Edited version of your written advice

Authorisation Number: 1013110214282

Date of advice: 21 October 2016

Ruling

Subject: GST and supply of delivery services

Question

Is your supply of delivery services to the non-resident entity a taxable supply?

Answer

Your supply of delivery services to the non-resident is a GST-free supply where the entity to which the goods are delivered:

(a) would be an Australian-based business recipient of the supply, if the supply had been made to it; or

(b) is an individual who is provided with the supply as an employee or officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

(c) is an individual who is provided with the supply as an employee or officer of the non-resident, and the non-resident's acquisition of the delivery services is solely for a creditable purpose and is not a non-deductible expense.

Your supply of delivery services to the non-resident is a taxable supply where none of paragraphs (a), (b) and (c) above applies.

Relevant facts and circumstances

A company (the supplier) based overseas sells goods online.

The supplier contracted a non-resident freight forwarder (the non-resident) to transport the goods to Australia. The non-resident has no presence in Australia.

The non-resident engages an airline to transport the goods to an Australian port (the port of discharge) on a freight pre-paid basis.

The non-resident engages you to deliver the goods to the buyer's address. You are 100% owned by the non-resident.

You clear the goods from Customs on behalf of the supplier and deliver them to your warehouse for temporary storage.

The supplier retains ownership of the goods as the goods have not been sold before the non-resident sends them to Australia.

When the supplier has sold the goods to a customer in Australia, the supplier will upload the information to the non-resident's ordering system. The information will be transferred to the non-resident's warehousing system which you use in your warehouse for daily processing of orders. The delivery details are sent to you through these systems.

The non-resident does not send goods directly to the customer's nominated address.

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 38-190,

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

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

Reasons for decision

GST is payable on a taxable supply.

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

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

The supply of delivery services you make to the non-resident is for consideration and is made in the course of an enterprise that you are carrying on. The supply is connected with the indirect tax zone as the services are performed in the indirect tax zone. You are registered for GST. The requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied. Therefore, your supply of delivery services to the non-resident is a taxable supply unless it is GST-free or input taxed.

Is the supply GST-free?

International transport of goods

Under item 5 in the table in subsection 38-355(1) of the GST Act, the international transport of goods:

(a) from their place of export in the indirect tax zone to a destination outside the indirect tax zone; or

(b) from a place outside the indirect tax zone to their place of consignment in the indirect tax zone; or

(c) from a place outside the indirect tax zone to the same or another place outside the indirect tax zone,

is GST free, subject to subsection 38-355(2),

For the purpose of paragraph (b), the term 'place of consignment of goods' is defined in section 195-1 of the GST Act as:

(a) if the goods are posted to a place in the indirect tax zone - the place in the indirect tax zone to which the goods are addressed; or

(aa) if the supplier of the goods is to deliver the goods in to a place in the indirect tax zone - the place in the indirect tax zone to which the goods are to be delivered under the contract for the supply of the goods; or

(ab) if:

(i) neither paragraph (a) nor (aa) applies; and

(ii) the goods are to be transported into the indirect tax zone by an entity supplying a transport service to an entity that is to import the goods into the indirect tax zone;

the place in the indirect tax zone to which the goods are to be delivered under the contract for the supply of the transport service; or

(b) in any other case - the port or airport of final destination as indicated on the transportation document.

Subsection 38-355(2) of the GST Act provides that paragraphs (a) and (b) of item 5 and item 5A in the table in subsection 38-355(1) of the GST Act do not apply to a supply to the extent that the thing supplied is done in the indirect tax zone, unless:

● the recipient of the supply is a non-resident and is not in the indirect tax zone when the thing supplied is done; or

● the supply is done by the supplier of the transport of the goods from or to the indirect tax zone (whichever is relevant).

The supplier contracts the non-resident to supply the international transport of the goods to Australia. The non-resident then contracts you to supply the international transport of the goods within Australia, that is, to transport the goods after they are cleared from Customs to your warehouse for storage.

The supply of international transport of the goods to the place of consignment within the indirect tax zone forms part of the international transport of the goods to the indirect tax zone. However, it should be noted that international transport ends at the place of consignment.

You provided a copy of an air waybill where you are named as the consignee. As your address is specified as the place of consignment, the GST-free supply of international transport ends at that address. Any subsequent transport is not covered by item 5 of subsection 38-355 (1) of the GST Act and is therefore not GST-free under this provision.

