Edited version of your written advice

Authorisation Number: 1013124738071

Date of advice: 16 November 2016

Ruling

Subject: GST and a supply of goods and training services

Question 1

Is a supply of particular animals (animals) by an Australian entity (you) to the overseas customers subject to GST where you buy the animals and sell them to the overseas customers for export?

Answer 1

No, the supply of the animals by you to the overseas customers will be GST- free under section 38-185 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if you export the animals before, or within the 60 days after the day on which you receive any of the consideration for the supply of the animals or if, on an earlier day you give an invoice for the supply of animal.

Question 2

Is your supply of animal training services to the overseas customers subject to GST where you train the animal to prepare to compete into the overseas events?

Answer 2

Yes, your supply of animal training services to the overseas customers will be a taxable supply under section 9-5 of the GST Act and you will be liable for GST on that supply.

Question 3

Do you have to apply for an extension of time to export for every individual animal which does not meet the 60-day period so that the supply of the animal will be GST-free under subsection 38-185(1) of the GST Act?

Answer 3

Yes, where you are unable to satisfy the 60-day timing requirements, you have to apply to the Commissioner for an extension of time to export for every individual animal which does not meet the 60-day period.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

You buy and sell the particular animals (animals) for export.

The overseas customers request you to source a certain types of animals from the suppliers in Australia. You seek out such animal and present the animal/s to the overseas customers with the current owner's asking price.

Suitable animals are sourced from the Australian suppliers. Most of animals are owned by hobbyists and are not registered for GST.

If the animal is suitable and appropriately priced, the overseas customers will pay you for the supply of the animals before they are purchased from the Australian suppliers. The money is deposited into your bank account to enable you to acquire the animal.

The animals are purchased to order and re-invoiced to the overseas customers. You have no mark-up on the price of animal. You do not purchase the animals without receiving payment from the overseas customers.

Usually you invoice the overseas customers for the animal and get paid from the overseas customers as sometimes the suppliers may not want to provide their details to overseas customers. Sometimes the overseas customers do not wish to deal with anyone other than you.

Occasionally, the supplier of the animals invoices the overseas customers directly. If the overseas customer has invoiced directly for the supply of the animal, the overseas customer will pay directly to the supplier.

The overseas customers are not carrying on an enterprise, within Australia or elsewhere. The overseas customers are not registered or required to be register for GST in Australia.

The overseas customers are responsible for arranging transportation of the animals to overseas countries. When the animal is ready to export, the overseas customers contact the shipping companies to organise flights, vet, quarantine and door to door transport. The shipping company will contact you with the arranged date of export.

If the purchased animal needs training and trialling to qualify to compete into the overseas events, you supply training services to the overseas customers before exporting the animal overseas. This can take anywhere from several months until maybe 3-4 years.

You charge separately for your supply of training and trialling services on a monthly basis during the applicable period.

Most of the animals purchased to order are trained and trialled and sent for export within 60 day period of receiving the payment from the overseas customer. However, in some cases you are unable to export the animals within a 60 day period.

Sometimes the overseas customers may request that you to collect the animal and arrange vet checks and transport to the overseas shipping company.

There are only two circumstances when the trained animal will not be exported:

a) The animal dies whilst in the care of you; or

b) The animal is injured sufficiently to end its career and it does not make sense to pay freight charges to send the animal overseas. The overseas customer will instruct you to put down the animal, or for you to keep the animal if you want to keep the animal for some other purpose.

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 38-185

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-185(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-185(3)

Reasons for decision

Question 1

Taxable supply

GST is payable on a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

GST is payable on a taxable supply. Under section 9-5 of the GST Act, an entity makes a taxable supply if:

a) the supply is made 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

All of the above must be satisfied for your supplies to be taxable supplies.

From the facts given, you have satisfied all the conditions of paragraphs 9-5(a) to (d) of the GST Act, as follows:

(a) you make the supply of animals to the overseas customers and in return you receive consideration for the supply by way of payment(s);

(b) you make the supply in the course or furtherance of your business;

(c) the supply involves goods being removed from Australia (and therefore the supply is connected with Australia); and

(d) you are registered for GST in Australia.

Hence, your supply of an animal to the overseas customer is taxable to the extent that it is not GST-free or input taxed.

From the facts given, your supply of an animal does not satisfy the input taxed provisions under the GST Act. The GST-free provisions must also be taken into consideration.

GST-free supply

Section 38-185 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) covers the GST-free export of goods. A supply is GST-free under Item 1 in the table in subsection 38-185(1) of the GST Act (Item 1) if the supply is:

a supply of goods, 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.

Goods and Services Tax Ruling GSTR 2002/6 covers the export of goods.

For a supply of goods to be GST-free under Item 1 the supplier must export the goods before, or within a 60-day period (or such further period as the Commissioner allows).

Supplier is the entity that exports

The facts indicate that the buyer (recipient of the supply) will be responsible for contracting a carrier to transport and export the animals from Australia to the overseas destination. In this circumstance, subsection 38-185(3) of the GST Act is taken into consideration, and operates to treat the supplier in certain circumstances as having exported the goods when in fact the recipient exports the goods.

