834570509

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Ruling

Subject: GST and freight costs

Question

Is the on-charge of the freight costs for goods that you deliver to your Australian customers subject to goods and services tax (GST)?

Advice/Answer

Yes. The on-charge of the freight costs for goods that you deliver to your Australian customers is subject to GST.

Relevant facts

You are an overseas entity and are registered for GST in Australia.

You receive orders from customers by email, phone or fax.

You have an agent in Australia who collates orders from your Australian customers and pass on these orders to you.

You deliver the goods by post directly to customers in Australia. The value of each consignment/order is below AUD$X. You engage the services of freight forwarder who advised you that GST is not charged on the service as it is an international freight movement.

You declare yourself as the owner of the goods when delivering them to the Australian customers. You are responsible for the completion of customs entry formalities.

The freight charge you pass on to customers is a variable amount dependent on the weight of the order you are dispatching. However, you cannot always pass the full amount onto a customer.

You have provided a sample invoice that you issued to an Australian customer. You have included GST in the price of the goods and you have treated the freight cost as a GST-free supply.

Reasons for decision

In determining the GST implications on the freight costs that you pass onto the Australian customers for the supply of your goods, we need to consider whether the delivery service forms part of the supply of your goods or whether it is a separately identifiable part of the supply.

Where delivery is a separately identifiable part of the supply, its GST treatment is determined separately from the supply of the goods. Your supply which is composed of the supply of goods and the delivery can become 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 to the supply of the goods, the supply is referred to as a composite supply. A composite supply is a supply where there is a dominant part of a supply and subordinate parts that complement the dominant part. A composite supply is essentially the provision of one thing and the GST status of that thing depends on the GST status of the dominant part.

Goods and Services Tax Ruling GSTR 2001/8 describes the characteristics of a mixed supply and a composite supply. Paragraph 59 of GSTR 2001/8 states:

60. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, indicators that a part may be integral, ancillary or incidental include where:

· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

· it represents a marginal proportion of the total value of the package compared to the dominant part; or

· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

· it contributes to the proper performance of the contract to supply the dominant part.

…It is a question of fact and degree whether a supply is mixed or composite.

Goods and Services Tax Determination GSTD 2002/3 provides guidance on how to account for GST when supplying taxable goods, non-taxable goods and delivery services together.

GSTD 2002/3 provides that delivery is a separately identifiable part of a mixed supply where it is significant and could be realistically be made as a separate supply. A delivery service is significant where it is an aim in itself. That is, your customers have a genuine choice under the contract about whether you deliver their goods. Such a choice is indicated where:

· your customers are not obliged to use your delivery service; and

· you provide reasonable access, at no extra charge, to customers who choose to make their own arrangements to collect the goods.

Paragraph 4 of GSTD 2002/3 further states:

4. You supply delivered goods where the delivery is integral, ancillary or incidental to the supply of the goods. This will be a composite supply. In these cases, you contract to supply delivered goods only, and not a delivery service in addition to the goods. The delivery is necessary for your customer to enjoy the goods. It is not an end in itself, but merely contributes to the proper performance of the contract to supply the goods. That is, to fulfil the contract for the supply of the goods, the supplier has to deliver them and remains responsible for them until they are delivered. Identifying a separate charge for delivery does not, by itself, mean that the delivery is a significant part of the supply.

Based on the facts provided, you are required under the terms and conditions of the trading agreement to deliver the goods to your customers in Australia when they order goods from you. You do not give your customers a choice under the agreement about whether you deliver the goods. As you declare yourself as the owner of the goods when importing them into Australia, you remain responsible for the goods until they are delivered.

Accordingly, the delivery is a part of the overall supply that can be described as integral, ancillary or incidental to the dominant part that is the supply of your goods. The supply that you make is a composite supply.

A composite supply is treated as a supply of a single thing. If the dominant part of the supply is taxable, then GST is payable on the whole supply. The delivery forms part of the composite supply of the goods that you make to your Australian customers. If the supply of your goods is taxable, then GST is payable on the whole supply. If the supply is non-taxable, then no GST is payable on the whole supply.

