Edited version of your private ruling

Authorisation Number: 1012459851897

Ruling

Subject: Sales from outwards duty free shops

Question 1

Does the relevant traveller have to be present in a duty free shop for a 'sale' to take place under regulation 79 of the Excise Regulations 1925?

Answer

Yes

Question 2

Can an entity act on the behalf of the relevant traveller and take part in a 'sale' under regulation 79 of the Excise Regulations?

Answer

No

Question 3

Can an entity supply goods to its customers excise duty free without having to operate a duty free shop?

Answer

No

Question 4

If an entity meets the sealed bag rules, can that entity supply goods to its customer's goods and services tax free (GST-free) without having to operate a duty free shop?

Answer

Yes

This ruling applies for the following periods:

On or after 1 January 2013

The scheme commences on:

Prior to 31 December 2013

Relevant facts and circumstances

1. An entity proposes the following schemes:

a. Act on the behalf of the relevant traveller when purchasing goods from outwards duty free shops, or

b. Create a website whereby customers could purchase duty free goods rather than establishing a duty free shop.

Relevant legislative provisions

Customs Act 1901 Section 4

Excise Act 1901 Section 54

Excise Act 1901 Section 61

Excise Regulations 1925 Regulation 79

Excise Tariff Act 1921 Section 5

Excise Tariff Act 1921 Schedule

Sale of Goods Act 1923 Section 5

Sale of Goods Act 1923 Section 6

Reasons for decision

Question 1

Summary

Yes, the relevant traveller has to be present in a duty free shop for a sale to take place under regulation 79 of the Excise Regulations.

Detailed reasoning

Section 5 of the Excise Tariff Act 1921 imposes excise duty on goods that are listed in the Schedule to the Excise Tariff Act and are manufactured or produced in Australia.

The Schedule to the Excise Tariff Act lists the goods that are subject to excise duty, including alcoholic beverages (other than wine) and spirits, cigarettes and other tobacco products and fuel and oils.

The Excise Regulations set out provisions in relation to excisable goods, including rules for duty free shops.

Duty free shops

ATO publication titled Excise guidelines for duty free shops (the excise guidelines) provides guidance for duty free shops to assist them to meet their excise obligations and is listed on the Schedule of Precedential ATO Views. The excise guidelines express the Commissioner's view on the operation of the duty free system.

The excise guidelines state that a duty free shop is a shop licensed to store excisable goods and has permission to sell those goods to relevant travellers.

Outwards off-airport duty free shops are located away from the airport or at the airport, but before the customs barrier. Goods sold from these shops are required to be placed in sealed bags. Provisions specifically relating to off-airport duty free shops are located in subregulation 79(7) of the Excise Regulations.

Outwards on-airport duty free shops are located after the customs barrier. Goods sold from these shops are not required to be placed in sealed bags. Provisions specifically relating to on-airport duty free shops are located in subregulation 79(8) of the Excise Regulations.

Relevant traveller

Relevant traveller is defined in subsection 61D(1) of the Excise Act 1901 as a person who intends to make an international flight (whether as a passenger on, or as a pilot or member of the crew of, an aircraft) or a person who intends to make an international voyage (whether as a passenger on, or as the master or a member of the crew of, a ship).

Sales made from outwards duty free shops

Paragraphs 79(7)(a) and 79(8)(a) of the Excise Regulations state:

(a) that the proprietor [the holder of the warehouse licence that relates to the outwards duty free shop] must not sell goods to a person who is in the shop unless:

(i) the person is a relevant traveller; and

(ii) the person has shown to the proprietor a ticket, or other document approved by a Collector under paragraph 61D(7)(b) of the Act, that shows that the person is entitled to make the relevant flight.

Paragraphs 79(7)(b) and 79(8)(aa) of the Excise Regulations deal with situations where the proprietor enters into an 'agreement to sell goods' to a relevant traveller who is not physically in the shop. The excise guidelines state that this addresses situations where a relevant traveller wants to purchase goods through mail order or over the telephone. Paragraphs 79(7)(b) and 79(8)(aa) of the Excise Regulations provide that that the proprietor cannot enter into an agreement with a person who is not in the shop unless (emphasis added):

(i) the person is a relevant traveller; and

(ii) the person has given, whether orally or in writing, to the proprietor the particulars of the intended exportation of the goods…, and

(iii) the agreement is subject to the condition that the sale takes place in the shop.

