Edited version of your private ruling

Authorisation Number: 1012606016842

Ruling

Subject: GST-free export of goods

Question

Can you supply goods to the local branch of your overseas client as a GST-free export of goods?

Decision

No, you cannot supply your goods to the local branch of your overseas client as a GST-free export of goods. Your supply of goods will be a taxable supply and you will incur a liability for goods and services tax (GST).

Relevant facts and circumstances

• You produce electrical goods and some of it is exported. One of your overseas clients wants to purchase your goods. This client has a local branch, which is registered for Australian GST.

• Your client wants you to supply the goods to their local branch, which will then ship the goods to your overseas client.

• You will issue your invoice for the goods supplied directly to your overseas client. Your client will make the payment directly to your account.

• You will deliver the goods to the local branch of your client. You will not charge any freight or insurance. The freight, insurance and any customs duties on the goods will be paid by the local branch of your client which will ship your goods out of Australia with other goods. All the customs documentation will be handled by the local branch of your client.

• Once you deliver your goods to the local branch of your client, you have no control over the goods. You will not know exactly when they will ship the goods out of Australia and whether the goods were used for any other purpose.

• You want a ruling in writing to confirm whether you have to charge GST on your goods.

• You are registered for GST.

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; and

A New Tax System (Goods and Services Tax) Act 1999 - section 38-185.

Reasons for the decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that 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.

In this case you will supply your goods to your client's local branch for consideration. The supply is made in the course or furtherance of your enterprise of manufacturing and selling electrical goods. You are registered for GST. Therefore, requirements of paragraphs 9-5(a), (b) and (d) of the GST Act will be satisfied.

Section 9-25 of the GST Act provides that:

(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.

(2) a supply of goods that involves the goods being removed from Australia is connected with Australia.

In this case, you supply the goods to your client by delivering them to their local branch. Therefore, requirements of paragraph 9-5(c) of the GST Act will be satisfied.

A supply of electrical goods is not an input taxed supply under any provision of the GST Act. However, in order to conclude whether your supply of goods will be a taxable supply, it is necessary to ascertain whether your supply will be a GST-free supply of goods under any provision of the GST Act.

GST-free supply of exports

Section 38-185 of the GST Act refers to export of goods. Item 1 of the table in subsection 38-185(1) of the GST Act provides that a supply of goods is GST-free, but only if the supplier exports them from Australia before or within 60 days or such further period as the Commissioner allows after:

(a) the day on which the supplier receives any of the consideration for the supply; or

(b) if, on an earlier day, the supplier gives an invoice for the supply, the day on which the supplier gives the invoice.

Subsection 38-185(3) of the GST Act provides that without limiting items 1 and 2 in the table in subsection (1), a supplier of goods is treated for the purposes of those items, as having exported the goods from Australia if:

(a) before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered for GST; and

(b) that entity exports the goods from Australia; and

(c) the goods have been entered for export within the meaning of section 113 of the Customs Act 1901; and

(d) since their supply to that entity, the goods have not been altered or used in any way, except to the extent (if any) necessary to prepare them for export; and

(e) the supplier has sufficient documentary evidence to show that the goods were exported; and

(f) ....

However, if the goods are reimported into Australia, the supply is not GST-free unless the reimportation is a taxable importation.

Goods and Services Tax Ruling GSTR 2002/6 (GSTR 2002/6) refers to exports of goods and items 1 to 4A in the table in subsection 38-185(1) of the GST Act. As mentioned below, paragraphs 106 - 118 of GSTR 2002/6 consider the issue whether the supplier actually exports the goods.

Supplier exports

106. The question of whether the supplier exports, that is, whether the supplier sends or takes goods from Australia, is answered by examining the role the supplier plays in bringing about the removal of the goods from Australia.

107. The supplier is the exporter for the purposes of item 1 or 2, if the part played by the supplier in bringing about the removal of the goods from Australia is sufficient to justify the supplier being described as the sender of those goods out of Australia.

108. The policy intent for requiring the supplier to export is to ensure that the goods are not used or consumed in Australia. If the supplier exports the goods, the supplier then knows that the goods are not used or consumed in Australia, and the goods can be supplied GST-free.

