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Ruling

Subject: GST and on-line sale of goods

Question

Is your on-line sale of goods to Australian customers a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice

Yes, your on-line sale of goods to Australian customers is a taxable supply under section 9-5 of the GST Act.

Relevant facts

You are a non-resident company incorporated outside Australia and are registered for the Australian goods and services tax (GST).

You are an online retailer selling certain goods to Australian customers and to customers in other countries. The goods are designed and manufactured outside Australia. The server on which the website is hosted is located outside Australia. You have no physical presence in Australia nor do you employ any people in Australia.

The processing of sales invoices and sales orders takes place outside Australia. The receipt and processing of all customer payments and refunds takes place through a foreign payment processor.

In order to facilitate your sales to the Australian customers, you have the following activities outsourced from Australian independent contractors:

§ clearing;

§ warehousing;

§ distribution.

The contractors provide their services to the general public at large.

Further, in order to facilitate prompt delivery of the goods to the Australian customers, bulk stock of goods are imported into Australia by you and are warehoused by a third party independent contractor. You pay duties including GST when the goods are cleared from the Australian and Border Protection Service (Customs). You claim the GST paid on the importation of the goods in Australia when completing their Business Activity Statement (BAS).

At the time of importation, the imported goods are not specifically for a particular customer.

When an order is placed online, a sales order and invoice is generated and sent to the warehouse contractor. The specific goods ordered are picked, packed and delivered to the Australian customer by the distribution contractor.

Any returns are handled by the warehousing contractor.

At regular intervals, an employee of yours is sent to Australia to review returns and to deal with any other operational matters.

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, Subsection 9-25(1)

A New Tax System (Goods and Services Tax) Act 1999, Division 38

A New Tax System (Goods and Services Tax) Act 1999, Division 40

Reasons for decision

Goods and services tax (GST) is a broad-based tax which is charged on the supply of goods, services and anything else consumed in Australia ('taxable supplies'), and on goods imported into Australia ('taxable importation').

An entity ('you') makes a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 for GST.

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

Accordingly, all of the above requirements need to be satisfied for a supply to be a taxable supply.

Characterisation of supply

For GST purposes, a supply of goods is a supply of any form of tangible personal property, that is, any form of personal property that has a physical existence but does not include intangible personal property such as intellectual property like a copyright. A supply of goods can occur by way of sale, lease, hire and so on.

When you make an on-line sale of the particular goods to the Australian customers, you are making a supply of goods to the Australian customers for GST purposes.

The next step is to determine the GST status of the supply of goods to the Australian customers.

GST status of the supply of goods

You supply the goods for consideration to the Australian customers and supply the goods in the course of an enterprise (business) that you carry on. Further you are registered for GST. In this instance, your supply of goods satisfies paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act.

What remains to be considered is whether the supply of your goods is connected with Australia (paragraph 9-5(c) of the GST Act) and is GST-free or input taxed under the GST Act.

Connected with Australia

The connection with Australia is one of the elements required to be satisfied before a supply is a taxable supply.

In determining whether a supply of goods is connected with Australia a distinction is made in section 9-25 of the GST Act between supplies of goods wholly within Australia, supplies of goods from Australia, and supplies of goods to Australia.

A supply of goods is connected with Australia if:

· the goods are delivered or made available in Australia to the recipient of the supply (subsection 9-25(1) of the GST Act);

· the supply involves the goods being removed from Australia (subsection 9-25(2) of the GST Act);

· the supply involves the goods being brought to Australia and the supplier either imports the goods into Australia or installs or assembles the goods in Australia (subsection 9-25(3) of the GST Act).

Goods and Services Tax Ruling GSTR 2000/31 (available at www.ato.gov.au) explains when a supply of goods is connected with Australia. In regard to supplies of goods wholly within Australia, paragraphs 117 to 120 of GSTR 2000/31 state:

Supplies of goods wholly within Australia

117. 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 recipient in relation to a supply, is the entity to which the supply is made.

118. In the context of subsection 9-25(1) of the GST Act, 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.

119. 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. For example, a supplier may make goods available for collection by the recipient. This is the case where a supplier of sand sells a load of sand to a customer and the customer takes away the sand which the supplier makes available.

120. Thus goods are 'delivered' in Australia if the goods are actually physically delivered in Australia. Goods are made available in Australia in Australia if the goods are physically available for the recipient in Australia. Both 'delivered' and 'made available' look at the place where the physical goods are at the relevant time.

You have advised that you import the goods into Australia and a third party contractor stores the imported goods in their warehouse in Australia. Once an Australian customer has placed an on-line order, an Australian distribution contractor picks, packs and delivers the goods to the Australian recipient. In this instance, your supplies of goods satisfy subsection 9-25(1) of the GST Act as the goods are made available and delivered to the recipients in Australia.

Accordingly, your supply of goods is connected with Australia and paragraph 9-5(c) of the GST Act is satisfied. However, the supply of goods is not a taxable supply to the extent that it is GST-free or input taxed.

GST-free and input taxed supply

The GST-free supplies are covered in Division 38 of the GST Act, and the input taxed supplies are covered in Division 40 of the GST Act.

There is no provision under the GST Act that makes your supply of goods to the Australian customers in Australia GST-free or input taxed. Accordingly, the supply of the goods is a taxable supply under section 9-5 of the GST Act.

Summary

Your online sale of the goods to Australian customers in Australia is a taxable supply as all the requirements in section 9-5 of the GST Act are satisfied. You are liable to pay GST on the supply of the goods.