Meaning of sale

The technical legal meaning usually given to the term 'sale' is the transfer by mutual consideration of the ownership of a thing from one person to another for a money price. However, as a matter of ordinary non-technical usage, 'sale' is capable of extending to the transfer of property for any valuable consideration.

All of the States and Territories have in place sale of goods legislation, which governs the sale of goods. In accordance with State and Territory sale of goods legislation, for a sale to have taken place, the property in the goods must be transferred from the seller to the purchaser.

For example, in New South Wales, section 5 of the Sale of Goods Act 1923 states that 'sale' includes a bargain and sale as well as a sale and delivery. Section 6 of the Sale of Goods Act further elaborates between 'sale' and an 'agreement to sell', stating that (emphasis added):

(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.

There may be a contract of sale between one part owner and another.

(2)  A contract of sale may be absolute or conditional.

(3)  Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale; but where the transfer of the property in the goods is to take place at a future time, or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

(4)  An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled, subject to which the property in the goods is to be transferred.

The main characteristics or indicators of 'sale' are therefore the transfer of property from the seller to the purchaser for a price.

Paragraphs 79(7)(ba) and 79(8)(ab) of the Excise Regulations provide that where an agreement is entered into in relation to the sale of goods, the proprietor must not deliver the goods to the relevant traveller unless the traveller has shown to the proprietor the ticket (or other document approved by a Collector), that confirms the particulars given to the proprietor.

Further, with respect to sales in outwards duty free shops generally (on-airport or off-airport), subregulation 79(14) of the Excise Regulations provides that:

A relevant traveller to whom goods are sold in an outwards duty free shop must, at or before the time of delivery of the goods, sign a recognition, in the approved form, of the traveller's obligations concerning the export of the goods.

Both of the above subregulations contemplate that the relevant traveller must be present in the store for the required documents to be handed to the proprietor, in order for the 'sale' to take place (i.e. in order for the property to pass from the seller to the buyer).

Further, the excise guidelines state that for a sale to take place in the shop, the relevant traveller must pick up the goods from the shop.

It seems clear on a straight reading of the subregulations and in addition to what is set out in the excise guidelines, that the requirements for a sale to take place under regulation 79 of the Excise Regulations include the following:

1. Any agreement the proprietor makes with a person in relation to the sale of goods must be the person who is the relevant traveller

2. The sale itself must be made to the relevant traveller in the duty free shop, and

3. The relevant traveller cannot remove the goods from the duty free shop without providing the required supporting documents to the proprietor. In the absence of anything to the contrary, copies would not be sufficient.

Therefore, the relevant traveller must be present in the duty free shop for a sale to take place.

Question 2

Summary

No, an entity cannot act on the behalf of the relevant traveller and take part in a sale under regulation 79 of the Excise Regulations.

Detailed reasoning

As outlined previously, it has been determined that the requirements for a sale to take place under regulation 79 of the Excise Regulations include the following:

1. Any agreement the proprietor makes with a person in relation to the sale of goods must be the person who is the relevant traveller (i.e. the agreement cannot be entered into by another entity on the relevant traveller's behalf)

2. The sale itself must be made to the relevant traveller in the duty free shop, and

3. The relevant traveller cannot remove the goods from the duty free shop without providing the required supporting documents to the proprietor. In the absence of anything to the contrary, copies would not be sufficient.

It is also clear from the wording of regulation 79 of the Excise Regulations that only the proprietor of an outwards duty free shop can:

1. Enter into an agreement to sell goods,

2. Sell the goods, and

3. Deliver the goods the subject of the sale to the relevant traveller.

There is therefore no capacity for any of the relevant requirements set out in regulation 79 of the Excise Regulations to be met by any entity other than the proprietor of the duty free shop or the relevant traveller.

