Edited version of your private ruling

Authorisation Number: 1012475282567

Ruling

Subject: GST and international transport

Question

Is GST payable when you on-charge the cartage, freight, and export documentation and handling fees?

Answer

No.

Relevant facts and circumstances

You are a freight forwarder that is registered for GST.

This ruling request is based on the following scenario that you have provided which explains your role in the international transport of goods:

· Freight Forwarder -You

· Client

· Transport Company

· Shipping Line

The Client calls you to arrange export of goods to Country X. Terms are CIF which means the Client is responsible for paying all charges up to arrival at port in Country X. You call the Transport Company and request pick up of goods from the Client for delivery to an Australian port. You arrange for the goods to be put into containers at the port where the Shipping Line will load the goods on a vessel and transport them to the port in Country X.

The Transport Company sends an invoice to you for cartage and the Shipping Line sends an invoice to you for freight.

You invoice the Client for cartage, freight and export documentation and handling fees.

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 9-15.

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-355(2).

Reasons for decision

Summary

The on-charged cartage, freight and export documentation and handling fees form part of the consideration for a GST-free supply of international transport. Hence, GST is not payable.

Detailed reasoning

GST is payable by you on your taxable supplies.

Hence, GST is payable on the on-charging of the cartage, freight and export documentation and handling fees if the subsequent payment by the client for these costs forms part of the consideration for a taxable supply of your services.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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 term defined in section 195-1 of the GST Act)

You satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· you supply freight forwarding services for consideration

· you supply these services in the course or furtherance of an enterprise that you carry on

· the supply of the these services is connected with Australia as the services are done in Australia and made through an enterprise that you carry on in Australia, and

· you are registered for GST.

There are no provisions in the GST Act or any other act under which the supply of your services is input taxed.

Therefore, what remains to be determined is whether the supply of your services is GST-free.

Section 38-355 of the GST Act specifies the general rules for the GST-free supplies of international transport of goods and related matters.

Items 5 and 5A together in the table in section 38-355 of the GST Act allow for the GST-free transport of goods in certain circumstances as follows:

The third column of this table sets out supplies that are GST-free:

However, subsection 38-355(2) of the GST Act provides that paragraphs (a) and (b) of item 5 and item 5A do not apply to a supply to the extent that the thing supplied is done in Australia, unless:

· the recipient of the supply is a non-resident and is not in Australia when the thing supplied is done in Australia; or

· the supply is done by the supplier of the transport of the goods from or to Australia (whichever is relevant).

International transport is defined in section 195-1 of the GST Act to include, in relation to the export of goods, the transport of the goods from their place of export in Australia to a destination outside Australia.

Place of export is defined in section 195-1 of the GST Act. It states:

Place of export of goods means:

(a) if the goods were posted from Australia - the place from which they were posted; or

(b) if paragraph (a) does not apply and the goods were packed in a *freight container:

(i) the last place from which they were collected, or to which they were delivered, prior to being so packed; or

(ii) if subparagraph (i) does not apply - the place were they were so packed; or

(c) if the goods are self transported goods - the place, or last place, from which the goods departed Australia; or

(d) if paragraphs (a), (b) and (c) do not apply - the place, or first place, where the goods were placed on board a ship or aircraft for export from Australia.

The ATO factsheet entitled GST and international freight transport provides guidance on the international transport provisions. In relation to the outbound transport for the export of goods, it states:

…for goods that are to be packed in a freight container the place of export can be the location at which the goods are collected by the transport supplier.

The place of export determines the extent to which transport services, and other services associated with moving goods from Australia, will be GST-free.

Transport suppliers who take the goods out of Australia

The supply of international transport is GST-free for transport suppliers who take the goods out of Australia. These suppliers will be the entity that has been contracted to transport the goods out of Australia - they will not necessarily be the entity that physically carries out the service. Supplies of loading, handling and other services that facilitate the international transport of goods by these suppliers, are also GST-free.

Subcontractors who do not take the goods out of Australia

International transport supply within Australia will be taxable in all circumstances when it is supplied to a resident or a non-resident present in Australia.

Subcontractors who have contributed to provision of an international transport supply within Australia will make a GST-free supply if their services are made to a non-resident who is not in Australia when the services are provided. Supplies of loading, handling and other services that facilitate the international transport of goods, are also GST-free when made to a non-resident who is not in Australia when the services are provided.

Example 4: Outbound removalist

Stan is registered for GST and operates an international removalist company that undertakes both the Australian and international legs of international removals.

Jessica contracts Stan to transport her household items to London and to supply insurance for the transport of the goods. Stan collects Jessica's goods and moves them in a truck to his depot where they are placed in a freight container.

The place of export is the place the goods were collected by Stan (Jessica's residence) not the location where the goods are placed in a container. Stan's transport supply of Jessica's goods from her residence to the place of delivery in London is GST-free.

In the case of transport of exported goods from their place of export in Australia to a destination outside Australia, the transportation of the goods within Australia will be GST-free, if supplied by the same supplier of the transport who transports the goods overseas. 'Place of export' is defined above.

In the scenario you presented, you are contracted to provide the international transport of the goods from the client's nominated address to the overseas port.

The place of export is considered to be the place where the goods are collected by the transport company.

Based on the scenario you have presented you are the transport supplier. It is not necessary that you physically carry out the transporting of the goods. Your role is to facilitate the international transport of the goods. The freight forwarding services that you supply to the client are part of the overall supply of international transport of goods from Australia.

Hence, you are making a GST-free supply of the international transport of goods from Australia under paragraph (b) of item 5A.

Subsection 38-355(2) does not negate the GST-free status of your freight forwarding services supplied to the client in Australia because they are provided as part of the overall supply of international transport of goods from Australia.

On-charging of costs

Based on the scenario you presented, your fees payable by the client for your freight forwarding services include the on-charging of the cartage for the local transport of the goods, the freight for the transport to the overseas destination and the export documentation and handling fees incurred in preparing the goods for international transport.

Under section 9-15 of the GST Act, 'consideration' includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

Paragraphs 48 to 54 of GSTR 2000/37 describe the effects of an agency relationship on disbursements by lawyers. Although GSTR 2000/37 uses the example of lawyers the GST treatment stated in GSTR 2000/37 is applicable to any situation involving service providers and their clients.

Paragraphs 48 and 49 of GSTR 2000/37 state:

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

From the information available and applying the principle in paragraph 49 of GSTR 2000/37, we consider that you are not a paying agent for the client in respect of the cartage, freight, and export documentation and handling fees. You incurred these costs in the ordinary course of providing your freight forwarding services to the client. They are similar to other acquisitions that you make in the ordinary course of carrying on your enterprise. The subsequent payment by the client for these costs forms part of the consideration payable by the client for your freight forwarding services.

As outlined above, the supply of your services to the client in the scenario presented is GST-free. As the fee you charge the client which includes the on-charged cartage, freight and export documentation and handling fee, is consideration for a GST-free supply, GST is not payable.

Correcting GST mistakes

Where you have made a GST mistake on an earlier activity statement, resulting in you paying too much GST or claiming too much GST credits, you may be able to make a correction on a subsequent activity statement if the net effect (that is the total GST effect of all the errors) is within the correction limits.

The guide Correcting GST errors explains how to correct GST errors you made on an earlier activity statement. In particular, it explains when you can correct GST errors on a later activity statement, in accordance with Goods and Services Tax: Correcting GST Errors Determination 2013 which took effect from 10 May 2013.

All publications referred to in this private ruling are available from the ATO website www.ato.gov.au