A supplier who is not an exporter of the goods is treated as the exporter where the recipient exports, if the following requirements in subsection 38-185(3) of the GST Act are satisfied:

(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 with the meaning of section 113 of the Customs Act 1901; and

(d) since their supply to that entity, the goods are not 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.

Where all the above requirements are satisfied, the supply can still be GST-free.

From the information received, you sell the animals to the overseas customers for export to the overseas destination. The overseas customers are neither registered, nor required to be registered, for GST. The overseas customers are responsible for arranging the transportation and export of the animals to the overseas country. Accordingly, you satisfy paragraphs 38-185(3)(a) and 38-185(3) (b) of the GST Act.

The condition in paragraph 38-185(3)(c) is met where an export entry document has been communicated to Customs.

Paragraph 38-185(3)(d)

Paragraph 38-185(3)(d) is satisfied where the goods, since their supply, have not been altered or used in any way except to the extent necessary to prepare them for export.

Paragraphs 274 to 275 of GSTR 2002/6 provide examples of use of goods

Example 22 - use of goods

274. The representative of a Singapore entity comes to Australia and buys a thoroughbred yearling at auction. Horses bought at these auctions are invariably intended to be used in racing for prize money and/or for commercial breeding. The Singapore entity buys the horse for these purposes but requires the horse to be broken-in and barrier trialled prior to it being exported.

275. Any use of the horse prior to export which is of a commercial nature will prevent satisfaction of paragraph 38 185(3)(d) and deny the supply being GST-free. If the horse was entered in races for prize money in Australia prior to export, the horse has been used in Australia and therefore, paragraph 38-185(3)(d) will not be satisfied. However, GST-free status will not be denied if the horse is merely broken-in or barrier trialled prior to export. This is because the breaking-in or barrier trialling is merely facilitating the ultimate intended use and is not considered to be a disqualifying use in Australia.

276. The supplier must be satisfied on reasonable grounds that the goods supplied have not been used since their supply for a purpose other than is necessary to prepare them for export.

From the facts provided, in some cases you trial and train the animals before exporting overseas destinations. You advised us that the animals supplied by you will not be used in Australia for a purpose other than is necessary to prepare them for export from Australia

Accordingly, where you have sufficient documentary evidence to show that the animals will be/are exported within 60 days period (or such further period as the Commissioner allows for export), the primary condition that the 'supplier exports' the goods will be satisfied.

Documentary evidence

Where the supplier is treated as the entity that exports the goods because of the application of subsection 38-185(3) of the GST Act, the supplier will only know that the goods have been exported if the recipient provides the supplier with evidence of export. If the supplier does not obtain and hold sufficient evidence to show that the goods have been exported by the recipient, then the supply is not GST-free.

We consider that if the supplier obtains sufficient documentary evidence of export within the 60 day period (or such further period as the Commissioner allows for export) or if obtained after the end of this period, before the due date for lodgement of the next activity statement, the requirement to have relevant documentary evidence that the goods were exported is satisfied.

If the supplier is unable to obtain sufficient documentary evidence within this time frame, the requirement that the supplier has sufficient documentary evidence is not met. In such circumstance, the supply is taxable.

The next step is to determine whether the animals will exported from Australia within the 60-day period.

60-day period for export of goods

For a supply of goods to be GST-free under Item 1 the supplier must export the goods before, or within a 60-day period (or such further period as the Commissioner allows).

You advised us that the most of animals purchased to order are trained and trialled and sent for export within 60 day period of receiving the payment from the overseas customers. However, in some cases you will be unable to export the animals within the 60 day period.

Your supply of animals to the overseas customers will be GST-free provided the animals are exported within 60 days of the receipt of the payment, or 60 days from the day you issue an invoice for your supply of animals to the overseas customers.

Where the animals will not be exported within the 60 days period, your supply of the animals to the overseas customers will not be GST-free.

Question 2

In order for a taxable supply to be made, all the requirements listed in section 9-5 of the GST Act must be satisfied. The requirements of section 9-5 of the GST Act are detailed in question 1.

From the information received, you make the supply of animal training services in the course of a business that you carry on and receive consideration for the supply; the supply is connected with Australia as you carry on your business in Australia; and you are registered for GST. Accordingly, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act.

However, your supply of animal training services will only be a taxable supply to the extent that they are not input taxed or GST-free. There is no provision under the GST Act that makes your supply of animal training services input taxed.

We need to consider GST-free provisions.

GST-free

The animal training services you supply are neither a supply of goods nor real property. As such, the GST status of this supply is appropriately considered under section 38-190 of the GST Act, which makes certain supplies of things other than goods or real property, for consumption outside Australia GST-free. Of relevance to your supply of animal training services is item 2 and item 3 in the table in subsection 38-190(1) of the GST Act (Item 2 and item 3).