109. Against this policy background, we consider that the role of the supplier is sufficient to justify describing the supplier as the entity that exports goods from Australia, where:

(a)   the supplier contracts at the supplier's own expense with an international carrier for the transportation of the goods to a destination outside Australia; or

(b)   the supplier is responsible for delivering the goods to the operator of a ship or aircraft who, or that, has been engaged by another party to transport those goods to a destination outside Australia.

110. This approach recognises that the supplier has put the goods into a position which means that the goods are for export and not for use or consumption in Australia. Also, in each case, it is the acts of the supplier alone which determine whether the supplier satisfies the primary element of a GST-free export (i.e., 'the supplier exports'). The supplier has access to documents which evidence the particular acts which the supplier carried out in sending the goods overseas.

111. The location of the recipient of the supply of goods is not relevant. The recipient may be located in Australia but the supplier exports the goods if the supplier carries out the acts described in paragraph 109 above.

112. A third way in which the supplier exports goods from Australia is prescribed by the GST Act itself. If the requirements of subsection 38-185(3) are met, the supplier is treated as having exported the goods.

113. In all three cases, the goods must be actually physically transported out of Australia. If goods are not in fact exported from Australia, items 1 and 2 (and items 3 and 4A) do not apply, regardless of the actions or intentions of the supplier.

114. A supplier contracts for carriage of the goods from Australia at the supplier's own expense, and therefore exports goods, where the goods are supplied under a contract of sale with terms such as DDP, CIF, CFR, CPT or CIP as per Incoterms 2010 (see Appendix C) and the named port or place of destination is an overseas location. This is because under these terms the seller is required to contract at the seller's own expense for the carriage of the goods to the named overseas destination.

115. At a practical level, if goods are exported where the supplier's name appears on the international transport document as 'shipper', and the supplier pays the transport operator, the supplier exports. This is the case even if the supplier recoups the transport costs from the buyer.

116. A supplier also, in effect, contracts for the carriage of goods to a destination outside Australia and, therefore, exports where the supplier physically carries the goods out of Australia as accompanied baggage on board a ship or aircraft. Further, a supplier satisfies the export requirement where the supplier itself operates the ship or aircraft which carries the goods out of Australia.

117. Where the goods supplied are a ship or aircraft which is exported under its own power, the supplier exports where the supplier contracts with a person to physically navigate the ship or fly the aircraft to a destination outside of Australia.

118. Where a supplier does not enter an international contract of carriage in respect of the goods supplied, it is necessary to look at where, or to whom, the supplier delivers the goods. If the supplier delivers the goods to the operator of a ship or aircraft, we accept that the 'supplier exports'.

Example 3 of GSTR 2002/6 provides an example where the recipient actually exports the goods and is quoted below.

Example 3 - recipient exports - Ex-works terms of sale

134. Black Stump Coal Ltd is a mining company operating in central Queensland. The company makes a sale of 10,000 tonnes of coal under an Ex-works contract to a foreign recipient. Delivery of the coal is made at the supplier's premises in Queensland, and risk passes to the recipient at this point. The recipient arranges for the coal to be carried by train from the mine to the coast where it is loaded on board a ship bound for Singapore. As Black Stump Coal is no longer responsible for the goods once the coal leaves the mine, the company is not responsible for the delivery to the operator of the ship. The Australian supplier is not the exporter for the purposes of item 1. (The supplier may be treated as having exported the goods if all of the elements of subsection 38-185(3) are met).

In this case, you will not directly export the goods to your overseas client by delivering them to a ship or handing them over to a freight forwarding company. You will not enter the goods for export within the meaning of section 113 of the Customs Act 1901. You will not pay for freight, insurance and any customs duties on the goods. Therefore, Item 1 in the table in subsection 38-185(1) of the GST Act will not be satisfied.

You will supply the goods to the local branch of your client, which will export the goods from Australia. As that entity is registered for GST, subsection 38-185(3) of the GST Act will not be applicable.

A scrutiny of section 38-185 of the GST Act indicates that no other provision within that section will apply to your supply of goods. Therefore, your supply of goods will not be a GST-free supply of exports.

Accordingly, your supply will satisfy the positive limbs of section 9-5 of the GST Act and will not satisfy any of the negative limbs of that section. Therefore, it will be a taxable supply of goods and you will incur a corresponding GST liability.