Edited version of your private ruling

Authorisation Number: 1012476316731

Ruling

Subject: GST and supply of transport services

Question

When you provide your transport services to the ships that are anchored within Australian ports, do you need to charge GST for these services where the anchored ships are owned by non-residents of Australia?

Advice

Transport services within Australia

Generally, a supply of transport services within Australia is a taxable supply where the supplier of the transport services is registered for GST.

Australia 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. The territorial limit of coastal seas surrounding Australia is 12 nautical miles from the territorial sea baseline of Australian land masses.

Accordingly, where the ships owned by the non-residents of Australia are anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your supply of transport services is a taxable supply as the ships are in Australia for GST purposes. In this case, you are required to charge GST on the supply of transport services.

Transport services not within Australia

Where the ships owned by the non-residents of Australia are outside the 12 nautical miles territorial limit of coastal seas surrounding Australia, your supply of transport services is GST-free under either item 1 or item 5 in the table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Further your supply of transport services may be GST-free under item 3 in the table in subsection 38-190(1) of the GST Act (Item 3) by virtue of subsection 38-190(4) of the GST Act where all the requirements in Item 3 and subsection 38-190(4) of the GST Act are satisfied.

Relevant facts

You are an Australian company and registered for the goods and services tax (GST).

You supply logistical services to ships that are anchored within Australian ports and use your vessel to carry on these services.

The ships are owned by non-resident entities. The ships lay anchor within the Australian ports (that is they are located in Australian territorial water) while waiting for a berth to be free in order to unload or load their cargo.

There is an Australian agent engaged by the non-resident owners who will ensure all the needs of the captain and the crews are met when the ships are anchored within the ports or at the berth and there is a safe loading or unloading of the cargo at the port.

The Australian agent will contact you for your services for example to transfer the crews onshore and back to the anchored ship, and transport stores like food and water that were already purchased onshore from other suppliers to the anchored ship as it is the only way for the captain and crews to receive stores or transport a good that was already purchased onshore from another supplier (for example a spare part) to the anchored ship. You use your boat to do the transporting.

You bill the captain of the ships for your services and the captain will make the payments to you.

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 38-190;

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1; and

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

Reasons for decision

Detailed reasoning

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if an entity:

(a) makes the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and

(c) the supply is connected with Australia; and

(d) the entity is 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.

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

From the information received you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(a) you receive consideration for your supply of transport services; and

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

(c) the supply is connected with Australia as it is done through a business that you carry on in Australia; and

(d) you are registered for GST.

However, your supply is not a taxable supply to the extent it is GST-free or input taxed. There is no provision under the GST Act that will make your supply of transport services input taxed.

GST-free

Relevant to the supply of transport services is section 38-190 and section 38-355 of the GST Act.

Section 38-190 of the GST Act

Under section 38-190 of the GST Act certain supplies other than supplies of goods or real property for consumption outside Australia are GST-free. Of particular relevance to the supply of transport services is item 3 in the table in subsection 38-190(1) of the GST Act (Item 3)

Item 3 appears as follows:

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

For a supply to be GST-free under Item 3 both paragraphs (a) and (b) of Item 3 must be satisfied and the supply is neither work physically performed on goods nor directly connected with real property situated in Australia.

Goods and Services Tax Rulings GSTR 2003/7, 2004/7 and 2007/2 (available at www.ato.gov.au) provide guidance on the application of Item 3.

Paragraph (a) of Item 3

To be GST-free, paragraph (a) of Item 3 requires that the recipient is not in Australia when the thing supplied is done. A recipient, in relation to a supply, is the entity to whom the supply is made. It is not a requirement of Item 3 that the recipient is a non-resident entity.

The term 'thing supplied is done' refers to the period of time in which the supply occurs. In the case of the transport services, the thing supplied is done during the period of time the transport services are performed.

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.

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. The territorial limit of the coastal seas surrounding Australia is 12 nautical miles from the territorial sea baseline of Australian land masses.

Accordingly, where an Australian resident is the recipient of the supply of transport services, paragraph (a) of Item 3 will not be satisfied as the requirement 'not in Australia' is not met.

However, where a supply is made to a recipient who fails the 'not in Australia' requirement in paragraph (a) of Item 3, it is necessary to consider whether subsection 38-190(4) of the GST Act applies.

Subsection 38-190(4) of the GST Act

Subsection 38-190(4) of the GST Act extends the scope of Item 3. The subsection provides that a supply to a recipient who is in Australia in relation to the supply is taken for the purposes of Item 3, to be a supply made to a recipient who is not in Australia if:

(a) the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and

(b) the supply is provided, or the agreement requires it to be provided, to another entity outside Australia.