As such, an entity cannot act of the behalf of the relevant traveller and take part in a sale under regulation 79 of the Excise Regulations.

Question 3

Summary

No, an entity cannot supply goods to its customer's free of excise duty without having to operate a duty free shop.

Detailed reasoning

As mentioned previously, the Schedule to the Excise Tariff Act lists the goods that are subject to excise duty. These goods include alcoholic beverages (other than wine) and spirits, cigarettes and other tobacco products and fuel and oils.

Subsection 54(1) of the Excise Act provides that when the owner of excisable goods enters the goods for home consumption, the owner of the goods is required to pay the Collector the excise duty on those goods.

Subsection 61D(2) of the Excise Act provides that the Collector may however give permission for certain excisable goods to be sold to a relevant traveller in an outwards duty free shop, without the goods having been entered for exportation. Therefore, any sales of excisable goods made to relevant travellers in an outwards duty free shop will be free of excise duty.

Outwards duty free shops

Subsection 61D(1) of the Excise Act states the following:

outwards duty free shop means a warehouse in respect of which the relevant warehouse licence authorises the sale in the warehouse of goods to relevant travellers.

…

warehouse licence has the same meaning as it has in the Customs Act 1901.

Section 4 of the Customs Act 1901 states:

"Warehouse" means a place that a person or partnership is licensed under section 79 to use for warehousing goods

To operate an outwards duty free shop, a warehouse, a physical location is therefore required.

In applying the above subsections of the Excise Act, to supply excisable goods free of excise duty, you must:

1. Hold a warehouse

2. Have a warehouse licence

3. Operate an outwards duty free shop, and

4. Sell excisable goods to relevant travellers in the outwards duty free shop.

An entity can therefore not sell excisable goods free of excise duty without operating an outwards duty free shop.

Question 4

Summary

Yes, if the sealed bag rules are met, an entity can supply goods to its customer's GST-free, without having to establish a duty free shop.

Detailed reasoning

ATO publication titled Making GST free sales to travellers departing Australia explains how retailers can sell goods to travellers about to depart Australia GST-free.

Sealed bag method

A retailer can provide goods to travellers GST and wine equalisation tax free under the sealed bag system if all of the sealed bag rules are met. The following provides you with an overview of each of these rules:

Rule 1

The seller must sight the traveller's travel documents to make sure the traveller is departing Australia. This includes looking at the overseas ticket and ensuring that the ticket belongs to the traveller by asking for proof of identity, such as the traveller's passport.

Rule 2

The traveller must complete and sign a sealed bag declaration.

Rule 3

The seller must issue an invoice in triplicate to ensure it cannot be altered. The required copies of the invoice include:

- a copy for the traveller

- a copy attached to the outside of the package (the barrier copy), and

- a copy for the seller (the retailer).

Rule 4

The seller must retain copies of:

- the signed sealed bag declaration, and

- the seller's copy of the invoice.

It is advisable for sellers to also retain a copy of the traveller's proof of identity.

Rule 5

The seller must not give the goods to the traveller earlier than 30 days before the departure date on the traveller's ticket.

Rule 6

The traveller may only take possession of goods in a sealed package.

Rule 7

Once the traveller is beyond the Customs barrier, the invoice will be detached from the sealed package and retrieved by Duty Free Security staff.

The sealed package at this point must also be examined by Duty Free Security staff. If the package is not sealed or has been tampered with, Duty Free Security staff must notify the ATO.

Rule 8

Retrieved invoices must be validated by Duty Free Security staff.

The seller must then reconcile the invoices from the docket collection agency with their sales records, to identify any sales where the invoice wasn't detached at the customs barrier.

Can an entity sell goods to its customer's GST-free?

As long as the entity's customers are travellers (that is they intend to leave Australia temporarily or permanently) and the sealed bag rules are met, the entity will be entitled to sell goods GST-free to these travellers, without having to establish a duty free shop.

Note: Although these goods will be GST-free, excise duty will still be payable as per the excise regulations.

If the entity doesn't comply with the sealed bag rules, any sales made to travellers are classed as taxable sales. That means the entity must pay GST on the sale and account for the GST on its activity statement.