Item 2

Item 2 provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if the non-resident is not in Australia when the thing supplied is done and:

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

However, subsection 38-190(3) of the GST Act provides that a supply covered by item 2 is not GST-free if it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

Precondition - recipient not in Australia in relation to the supply

For the supply to be GST-free under Item 2 there is a condition that the recipient must not be in Australia in relation to the supply when the thing supplied is done. Goods and Services Tax Ruling GSTR 2004/7 discusses when an entity is not in Australia when the thing supplied is done.

The facts indicates that your supply of animal training services is made to the overseas customers who are non-residents and are not in Australia in relation to your supply, when the services are performed for the purposes of Item 2.

Paragraph (a) of Item 2

Under paragraph (a) of Item 2, a supply of a thing that is made to a non-resident who is not in Australia when the thing supplied is done is GST-free if the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia.

Goods and Services Tax Ruling GSTR 2003/7 discusses the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods'.

Paragraph 66 of GST 2003/7 states:

66. Work can be physically performed on animate as well as inanimate goods. For example, a supply of animal training or veterinary treatment of livestock is a supply of work physically performed on goods.

Based on the facts provided, your supply of animal training services which involve work physically performed on animals situated in Australia and therefore paragraph (a) of Item 2 is not satisfied.

Paragraph (b) of item 2

A supply that does not satisfy paragraph (a) of item 2 may nevertheless satisfy item 2 where paragraph (b) of item 2 is met.

A supply will satisfy paragraph (b) of item 2 when the non-resident recipient acquires the thing in carrying on their enterprise (business) and is not registered or required to be

The supplier must be satisfied, on reasonable grounds that the non-resident is not required to be registered for GST before they can treat their supply as GST-free under paragraph (b) of Item 2. Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The supplier can check the GST registration of an entity that they deal with by checking the Australian business register at www.abr.gov.au

Where the supplier is not in a position to be aware of these circumstances, enquiries should be made of the non-resident. The Commissioner accepts that reasonable grounds to be satisfied, if the non-resident has provided a written statement, declaring that they are not required to be registered. This is only acceptable where the supplier has no reason to believe the statement is not accurate.

You advised us that the overseas customers are not carrying on an enterprise, within Australia or elsewhere and hence the overseas customers are not acquiring animal training services from you in carrying on their enterprise. Therefore, the paragraph (b) of Item 2 is not satisfied

Accordingly your supply of animal training services to the overseas customers does not satisfy all the requirements of Item 2 and is not GST-free under Item 2.

The next step is to determine whether the supply is GST-free under Item 3.

Item 3

Item 3 applies to a supply of a thing, other than a supply of goods or real property, which is made to a recipient who is not in Australia when the thing supplied is done.

Under item 3 a supply, other than a supply of work physically performed on goods situated in Australia where the thing supplied is done, or a supply directly connected with real property situated in Australia, is GST-free where it is:

a) a supply that is made to a recipient who is not in Australia when the thing supplied is done; and

b) the effective use or enjoyment of which takes place outside Australia.

Item 3 applies to supply, other than a supply of work physically performed on goods situated in Australia where the thing supplied is done, or a supply directly connected with real property situated in Australia.

As your supply of animal training is a supply of work physically performed on goods, Item 3 is not satisfied and therefore your supply of animal training services to the overseas customers is not GST-free under Item 3.

Accordingly, your supply of animal training services will not be GST-free under Item 2 or Item 3. There are no other subsections in section 38-190 of the GST Act that are relevant to your supply of animal training services. Therefore, the supply of animal training services to the overseas customers will not be GST-free under section 38-190 of the GST Act.

There are no other provisions in the GST Act that make your supply of animal training services GST-free.

In summary, the supply of animal training services by you to overseas customers will a taxable supply under section 9-5 of the GST Act and you will be liable for GST on that supply.

Question 3

Commissioner's discretion - 60-day period

In cases where the supplier is unable to satisfy the 60 day timing requirement, the supplier may apply to the Commissioner for an extension of time. The application should be in writing clearly setting out the length of the extension required and the circumstances why an extension to the 60 day period is being requested.

The Commissioner's power to extend the 60 day requirement is dealt with in GSTR 2002/6 at paragraphs 39 and 211 to 212. Paragraph 212 of GSTR 2002/6 states:

212. The Commissioner will exercise this discretion where there are physical, practical or commercial circumstances which reasonably explain the delay, provided the Commissioner is satisfied that the goods will be exported. Applications for extension should be lodged before the expiry of the normal 60 day period, or immediately upon discovery that the time period will not be, or has not been met.

Practice statement PS LA 2006/16 provides guidance on the how the Commissioner would exercise this discretion, which will be on a case by case basis.

The Commissioner will exercise his discretion to extend the period to export goods wherever it is impossible or impractical for the supplier to export the goods within the 60-day period provided for in subsection 38-185(1) of the GST Act. However, such extensions are not granted where export is delayed merely because it is inconvenient or it is a personal preference of the seller of the goods to export the goods after 60 days.