Edited version of your private ruling

Authorisation Number: 1012506925619

Ruling

Subject: GST and supplies connected with Australia

Question

Is a supply made by ABC Co on the terms and conditions described in the ruling request a taxable supply for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

ABC Co is a non-resident entity engaged in goods trading and is registered for Australian GST purposes.

ABC Co recently entered into a contract to supply the Product to an Australian resident entity (Buyer).

ABC Co sourced the Product from outside Australia.

ABC Co provided a copy of the Contract with the Buyer which contains the following clauses:

DELIVERY

In one lot as full or part cargo DES (Delivered Ex Ship), duty unpaid, to Port Capital City, Australia at a berth designated by the Buyer, estimated to arrive at the discharge port during the period Month 20XX to Month 20XX.

All charges at the discharge port, other than those defined by worldscale as being for owners' account, (including the expense if any, of shifting berth at the discharge port, unless such shift shall be for the vessel's purposes), shall be paid by the Buyer.

TITLE

Title to the Product shall pass from the Seller to the Buyer when the Product is unloaded at the discharge port.

RISK

Risk of loss or damage to the Product shall pass from the Seller to the Buyer when the Product is unloaded at the discharge port. From this point, any obligation of the Seller as to the condition and quality of the Product shall cease and the Seller shall have no liability for any deterioration in the condition and/or quality of the Product for any reason whatsoever, including inherent vice.

TAXES AND LICENCES

The Buyer shall be liable for and shall indemnify the Seller on an after tax basis in respect of the full amount of all taxes, duties, tariffs, imposts and charges arising after delivery of the Product or levied in the country of discharge on or by reference to or payable in respect of the product, its sale, delivery, import or transportation or in respect of the vessel, whether retrospective or not.

The Buyer or the Buyer's customer shall be the importer of record and shall be responsible for complying with Customs and Excise entry procedures at the discharge port and shall be liable to the Customs and Excise authorities for all duties and taxes that arise in respect of such Customs and Excise entry…

For the purposes of this ruling request, ABC Co has provided the above Contract. It anticipates making further supplies under the same circumstances and on the same terms and conditions. ABC Co intends to apply the treatment advised by the Commissioner to future transactions, as well as in connection with this particular Contract.

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 9-25.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-25(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-25(3).

A New Tax System (Goods and Services Tax) Act 1999 Section 13-5.

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

Reasons for decision

Summary

The supply made by ABC Co on the terms and conditions described is not connected with Australia. Hence, it is not a taxable supply.

Detailed reasoning

Taxable supply:

An entity is liable to pay the GST on any taxable supply that that entity makes.

Section 9-5 of the GST Act sets out the requirements for 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.)

All of the requirements of section 9-5 of the GST Act must be satisfied for the sale of the Product by ABC Co to be a taxable supply.

ABC Co is registered for GST and the sale of the Product to the Buyer is made for consideration and in the course of an enterprise carried on by ABC Co. Therefore, ABC Co satisfies the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act. Furthermore, the sale of the Product in the circumstances described is neither GST-free nor input taxed.

It remains to be determined whether the supply of the Product by ABC Co is connected with Australia under paragraph 9-5(c) of the GST Act.

Supplies connected with Australia

Section 9-25 of the GST Act sets out the circumstances in which a supply is connected with Australia. In this case, of relevance are subsections 9-25(1) and 9-25(3) of the GST Act, which state:

Supplies of goods wholly within Australia

(1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the recipient of the supply.

Supplies of goods to Australia

(3) A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

Goods and Services Tax Ruling GSTR 2000/31 explains when a supply is connected with Australia under section 9-25 of the GST Act and Goods and Services Tax Ruling GSTR 2003/15 explains the operation of provisions of the GST Act which apply to the importation of goods into Australia.

Subsection 9-25(3) of the GST Act:

The ruling request addressed subsection 9-25(3) of the GST Act and included a submission that as ABC Co does not complete any Customs formalities, the supply of the Product is not connected with Australia.

Paragraphs 52 to 56 of GSTR 2000/31 discuss a supply of goods to which subsection 9-25(3) applies:

52. A supply of goods is connected with Australia if the supply involves those goods being brought to Australia and the supplier either imports the goods into Australia (paragraph 9-25(3)(a)) or installs or assembles the goods in Australia (paragraph 9-25(3)(b)). The import of the goods into Australia or the installation or assembly of the goods in Australia is a supply of goods to Australia.

53. This means that the supplier is either an exporter from outside Australia and importer into Australia, or an exporter from outside Australia and installer or assembler in Australia.

54. Paragraph 9-25(3)(a) does not apply to a supply of goods that involves goods being brought to Australia where the recipient imports the goods into Australia.