However, under subsection 38-190(5) of the GST Act limits the scope of subsection 38-190(4) of the GST Act. Subsection 38-190(5) of the GST Act provides that subsection 38-190(4) of the GST Act does not apply to any of the following supplies:

(a) transport of goods within Australia that is part of, or is connected with, the international transport of the goods;

(b) a loading or handling of goods within Australia that is part of, or is connected with, the international transport of the goods;

(c) a service, done within Australia, in relation to the goods that facilitates the international transport of the goods;

Example: The services of a customs broker in processing the information necessary for the clearance of goods into home consumption.

(d) insuring transport covered by paragraph (a);

(e) arranging transport covered by paragraph (a), or insurance covered by paragraph (d).

GSTR 2004/7 provides guidance on the application of subsection 38-190(4) of the GST Act.

The expression 'provided to another entity' in subsection 38-190(4) of the GST Act seeks to identify the entity to which the Item 3 supply actually flows. A supply is provided to another entity if, in the performance of a service (or in the doing of some thing), the actual flow of that supply is to an entity that is not the recipient. The contractual flow is to the recipient and the actual flow of the supply is to another entity (the providee).

Accordingly, if the supply is made under an agreement with an Australian resident recipient but the thing supplied is provided, or the agreement requires it to be provided to another entity located outside Australia, subsection 38-190(4) of the GST Act applies and the 'not in Australia' requirement in paragraph (a) of Item 3 is satisfied.

Applying facts to subsection 38-190(4) of the GST Act

From the information received, the Australian agent will contact you to provide your transport services and these transport services are for the transfer of goods from the port to the ship located in Australian sea water and transfer of crews from the ship to the port and later back to the ship.

Based on the information received, subsection 38-190(5) of the GST Act is not applicable in your case as your sea journey from the port to the ship is a distinct and separate voyage from the international voyage of the ship itself since your supply of transport services has a different purpose and the timing of your transport services is independent of the international voyage of the ship.

In this case you are making your supply of transport services to the Australian agent and providing the supply to the ship captain or crews as it is the ship captain or crews that are receiving the supply at the time the transport services are made. Accordingly, we need to consider if the requirements of paragraph (a) of Item 3 are satisfied by virtue of subsection 38-190(4) of the GST Act.

You did not provide us with information whether the ship is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia or not when you advise that the ship is anchored in Australian water. We will therefore consider both situations when considering Item 3 in relation to your supply of transport services.

Ship is anchored within the12 nautical miles territorial limit of coastal seas surrounding Australia

To determine whether there is a provision of a supply to an individual in Australia or outside Australia, we distinguish between resident and non-resident individuals and whether they are physically in or outside Australia when the thing supplied is done.

A supply is provided to a non-resident individual outside Australia if that individual:

· is physically outside Australia when the thing supplied is done; and

· is physically in Australia when the thing supplied is done but that presence in Australia is not integral to, but merely coincidental with, the provision of the supply.

A supply is provided to a non-resident individual in Australia if:

· that individual is physically in Australia when the thing supplied is done; and

· the presence of that individual in Australia is integral to, as distinct from being merely coincidental with, the provision of the supply.

Where the ship is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, the ship is in Australia for GST purposes. In this instance, subsection 38-190(4) of the GST Act is not satisfied as the Australian Agent is requesting you to provide your transport services to the crews and ship captain who are in Australia at the time of the supply. Accordingly, paragraph (a) of Item 3 is not satisfied as well.

The supply of the transport services is therefore not GST-free under Item 3.

Ship is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia

Where the ship is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, the ship is not in Australia for GST purposes. Paragraph (a) of Item 3 is satisfied by virtue of subsection 38-190(4) of the GST Act where the Australian Agent is requesting you to provide your transport services to the crews and ship captain who are on board of the ship (therefore not in Australia) at the time of the supply. In this instance, where the other requirements in Item 3 are satisfied, the supply of transport services will be GST-free under Item 3.

However, where the crews are at the port at the time you supply your transport services to them, your supply does not satisfy the requirements of subsection 38-190(4) and paragraph (a) of Item 3 of the GST Act. In this instance, the supply is not GST-free under Item 3.

Paragraph (b) of Item 3

Paragraph (b) of Item 3 requires the place of effective use or enjoyment of a supply to be determined (that is whether the place is outside Australia). As paragraph (b) of Item 3 refers to the effective use or enjoyment of the supply, it is necessary to inquire as to the entity that has the actual use or enjoyment of the supply.

If the supply is made to one entity (that is the recipient) but is provided to another entity, that other entity is the providee entity. We determine whether the effective use or enjoyment of the supply takes place outside Australia with reference to the providee entity and not the recipient entity. In this case, the providee entity is the crews and the captain of the ship.

