Edited version of your private ruling

Authorisation Number: 1012438038134

Ruling

Subject: GST and international cruises

Question

Is the supply by ABC Co of a cruise that starts and ends in Australia where the ship stops or lays anchor at a place that is either outside Australia or an external Territory entirely GST-free in accordance with item 1 and item 4 in the table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply by ABC Co of a cruise that starts and ends in Australia where the ship stops or lays anchor at a place that is either outside Australia or an external Territory is entirely GST-free in accordance with Item 1 and item 4 in the table in subsection 38-355(1) of the GST Act.

Relevant facts

ABC Co is a cruise company group and operates under a listed company structure.

ABC Co's portfolio of cruise brands is operated by a number of group subsidiary entities (ship operators), which sell tickets to passengers embarking in Australia.

All the ship operators are non-residents of Australia and are registered for GST.

All ships are owned and registered outside Australia.

ABC Co has established an Australian branch that performs sales, operational and administrative functions ancillary to its operation of overseas ships.

In 200X ABC Co obtained a GST private binding ruling which confirmed that a cruise operated by ABC Co with the itinerary including Australian cities and an external territory was GST-free in accordance with item 1 and item 4 in subsection 38-355(1) of the GST Act.

Since obtaining that GST private binding ruling ABC Co has expanded the range of its cruise offerings to passengers.

The cruises supplied by ABC Co which are the subject of this ruling request have the following features:

· passengers commence each cruise from a port in Australia and complete each cruise at a port in Australia;

· the ship stops/lays anchor at one or more places which are either outside Australia or an external Territory of Australia;

· the ship also stops at one or more Australian ports during the cruise; and

· the cruise may last up to 30 or more days.

Examples of cruises were listed in the brochures issued by ABC Co.

In the ruling request it was submitted that item 1 and item 4 in subsection 38-355(1) of the GST Act allow a cruise which commences and ends at a port in Australia and where the ship stops or lays anchor at a place which is either outside Australia (e.g. Papua New Guinea or Bali) or an external Territory of Australia to be treated as GST-free provided that the place where the ship stops or lays anchor is a 'destination outside Australia' as that term is used in item 1 and item 4. Reference was made to Goods and Services Tax Ruling GSTR 2003/4 which states (Para 17):

Destination means the predetermined end to a journey or voyage. For a voyage or flight to have a destination outside Australia, it must be intended that a ship 'lay anchor', or an aircraft land, at a predetermined location outside Australia. It is not enough for a ship to simply pass through international waters, or for an aircraft to merely fly through international air space.

and it was submitted that such a cruise satisfies the requirement of being 'intended that a ship lay anchor…at a predetermined location outside Australia'. It was further submitted that, on the basis that such a cruise has at least one destination that is outside Australia, the domestic legs of that cruise will be GST-free pursuant to item 4 in subsection 38-355(1).

The ruling request also referred to GSTR 2003/4 (Para 16):

To be GST-free, the stores or spare parts must be supplied for a flight or voyage which has a destination outside Australia (that is, an international flight or voyage). An international flight or voyage may include a journey between places in Australia.

and to GSTR 2003/4 (Para 61):

For the purposes of item 5, the Commissioner accepts that a ship departing from Australia is on a voyage that has a destination outside Australia when the ship is undertaking an international voyage within the meaning of the Customs Act. This is the case even if the particular international voyage involves a journey between places in Australia. However, item 5 is not satisfied when the ship is undertaking a secondary voyage that is not an international voyage within the meaning of the Customs Act. Similarly, the requirement is not satisfied if the ship merely sails through international waters without 'laying' anchor at a place outside Australia.

It was submitted that if the ATO accepts that a ship undertaking an 'international voyage' as defined in section 130 of the Customs Act 1901 (i.e. a voyage, whether direct or indirect, between a place in Australia and a place outside Australia) is on a voyage that has a destination outside Australia, it follows that a cruise which begins and concludes at ports in Australia is nevertheless a cruise with a destination outside Australia because the relevant ship departs from a port in Australia to a destination outside Australia as part of an 'international voyage'.

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 38-185(1).

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-355(1).

Reasons for decision

Summary

The supply by ABC Co of a cruise that starts and ends in Australia where the ship stops/lays anchor at either a place outside Australia or an external Territory of Australia is wholly GST-free.

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements of a taxable supply:

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 for GST.

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

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

The supply of a cruise in the circumstances described in the ruling request satisfies the requirements of paragraphs 9-5(a), 9-5(b) 9-5(c) and 9-5(d) of the GST Act as:

· the supply is made for consideration;

· the supply is made in the course of the enterprise carried on by ABC Co;

· the supply is connected with Australia as it is made through an enterprise carried on in Australia; and

· the supplier is registered for GST.