55. Under paragraph 9-25(3)(a) a supply of goods brought to Australia is connected with Australia if the supplier imports the goods regardless of whether or not the supplier engages a Customs broker to arrange customs clearance of the goods.

56. A supply that is connected with Australia under paragraph 9-25(3)(a) may give rise to a taxable supply and a taxable importation where the supplier imports the goods into Australia.

Paragraph 72 of GSTR 2003/15 explains that supplies of goods to Australia are connected with Australia if the supplier imports the goods. A supplier imports goods where the supplier causes the goods to be brought to Australia for its own purposes and completes the customs formalities.

Paragraph 147 of GSTR 2003/15 states that an entity completes the customs formalities where that entity's name appears on the import entry as 'owner' and that this occurs where the entity completes the entry itself, or engages a customs broker.

Paragraph 97 of GSTR 2003/15 provides that the entity that enters goods for home consumption is the entity that makes the taxable importation and typically, this is the importing entity. Under the Customs Act 1901 (Customs Act) an entry for home consumption must be made by or on behalf of the 'owner' of the goods. The 'owner' of the goods for Customs purposes is not restricted to the legal owner. Section 4 of the Customs Act provides that the 'owner' can be:

… any person (other than an officer of Customs) being or holding himself out to be the owner, importer, exporter, consignee, agent, or person possessed of, or beneficially interested in, or having any control of, or power of disposition over the goods.

GSTR 2000/31 contains a number of Examples where section 9-25(3) is or is not satisfied, including Example 13 where subsection 9-25(3) is not satisfied because the goods are imported by the recipient of the supply:

142. If…US Co sells the tractor to Tract Co [an Australian earthmoving operator] on a FOB basis, the tractor is imported into Australia by the recipient and the supply of the tractor is not connected with Australia under paragraph 9-25(3)(a)…

Clause X of the Contract provides that the Buyer or the Buyer's customer is required to act as the importer of record and be responsible for compliance with Customs and Excise entry procedures at the discharge port and is liable for all duties and taxes.

We accept that clause X means that the Buyer is named as owner of the Product in the Customs entry documents. Hence, ABC Co does not 'import the goods' for the purposes of subsection 9-25(3) of the GST Act. Nor does ABC Co install or assemble the goods in Australia.

Consequently the supply of the Product by ABC Co to the Buyer is not connected with Australia pursuant to subsection 9-25(3) of the GST Act.

Subsection 9-25(1) of the GST Act

Subsection 9-25(1) appears beneath the heading 'Supplies of goods wholly within Australia' and is discussed in paragraphs 45 to 47 of GSTR 2000/31:

45. 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)). If goods are delivered or made available in Australia to the recipient of the supply, the supply of goods is wholly within Australia.

46. In the context of subsection 9-25(1), goods are delivered in Australia if the goods are physically delivered in Australia. Goods are made available in Australia if the goods are physically made available in Australia.

47. Goods which are delivered or made available in Australia to the recipient may be goods that the supplier has acquired domestically or imported (see the example at paragraph 124 of the Explanations section).

Paragraphs 117 to 120 of GSTR 2000/31 explain how goods are 'delivered' or 'made available' to the recipient of the relevant supply for the purposes of subsection 9-25(1):

117. Subsection 9-25(1) 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) 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 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.

The 'Delivery' provision in clause Y of the Contract indicates that ABC Co makes the Product physically available, in Australia, for collection by the Buyer.

As noted above, paragraph 47 of GSTR 2000/31 states that goods which are delivered or made available in Australia to the recipient may be goods that the supplier has imported and refers to the example at paragraph 124 of GSTR 2000/31:

Example 7 - Supplies of imported goods wholly within Australia

124. Joe goes to a car dealer in Perth and, after driving a demonstration model, agrees to purchase an Italian manufactured car of a particular model. The car dealer does not have that model car in stock. The car dealer orders and purchases the car from the Italian manufacturer and imports the car into Australia. When the car dealer receives the imported car, Joe is contacted and told that the car is ready for delivery.

125. Even though the car is imported by the car dealer, the supply from the car dealer to Joe is wholly within Australia. This supply is connected with Australia as the car is delivered to Joe in Australia.

126. This example illustrates that although the goods are supplied wholly within Australia, the goods themselves may be imported goods.

Example 7 states that a supply of goods that have been imported is nevertheless a supply that is 'wholly within Australia' if those goods are delivered to the recipient in Australia. Given the emphasis in GSTR 2000/31 on where the goods are physically delivered or made available, there appears to be no distinction between Example 7 (where the supplier imports the goods and then physically delivers the goods to the recipient in Australia) and the present case (where ABC Co physically makes the goods available to the Buyer in Australia and the Buyer then lodges the Customs entry documents and pays the customs duty and GST levied on importation).