Where the transport services are provided to either the crews or the captain of the ship who are on board of the ship located outside Australia, the effective use or enjoyment of the supply takes place outside Australia. Paragraph (b) of Item 3 is therefore satisfied and the supply is GST-free under Item 3 if the other requirements of Item 3 are satisfied.

Other requirements of Item 3

A supply will not satisfy the requirements of Item 3 if the supply is directly connected with real property situated in Australia or is a supply of work physically performed on goods situated in Australia.

A supply of transport services is neither a supply of work physically performed on goods nor a supply directly connected with real property.

Accordingly, where paragraphs (a) and (b) of Item 3 are satisfied your supply of transport services is GST-free under Item 3

Summary

Where the ship is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your supply of transport services is not GST-free under Item 3. Your supply of transport services is a taxable supply and you will be liable to pay GST on the supply.

Where the ship is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your supply of transport services is GST-free under Item 3 where all the requirements in Item 3 are satisfied.

Section 38-355 of the GST Act

Section 38-355 of the GST Act provides that certain supplies of transport and related services are GST-free.

Transport of passengers - crews

Item 1 in the table in subsection 38-355(1) of the GST Act is about transport of passengers to, from or outside Australia and appears as follows:

38-355 Supplies of transport and related matters

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

Supplies of transport and related matters
Item	Topic	These supplies are GST-free ...
1	Transport of passengers to, from or outside Australia	the transport of a passenger: (a) from the last place of departure in Australia to a destination outside Australia; or (b) from a place outside Australia to the first place of arrival in Australia; or (c)  from a place outside Australia to the same or another place outside Australia.

When the crews are transferred to and from the ship that is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your transport of the crews is GST-free under item 1 in the table in subsection 38-355(1) of the GST Act.

However, where the ship which is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your transport of the crews is not GST-free under item 1 in the table in subsection 38-355(1) of the GST Act as your supply of transport services is done within Australia since the ship is in Australia for GST purposes.

Transport of goods

Item 5 in the table in subsection 38-355(1) of the GST Act provides that a supply of international transport of goods is GST-free for transport suppliers who take the goods out of Australia. The transport supplier will be the entity that has been contracted to transport the goods outs of Australia. In addition, any supplies of loading, handling or other services that facilitates the international transport of goods by the transport supplier, are also GST-free.

Items 5 and 5(A) in the table in subsection 38-355(1) of the GST Act appears as follows:

Supplies of transport and related matters
Item	Topic	These supplies are GST-free ...
5	Transport etc. of goods	subject to subsection (2), the *international transport of goods: (a) from their *place of export in Australia to a destination outside Australia; or (b) from a place outside Australia to their *place of consignment in Australia; or (c)  from a place outside Australia to the same or another place outside Australia.
5A	Loading or handling etc.	subject to subsection (2): (a) loading or handling of goods, the *international transport of which is covered by item 5, during the course of the international transport; or (b) supply of a service, during the course of the international transport of goods covered by item 5, that facilitates the international transport.

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

Subsection 38-355(2) of the GST Act states the following:

2. Paragraphs (a) and (b) of item 5, and item 5A, in the table in subsection (1) do not apply to a supply to the extent that the thing supplied is done in Australia, unless:

(a) the *recipient of the supply:

(i) is a *non-resident; and

(ii) is not in Australia when the thing supplied is done in Australia; or

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

In the case, where you are contracted to transport the goods to the ship that is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your supply of transport services is GST-free under item 5 in the table in subsection 38-355(1) of the GST Act as you are taking the goods out of Australia.

However, where the ship is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your transport of the goods is not GST-free under item 5 in the table in subsection 38-355(1) of the GST Act as your supply of transport services is done within Australia as the ship is located in Australia for GST purposes.

Summary

Transport of crews

When the crews are transferred to and from the ship that is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your transport of the crews is GST-free under item 1 in the table in subsection 38-355(1) of the GST Act.

However, where the ship which is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your transport of the crews is not GST-free under item 1 in the table in subsection 38-355(1) of the GST Act as your supply of transport services is done within Australia since the ship is in Australia for GST purposes.

Transport of goods

Where you are contracted to transport the goods to the ship that is not anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your supply of transport services is GST-free under item 5 in the table in subsection 38-355(1) of the GST Act as you are taking the goods out of Australia.

However, where the ship is anchored within the 12 nautical miles territorial limit of coastal seas surrounding Australia, your transport of the goods is not GST-free under item 5 in the table in subsection 38-355(1) of the GST Act as your supply of transport services is done within Australia as the ship is located in Australia for GST purposes.