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Ruling

Subject: GST and the exportation of second-hand goods

Question:

Is the sale of the (donated) second-hand goods by an Australian company (you) taxable?

Advice:

No, the sale of the (donated) second-hand goods is GST-free where you export the goods from Australia within the 60-day period.

Relevant facts and circumstances

An Australian company (you) is registered for goods and services tax ('GST').

You empty charity bins for an organisation ('organisation').

You are not paid for the collection of the items from the charity bins, as it is done purely on a voluntary basis. You do not make any payments for the items.

Once you have emptied (collected the items), you bale the items (such as clothing) and send some items (goods) to the organisation to be used for welfare purposes. You do not sell the items to the organisation, and the organisation is not required to pay you for the items or for any services.

For some items (goods), you send them overseas to third world countries. That is, you sell these items to another entity that is outside Australia ('overseas entity'). You do not sell the items as an agent for the organisation.

You do not change the items/goods from their original character prior to re-sell.

When the items are sold to the overseas entity, the goods are exported outside Australia within 60 days of receiving consideration or giving a (tax) invoice (whichever is earlier). You do not provide a separate service to the overseas entity, and the overseas entity does not have any representatives in Australia.

In relation to the funds that you receive for the items (goods) sent overseas, you have an arrangement with the overseas entity. The amount (funds) you receive from this activity mainly covers your shipping costs. The funds received from the overseas entity pays for all costs regarding shipping. This is done on a voluntary basis to assist with the charity work.

You do not sell the items to any other entities.

You are not an endorsed charitable institution, a trustee of a charitable fund, or a gift-deductable entity, but the organisation would be one.

There are no documentations between the parties in relation to the sale of the donated goods.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 38-185

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-185(3)

A New Tax System (Goods and Services Tax) Act 1999 Division 66

Reasons for decision

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), you make a taxable supply if:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that you carry on; and

· the supply is connected with Australia; and

· 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.

All the requirements of section 9-5 of the GST Act above must be satisfied for a supply to be taxable.

In relation to the activities of collecting the items (goods) from the charity bins and giving some items to the organisation, you advised that you do not receive any consideration from the organisation for these activities or for any other services. Accordingly, as there is no consideration in relation to these activities, the requirement of paragraph 9-5(a) of the GST Act is not satisfied and these activities do not constitute a taxable supply. It is not necessary to consider the other requirements of section 9-5 of the GST Act in this circumstance.

In relation to the activities of selling and sending some items to the overseas entity, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

You supply the items (goods) to the overseas entity in return for consideration, by way of payments; and

The supply is made in the course or furtherance of an enterprise (business) that you carry on; and

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

You are registered for GST.

However, the supply is not taxable to the extent that it is GST-free or input taxed.

You advise that you are selling the donated goods to the overseas entity in return for the funds (even through the funds received may cover your costs of such things as shipping). You advised that you do not provide a separate service to the overseas entity. These facts indicate that you are making a supply of (delivered) goods.

GST-free exportation of goods

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, the supply of the items (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 that there is an export of goods and 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 satisfied.

Subsection 38-185(3) of the GST Act operates to treat the supplier in certain circumstances as having exported the goods when in fact the recipient exports the goods. Where this subsection applies the supply of goods may be GST-free under Items 1 or 2.

The supplier who is not an exporter of the goods is treated as having exported the goods if each of the following conditions are satisfied:

Before the goods are exported, the supplier supplies them to an entity 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.

That entity 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 Australian Taxation Office (ATO).

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); or evidence of actual export (transport documents) where Customs export entry is required.

Since their supply to that entity, the goods are not altered or used in any way, except to the extent (if any) 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.

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 (for example, bill of lading, other transport documentation, customs declaration that the specific goods were received in a foreign country).

Note that paragraph 38-185(3)(f) of the GST Act relates to the Tourist Refund Scheme and would not be relevant to the facts outlined. For further information on these conditions, refer to paragraphs 237 to 290B of GSTR 2002/6.

Accordingly, if you (as the supplier) are the exporter, or you are deemed to have exported the goods under subsection 38-185(3) of the GST Act, the supply of the items (goods) will be GST-free if the goods are exported from Australia within the 60-day period.

60-day period for export of goods

Generally, the 60 day period commences on the day after the earlier of:

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

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

In summary, the sale of the items (goods) which are exported by you (or you are deemed to have exported the goods under subsection 38-185(3) of the GST Act) to the overseas entity within the 60-day period is GST-free.

Additional Information

Delivery services

The facts indicate that you are selling the donated goods to the overseas entity in return for the funds, and therefore you are making a supply of goods.

Alternatively, if you are receiving the 'funds' for a service for arranging the international shipping and transportation of the goods to the overseas entity and not for the supply of the items (goods), there would be a supply of a service, and not of goods (in some circumstance, there may be a supply of goods, of a service, or both). For further information, refer to Goods and Services Tax Determination GSTD 2002/3, which is available at the ATO website at www.ato.gov.au

The supply of arranging the international transport of goods may still be GST-free under section 38-355 of the GST Act, or the supply of a service made and provided to the overseas entity may be GST-free under section 38-190 of the GST Act.

Second-hand goods

Division 66 of the GST Act covers second-hand goods and allows an entity to claim input tax credits for its acquisitions of second-hand goods, subjected to certain conditions. However, there is no entitlement to claim input tax credits as you have not provided any consideration for the acquisition of the items (goods), and where you make a supply of goods that is not a taxable supply.

All public rulings and/or publications referred to in this ruling are available at the ATO website at www.ato.gov.au .