However paragraph 49 of GSTR 2000/31 suggests that subsection 9-25(1) cannot apply to a supply where the recipient of the supply enters the goods for home consumption:

49. Where the recipient imports the goods into Australia, the supply of goods is not connected with Australia under subsection 9-25(1) because the goods are not delivered, or made available, in Australia to the recipient of the supply.

Paragraph 129 of GSTR 2000/31 repeats the proposition stated in paragraph 49 and paragraph 130 provides an example:

129. A supply of goods that involves the recipient importing the goods into Australia is not connected with Australia under subsection 9-25(1) as the goods are not delivered, or made available, in Australia to the recipient of the supply. Also, the supply of goods is not connected with Australia under paragraph 9-25(3)(a) because the supplier does not import the goods. However, the recipient importer will make a taxable importation.

Example 8 - Goods supplied by resident supplier and imported by resident recipient

130. Joe decides to fit his car with specialised seat covers. He approaches Seat Co in Sydney to supply the seat covers. However, the seat covers have to be imported from Italy. Under the arrangements with Seat Co, Joe imports the seat covers into Australia and pays Seat Co for the goods once the seat covers are cleared through Customs. The supply of goods, specialised seat covers by Seatco to Joe, is not connected with Australia because the goods are not delivered, or made available to Joe, in Australia. However, Joe makes a taxable importation upon which GST is payable

Example 8 illustrates that the seat covers must have been delivered or made available to Joe (or Joe's agent) in Italy as Joe imports the seat covers to Australia and clears them through Customs and the Australian supplier of the seat covers (Seat Co) never handles the seat covers.

The application of subsection 9-25(1) and 9-25(3) is discussed in two Examples in GSTR 2000/31 which involve the supply of goods to Australia on different Inco terms:

Example 12 - Goods imported into Australia by supplier

140. US Co, a US company sells a tractor to Tract Co, an Australian earthmoving operator, on a DDP basis. US Co has to import the tractor into Australia. The supply made by US Co to Tract Co is a supply connected with Australia as the tractor (goods) is brought to Australia and it is US Co (the supplier) that imports it into Australia.

(Footnote 37 explains that 'DDP' means delivered duty paid where the seller is responsible for all costs and risks to a specific destination in the importing country (including unloading at port, storage, import licence fees, duties, taxes, insurance etc.)

141. If a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia. The supply is not a taxable supply under section 9-5. However, the importation is a taxable importation and the recipient is liable to pay GST on the taxable importation.

Example 13 - Goods imported into Australia by recipient

142. If in Example 12 US Co sells the tractor to Tract Co on an FOB basis, the tractor is imported into Australia by the recipient and the supply of the tractor is not connected with Australia under paragraph 9-25(3)(a). As the tractor is not delivered, or made available, in Australia to Tract Co, the supply of the tractor is not connected with Australia under subsection 9-25(1). However, the supply is a taxable importation made by Tract Co and Tract Co is liable to pay GST on the taxable importation.

Paragraph 251 in GSTR 2000/31 explains FOB terms:

251. FOB - means Free On Board. Seller is responsible for all costs and risks until the ships rail (loading onto ship).

The FOB terms in Example 13 mean that the recipient of the supply enters the goods for home consumption in Australia.

In relation to subsection 9-25(1), paragraph 141 and Example 13 indicate that the tractor is not delivered or made available, in Australia, to the recipient of the supply because, under the FOB terms, the supplier (US Co) delivers the tractor to the recipient outside of Australia (i.e. delivers the tractor to the ship in the United States). However, the discussion in paragraph 141 and Example 13 concerning the non-application of subsection 9-25(1) does not apply to the supply of Product by ABC Co to the Buyer because clause Y obliges ABC Co to deliver the Product, in Australia, to the Buyer of the supply.

Paragraph 137 of GSTR 2003/15 states that, in the context of Division 15, importation is not achieved merely by landing the goods in Australia but also requires completion of Customs formalities and that where the parties agree to FOB, CIF (Cost Insurance Freight) or DDU (Delivered Duty Unpaid) In co terms, the buyer is responsible for customs entry formalities.

Clause Y requires ABC Co to deliver the Product to the Buyer on DES Incoterms 2000, duty unpaid at the Port of Capital City. Clause X provides that the Buyer is responsible for compliance with Customs and Excise entry procedures at the discharge port and is liable for all duties and taxes.

DDU terms is described in GSTR 2003/15 as where the parties intend for the seller to deliver goods to a named place of destination, but for the buyer to pay the GST to Customs on the entry (paragraph 145, footnote 66).