Taxable supply

GST is payable on taxable supplies. For the supply of your goods to be a taxable supply, all the requirements listed in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) must be satisfied.

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).

Based on the information provided, you have satisfied paragraphs 9-5(a), 9-5(b) and 9-5 (d) of the GST Act as follows:

· your supply of goods is made for consideration

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

· you are registered for GST.

There are no provisions in the GST Act or any other Acts for the supply of your goods to the Australian customers to be GST-free or input taxed. Therefore, what remains to be considered is whether the supply of goods to your Australian customers is connected with Australia under paragraph 9-5(c) of the GST Act.

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 and supplies of goods to Australia. 

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 phrase 'delivered, or made available' takes the meaning that the goods are either physically delivered, or if not physically delivered, physically made available in Australia. 'Made available' refers to the situation where goods are not actually delivered to the recipient but rather the supplier makes the goods physically available to the recipient in Australia. Both 'delivered' and 'made available' look at the place where the goods are at the relevant time.

Supplies of goods to Australia

Subsection 9-25(3) provides the meaning of supplies of goods to Australia. A supply of goods is not connected with Australia if the supplier does not import the goods.

This provision is more applicable to your circumstances.

Goods and Services Tax Ruling GST 2003/15 'Goods and services tax: importation of goods into Australia' discusses importation into Australia.

As expressed at paragraph 139 in GSTR 2003/15:

140. A supply of goods is connected with Australia if that supply involves the goods being brought to Australia and the supplier either:

(a) imports the goods into Australia (paragraph 9-25(3)(a)); or

(b) installs or assembles the goods in Australia (paragraph 9-25(3)(b)).

Therefore, it is important to determine whether you are the entity that imports the goods

Paragraphs 223 and 224 of GSTR 2000/31 express the ATO view on section 9-25 of the GST Act.

223. Both a supplier and an acquirer of goods may cause the goods to be brought into Australia. The word 'import' must, therefore, in the context of paragraph 9-25(3)(a) also encompass completing the customs formalities. In that way it can be established which entity imports the goods into Australia, that is, the entity that not only causes the goods to be brought to Australia but also attends to the customs formalities.

225. The supplier, therefore, imports goods into Australia for the purpose of subsection 9-25(3) if it causes the goods to be brought to Australia and it also completes the customs formalities. This is the case where a supplier enters the goods for home consumption or for warehousing or transhipment. However, a supplier does not import goods where the customs formalities for the importation of the goods are completed by the recipient of the supply.

Accordingly, an entity that imports goods is the entity that: 

· causes the goods to be brought to Australia for consumption by way of supplying, using or otherwise applying them to some use by that entity after importation; and  

· completes the customs formalities and is liable to pay the GST on the taxable importation.  

The entity that causes goods to be brought to Australia is identified by looking to the purpose for which the goods are brought here. The entity whose purpose it is to apply the goods by way of supply, use or other application to its purpose after importation is the entity that causes the goods to be brought to Australia. 

In circumstances where there are several parties that cause the goods to be brought to Australia (for example: seller and buyer), it is usual for the parties to agree which party takes responsibility for the completion of the customs entry formalities. It is this entity that imports the goods.   

On the basis of the facts provided, you cause the goods to be brought to Australia in order for you to supply them to your customers. You advise that you engage the services of a freight forwarder, and that you would declare yourself as the owner of the goods and would have been responsible for the completion of the customs entry (formalities) with Customs (if required to do so).

Further, under the terms and conditions for the sale and delivery of goods for your customers, there is no mention that the customers are required to pay any additional taxes or duties (if any) when collecting the goods. This demonstrates that any additional taxes or duties (if any) would be payable by you, being the owner of the goods.

Therefore you are the entity that imports the goods into Australia. Accordingly, the supply of goods to your customers in Australia is connected with Australia under section 9-25 of the GST Act. As such, the requirement in paragraph 9-5(c) of the GST Act is satisfied.

Consequently, the supply of goods to your customers in Australia is a taxable supply under section 9-5 of the GST Act and GST is payable on the supply. As the delivery forms part of a composite supply of the goods, the freight costs on-charged is subject to GST.