The supply of such a cruise is not input taxed under the GST Act or under any other Act. Therefore, what is left to determine is whether such a supply is GST-free.

In relation to the transport of passengers by sea, the table in subsection 38-355(1) of the GST Act sets out two defined circumstances in which the supply can be made GST free:

38-355 Supplies of transport and related matters

(1) The third column of this table sets out supplies that are GST-free.

Item 1 in the table treats the supply of transport of a passenger from the last place of departure in Australia to a destination outside Australia and from a place outside Australia to the first place of arrival in Australia as a GST-free supply. Item 4 in the table treats the supply of transport of a passenger within Australia by sea as a GST-free supply if the transport is part of a journey by sea from Australia to a destination outside Australia or from a destination outside Australia to Australia and the transport is provided by the supplier who transports the passenger to or from Australia.

Australia

The first issue is the meaning of 'Australia' in item 1 and item 4. 'Australia' is defined in section 195-1 of the GST Act as follows:

Australia does not include any external Territory. However, it includes an installation (within the meaning of the Customs Act 1901) that is deemed by section 5C of the Customs Act 1901 to be part of Australia.

'External territory' is not defined in the GST Act, but is defined in section 2B of the Acts Interpretation Act 1901 (AIA) as a Territory, other than an internal Territory where an Act makes provision for the government of the Territory as a Territory. Christmas Island, Cocos (Keeling) Islands and Norfolk Island are external Territories. 'Internal Territory' is defined in section 2B of the AIA as the Australian Capital Territory, the Northern Territory, and the Jervis Bay Territory. ection 2B of the AIA also defines 'Australia' to mean the Commonwealth of Australia and, when used in a geographical sense, includes the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands, but does not include any other external Territory, but the specific definition of 'Australia' in section 195-1 of the GST Act (which does not include an external Territory) would prevail for GST purposes.

Subsection 15B(2) of the AIA states that a reference in an Act to Australia is taken to include a reference to the coastal sea of Australia and paragraph 15B(4)(a) defines 'coastal sea' in relation to Australia as the territorial sea of Australia, the sea on the landward side of the territorial sea of Australia and not within the limits of a State or internal Territory and includes the airspace over and the sea bed and subsoil beneath any such sea. Article 3 in Part II of the United Nations Convention on the Law of the Sea (Convention) grants every State the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles measured from baselines determined in accordance with the Convention. Section 6 of the Seas and Submerged Lands (Territorial Sea Baseline) Proclamation 2006 (Proclamation), made pursuant to section 7 of the Seas and Submerged Lands Act 1973, sets the baseline around mainland Australia from which the breadth of the territorial sea is to be measured as the low water mark on the coast. Section 7 of the Proclamation sets a similar baseline for Tasmania.

Goods and Services Tax Ruling GSTR 2003/4 refers to the definition of 'Australia' in section 195-1 of the GST Act and summarises the effect of the provisions discussed above (Para 50):

Australia therefore includes the entire land territory of Australia, and Australia's coastal areas and sea bed, but not any external Territories, such as Norfolk Island, Christmas Island or the Australian Antarctic Territory. Under section 5C of the Customs Act, Australia also includes sea and resources installations (such as oil or gas rigs) that are attached to the sea bed within the territorial boundaries of Australia, or to an adjacent area or coastal area as defined in that Act.

Given that 'Australia' as defined in the GST Act does not include an 'external Territory', a cruise which stops/lays anchor at an external Territory stops/lays anchor 'outside Australia' for the purposes of item 1 and item 4 in subsection 38-355. Given that Papua New Guinea, Bali or similar places are not part of the land territory of Australia or within Australia's coastal sea, a cruise which stops/lays anchor in Papua New Guinea, Bali or a similar place also stops/lays anchor 'outside Australia' for the purposes of item 1 and item 4.

Destination outside Australia

The next issue is whether a cruise which stops/lays anchor at a place which is outside 'Australia' has a 'destination outside Australia' for the purposes of item 1 and item 4 in subsection 38-355(1).

GSTR 2003/4 discusses whether ship's stores are supplied for use, consumption or sale on a ship on a voyage that has 'a destination outside Australia' for the purposes of item 5 in subsection 38-185(1) of the GST Act. Item 5(b) in subsection 38-185(1) allows supplies of ships stores for use, consumption or sale on a ship on a voyage that has a destination outside Australia to be GST-free whether or not part of the voyage involves a journey between places in Australia. The Ruling section of GSTR 2003/4 states:

16. To be GST-free, the stores or spare parts must be supplied for a flight or voyage which has a destination outside Australia (that is, an international flight or voyage). An international flight or voyage may include a journey between places in Australia.