We refer to example 6 in GSTR 2003/15, particularly paragraph 182:

Example 6 - Several parties with an interest in imported goods before they are entered for home consumption

179. Mining Co Pty Ltd, an Australian company, wishes to obtain some specialised equipment which is only available from a Korean manufacturer. It contacts the company in Korea, Korean Co, to ascertain whether the equipment could be supplied with a modification to meet Mining Co's particular requirements. Korean Co indicates that it should be possible for the equipment to be modified in line with Mining Co's request, but advises that all Australian supplies of its equipment are made through an Australian distributor, Hardy Co Pty Ltd. Hardy Co operates as a distributor for several overseas suppliers of custom-made equipment through a small office in Sydney. It does not carry any stock, but rather sources the equipment from the overseas companies for which it acts as distributor in response to orders from customers. Both Mining Co and Hardy Co are registered for GST.

180. Mining Co enters into a contract with Hardy Co Pty Ltd for supply of the equipment on CIF terms which require Hardy Co to arrange for the equipment to be shipped to Australia. Hardy Co in turn purchases the equipment from Korean Co, also under CIF terms requiring Korean Co to arrange the shipping of the equipment to Australia.

181. All three parties can be said to cause the goods to be brought to Australia for their own purposes; Korean Co to sell to Hardy Co, Hardy Co to sell to Mining Co, and Mining Co to use in its mining business. Whichever of these entities completes the customs formalities by making the taxable importation is the entity that imports the goods. This would normally be agreed by the parties in the terms of the contract. When the equipment arrives in Australia, it is more likely that either Hardy Co or Mining Co would enter the goods for home consumption and would be liable to pay GST. Whichever of these parties undertakes this function is the entity that imports the goods. Only that entity is entitled to an input tax credit, assuming the other requirements for a creditable importation are satisfied.

182. If Mining Co makes the taxable importation by entering the goods for home consumption, the supply of the equipment by Hardy Co to Mining Co is not a taxable supply under section 9-5. This is because the supply of those goods is not connected with Australia as required for a taxable supply under that section. Subsection 9-25(1) does not apply to make the supply connected with Australia because the supply is not a supply of goods 'wholly within Australia'. Rather, the supply is one that involves the goods being 'brought to Australia'. This is because the goods are not in Australia when the arrangement for the supply is made, and the contractual arrangement requires the parties to complete the process of importing the goods into Australia. That is, to complete the transporting of the goods to Australia, and the customs entry. Subsection 9-25(3) is also not satisfied. While that subsection applies to supplies that involve goods being brought to Australia, a connection with Australia only exists if the supplier either imports the goods into Australia or installs or assembles the goods in Australia. Neither situation is applicable in this case. The supplier, Hardy Co, is not the importer of the goods as it did not attend to the customs formalities on importation of the goods.

183. Mining Co is liable to pay GST on the taxable importation that it makes. Mining Co imports the goods into Australia in carrying on its enterprise, the importation is a taxable importation and it is registered for GST. Therefore, Mining Co makes a creditable importation and is entitled to an input tax credit.

184. As Mining Co imports the goods into Australia, the supply by Korean Co to Hardy Co is not connected with Australia. Subsection 9-25(3) is not satisfied. The supplier, Korean Co, neither imports the goods into Australia nor installs or assembles the goods in Australia.

185. If, though, Hardy Co were to make the taxable importation by entering the goods for home consumption, for instance if the contract was on DDP terms, the supply of the equipment by Hardy Co to Mining Co would be a taxable supply. This supply is connected with Australia under subsection 9-25(3), because the supply involves the goods being brought to Australia and the supplier, Hardy Co, imports the goods. Hardy Co must pay the GST on the taxable supply that it makes to Mining Co. An input tax credit is available to Mining Co in respect of the acquisition, if its acquisition from Hardy Co is a creditable acquisition.

186. Hardy Co is also liable to pay GST on the taxable importation that it makes. Hardy Co imports the goods into Australia in carrying on its enterprise, the importation is a taxable importation and it is registered. An input tax credit is therefore available to Hardy Co for the GST paid on the importation, provided the other requirements for a creditable importation are satisfied.

187. As Hardy Co imports the goods into Australia, the supply by Korean Co to Hardy Co is not connected with Australia. Subsection 9-25(3) is not satisfied. The supplier, Korean Co, neither imports the goods into Australia nor installs or assembles the goods in Australia.

Applying the reasoning in paragraph 182 of GSTR 2003/15 (i.e. where the recipient of the supply enters the goods for home consumption) to the present case, we conclude that subsection 9-25(1) does not apply to make the supply of the Product to the Buyer connected with Australia because the Product is not in Australia when the arrangement for the supply is made and the agreement requires the Buyer to complete the process of importing the Product into Australia.

As the supply of the Product by ABC Co is not connected with Australia, the requirement of paragraph 9-5(c) of the GST Act is not satisfied.

Therefore, the supply made by ABC Co on the terms and conditions described in the ruling request is not a taxable supply for the purposes of section 9-5 of the GST Act.

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