Edited version of your written advice

Authorisation Number: 1013000072063

Date of advice: 19 April 2016

Ruling

Subject: GST and supplies connected to the indirect tax zone

Question 1

Is the supply of the equipment by you to its customer in Australia connected with the indirect tax zone pursuant to subsection 9-25(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are a non-resident manufacturer and provider of large engines.

You are registered for GST in Australia.

You entered into a contract with an Australian resident entity (customer) to supply equipment.

The purchase orders raised by the customer trigger the transaction as follows:

• The supply of the equipment

• The provision of technical assistance at site for the equipment, and

• The provision of a training course for the equipment.

The equipment was sold by you to the customer on a Free Alongside Ship (FAS) and the customer was responsible for the importation of the equipment into Australia.

Following the equipment being imported into Australia by the customer, the goods were then installed and assembled by the customer and other third party entities engaged directly by the customer in Australia. As part of the contracts you sent personnel to perform supervisory services during the installation of the equipment at the customers' site and commissioning of the equipment.

The provision of technical assistance and commissioning, at the customers' site for the customer to install the equipment, has been treated as a taxable supply by you.

You have treated the supply of the equipment as not being connected to the indirect tax zone and the price was GST exclusive.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5, and

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

Reasons for decision

GST is payable by the supplier when it makes a taxable supply. Section 9-5 of the GST Act states 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 the indirect tax zone; 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.

(* indicates that the term is defined in section 195-1 of the GST Act.)

It is taken that paragraphs 9-5(a), (b) and (d) of the GST Act are satisfied when the entity supplies the goods to the recipient. Therefore, the supply by the entity will be a taxable supply where it is connected with the indirect tax zone and the supply is neither GST-free nor input taxed.

Connected with Australia:

Section 9-25 of the GST Act contains the rules for determining whether a supply is connected with Australia. In particular, subsection 9-25(3) of the GST Act states:

A supply of goods that involves the goods being brought to the indirect tax zone is connected with the indirect zone if the supplier either:

(a) imports the goods into Australia; or

(b) installs or assembles the goods in Australia.

The goods were sold to your customer on FAS terms. As such your customer clears the goods for import and pays for all formalities, duties, taxes and other charges upon importation into the indirect tax zone. Therefore, you do not import the goods into Australia and the requirements of paragraph 9-25(3)(a) of the GST Act are not met.

However, paragraph 9-25(3)(b) of the GST Act provides that a supply of goods being brought to the indirect tax zone is connected with the indirect tax zone if the supplier installs or assembles the goods in the indirect tax zone.

Example 15 in Goods and Services Tax Ruling GSTR 2000/31 provides an example of how this provision might apply:

Example 15 - Goods imported into Australia by recipient and assembled in Australia by supplier

146. Aero Lite, an Australian resident, decides to buy a light aircraft manufactured by Flight UK in the UK. The light aircraft parts need to be imported into, and assembled in, Australia. Flight UK agrees to supply and assemble the aircraft in Australia on the basis that Aero Lite arranges for the importation of the aircraft parts. Aero Lite imports the goods on a FOB basis.

147. The supply of the aircraft is connected with Australia because the supply involves the aircraft parts being brought to Australia and the supplier assembling the aircraft in Australia. This is so regardless of the fact that it is the recipient who imports the parts of the aircraft into Australia.

In this circumstance, your customer contracts for the installing and assembly of the equipment with your supervision of the installation and commissioning of the equipment.

As the words 'installs or assembles' are not defined terms under the GST Act we look to the dictionary meaning. The Macquarie dictionary defines install to mean the following:

1. to place in a position for service or use, as a system of lighting, etc.

2. to establish in any office, position, or place.

3. to induct into an office, etc., with ceremonies or formalities, as by seating in a stall or official seat.

4. computers to load (a software application) into a digital device.

The Macquarie dictionary defines assemble to mean the following:

1. to bring together; gather into one place, company, body or whole.

2. to put or fit (parts) together; put together the parts of (a mechanism, etc.).

3. to come together; gather; meet.

As you have mentioned your customer has contracted for the equipment to be installed or assembled by another party with your supervising the installing and commissioning the equipment.

We therefore need to determine if supervising and/or commissioning the equipment can amount to 'installs or assembles'.

The Macquarie dictionary defines supervision to mean the following:

1. to oversee (a process, work, workers, etc.) during execution or performance; superintend; have the oversight and direction of.

Furthermore, commissioning is a process by which equipment, a facility, or a plant (which is installed, or is complete or near completion) is tested to verify if it functions according to its design objectives or specifications.

You have mentioned that some of your activities may be akin to installing or assembling the equipment and we would agree that that is the case in instances where there is hands-on work.

However, even though some of the activities are similar or closely related to what would amount to the supply of installing or assembling we do not believe that the activities would amount to the supply of supervising or commissioning being that of installing or assembling of the equipment as the dominate part of the supply is for supervising the installation and commissioning of the equipment.

Therefore, the activities that you carry out of supervising the installation and assembly of the equipment and commissioning the equipment does not amount to a supply of goods being brought to the indirect tax zone being 'installed or assembled' by you and the requirement of paragraph 9-25(3)(b) of the GST Act are not met.