17. Destination means the predetermined end to a journey or voyage. For a voyage or flight to have a destination outside Australia, it must be intended that a ship 'lay anchor', or an aircraft land, at a predetermined location outside Australia. It is not enough for a ship to simply pass through international waters, or for an aircraft to merely fly through international air space.

This is further discussed in the Explanation section of GSTR 2003/4:

52. Item 5 contemplates that an international flight or voyage may have a part which 'involves a journey between places in Australia'. Accordingly, even though an international flight or voyage must have a destination outside Australia, it can include a journey between places in Australia as a stage or leg of the overall flight or voyage. However, it is necessary to determine whether the journey is part of the international flight or voyage or a separate flight or voyage with its own destination.

53. 'Destination' means the predetermined end point of a journey or voyage^. As the expression 'international voyage' in the Customs Act is defined by reference to the similar concept of a voyage to a place outside Australia, guidance on the meaning of a voyage with a destination outside Australia can be obtained from Customs cases.

54. The Customs Act defines 'international voyage' as:

a voyage, whether direct or indirect, between a place inside Australia and a place outside Australia

According to the first sentences in paragraphs 17 and 53 of GSTR 2003/4 'destination' means 'the predetermined end to…a voyage'. That reflects the definition of 'destination' in the Macquarie Dictionary i.e.

the predetermined end of a journey or voyage

Applying that definition of 'destination' to the present case, none of the cruises would have a 'destination' that is outside Australia because the predetermined end to each cruise is a port in Australia.

The definition of 'destination' adopted in paragraph 17 of GSTR 2003/4 for the purposes of item 5 in subsection 38-185(1) reflects the context in which 'destination' is used in that provision - section 38-185 deals with the export of goods generally, and item 5 deals specifically with the export of goods that are to be consumed on international voyages, so one would expect item 5 to include a requirement that the relevant voyage has a 'destination' (i.e. in the sense of a predetermined end to a voyage) that is outside Australia, albeit that part of that voyage may involve a journey between places in Australia.

Subsection 38-355(1), on the other hand, deals with a range of supplies of transport and related matters and contemplates that a sea voyage may comprise both transport of passengers to or from Australia (item 1) plus one or more 'domestic legs' (item 4) and that more than one item in subsection 38-355(1) may apply to a voyage (or to a 'leg' of an international voyage) in order to determine the correct GST treatment. Consequently, where item 1(a) in subsection 38-355(1) refers to:

the transport of a passenger:

(a) from the last place of departure in Australia to a destination outside Australia;

we do not consider that the expression 'destination outside Australia' in item 1(a) necessarily refers to the pre-determined end to the relevant voyage. We note that, notwithstanding the Macquarie Dictionary definition, there are broader dictionary definitions of 'destination', e.g. the Australian Oxford Dictionary

the place to which someone is going or being sent.

We also consider that while it may be necessary to define 'destination' as the predetermined end to a voyage in the context of a provision dealing with the export of goods (subsection 38-185(1)), such a limitation may not be appropriate in the context of a provision (subsection 38-355) dealing with the transport of passengers, particularly in relation to a cruise where each place where the ship stops/lays anchor may be a 'destination' in the sense that a passenger would want to see the sights and undertake activities at that place.

We have also reviewed the GST private ruling issued to ABC Co in 200X in respect of a cruise where the ship stopped/laid anchor at an external Territory. It appears that the ATO treated the first sentence in paragraph 17 of GSTR 2003/4 as setting out a general definition of 'destination', treated the second sentence of that paragraph as specifying when a voyage has a 'destination outside Australia' i.e.

For a voyage or flight to have a destination outside Australia, it must be intended that a ship 'lay anchor' or an aircraft land, at a predetermined location outside Australia.

and stated:

As X Island is part of the Group of Islands and as such an external Territory, the cruise to X Island does meet these requirements in that it does travel to a destination outside Australia and lays anchor at a predetermined location outside Australia.

For the reasons set out above we agree with the submission in the ruling request that the supply of a cruise which starts and ends at ports in Australia and involves the ship stopping or laying anchor at a predetermined location which is either outside Australia or an external Territory is GST-free.

Using the 'X nights ' cruise as an example, we consider that the supply of transport from Australian city to Country X is GST-free pursuant to item 1(a) in subsection 38-355(1), that the supply of transport from Country X to Australian city is GST-free pursuant to item 1(b) in subsection 38-355(1), and that the supply of transport from Australian city to another Australian city via a number of other Australian towns is GST-free pursuant to item 4 in subsection 38-355(1).