You submitted that the customer's address is the place of consignment for the purpose of the international transport of goods. We disagree with this contention. As the goods have not been sold when the goods are sent from overseas to Australia, there is no customer's address that would be the place of consignment. When the goods are sold to the customer, the goods are delivered from your warehouse to the customer's address in Australia; thus, the delivery of the goods is not an international transport of goods.

Supply to a non-resident

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is a supply that is made to a non-resident, who is not in the indirect tax zone when the thing supplied is done, and:

(a) the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done, nor a supply directly connected with real property situated in the indirect tax zone; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST.

Your supply of delivery services is not a supply of work physically performed on goods situated in the indirect tax zone. Further, the supply is not directly connected with real property situated in the indirect tax zone. Paragraph (a) of item 2 is satisfied.

Where the provisions in either (a) or (b) above are met, the supply will be GST-free under item 2 if the non-resident is not in the indirect tax zone when the thing supplied is done (that is, when the services are performed).

You advised that the non-resident has no presence in the indirect tax zone. As such, the non-resident is 'not in Australia' when the delivery services are performed.

Although you meet the conditions of item 2 above, for the supply to be GST-free, subsection 38-190(3) of the GST Act must not apply. If subsection 38-190(3) applies then the supply is not GST-free.

Subsection 38-190(3) of the GST Act states:

Without limiting subsection (2) or (2A), a supply covered by item 2 in that table is not GST-free if:

(a) it is a supply under an agreement entered into, whether directly or indirectly, with a *non-resident; and

(b) the supply is provided, or the agreement requires it to be provided, to another entity in the indirect tax zone.

(c) for a supply other than an *input taxed supply - none of the following applies:

(i) the other entity would be an *Australian-based business recipient of the supply, if the supply had been made to it;

(ii) the other entity is an individual who is provided with the supply as an employee or *officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or

(iii) the other entity is an individual who is provided with the supply as an employee or officer of the *recipient, and the recipient's acquisition of the thing is solely for a *creditable purpose and is not a *non-deductible expense.

An entity is an Australian-based business recipient of a supply made to the entity if:

(a) the entity is *registered; and

(b) an *enterprise of the entity is *carried on in the indirect tax zone; and

(c) the entity's acquisition of the thing supplied is not solely of a private or domestic nature.

Goods and Services Tax Ruling GSTR 2005/6 which provides the ATO view on the operation of subsection 38-190(3) of the GST Act states at paragraphs 59 and 61:

59. The word 'provided' is used in subsection 38-190(3) to contrast with the term 'made' in item 2. In the context of section 38-190, the contrasting words indicate that if a non-resident contracts for a supply to be provided to another entity, the place of consumption should be determined with regard to the entity to which the supply is provided, not the entity to which the supply is made.

61. Thus the expression 'provided to another entity' means, in our view, that in the performance of a service (or in the doing of something), the actual flow of that supply is, in whole or part, to an entity that is not the non-resident entity with which the supplier made the agreement for the supply. The contractual flow is to one entity (the non-resident recipient) and the actual flow of the supply is to another entity.

GSTR 2005/6 states that it is necessary to establish the exact nature of the supply to determine to which entity that service or thing is provided. In relation to delivery or freight services paragraph 75 states:

75. In the case of delivery or freight services where goods from one entity are addressed for delivery to another entity, we accept that the delivery or freight services are provided to that addressee entity…

Further, paragraph 119 of GSTR 2005/6 provides:

119. In the case of delivery or freight services which are provided to an entity other than an individual in the circumstances described at paragraph 75, we accept those services are provided to that entity in the indirect tax zone, if the goods are addressed to that entity in the indirect tax zone. Alternatively, if the goods are addressed to that entity outside the indirect tax zone, we accept those services are provided to that entity outside the indirect tax zone. This outcome is not dependent upon the residency status of the entity to which the goods are addressed…

It is clear from GSTR 2005/6 that, while you entered into a contract with the non-resident to deliver the goods, the delivery services are actually provided to the end customer in the indirect tax zone. Therefore, if any of subparagraphs 38-190(3)(c)(i), 38-190(3)(c)(ii) and 38-190(3)(c)(iii) of the GST Act applies your supply of delivery services is GST-free. Otherwise, the supply is a taxable supply.