Edited version of your written advice

Authorisation Number: 1051338642533

Date of advice: 16 February 2018

Ruling

Subject: GST on services

Question 1

Are the services considered to be the supply of stores under item 5 in the table to subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

No, the supply of services to recipients is not the supply of aircraft stores under item 5 in the table to subsection 38-185(1) of the GST Act (Item 5). The GST exemption in Item 5 does not apply to services.

Question 2

Are the Services considered to be a ‘telecommunication supply’ within Division 85 of the GST Act?

Answer

Yes, the services supplied to recipients are within the definition of ‘telecommunication supply’ in Division 85 of the GST Act.

Question 3

Are the Services provided to recipients GST-free under item 3 in the table to subsection 38-190(1) of the GST Act (Item 3)?

Answer

Yes, the services supplied to recipients are GST-free under Item 3.

Question 4

Is the Entity required to issue a tax invoice to the recipient of the Services?

Answer

No, the Entity is not required to issue a tax invoice where the GST-inclusive price of the supply of the services is less than $82.50. For supplies with a GST-inclusive price greater than $82.50, the Entity is not required to issue a tax invoice unless requested to do so by the recipient.

Relevant facts and circumstances

The Entity is registered for goods and services tax (GST).

The Entity supplies services to its customers. Part of the service is used or enjoyed by the customer inside the indirect tax zone and part of the service is used or enjoyed by the customer outside the indirect tax zone. The extent to which the part of the service is used or enjoyed inside or outside the indirect tax zone is dependent upon a number of unpredictable variables.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Item 5 in the table in subsection 38-185(1)

Division 85

Item 3 in the table in subsection 38-190(1)

Reasons for decision

Note: All legislative references are to the GST Act unless indicated otherwise.

Question 1

Are the services considered to be the supply of stores under item 5 in the table to subsection 38-185(1)?

Detailed Reasoning

Under Item 5, a supply of aircraft or ship stores or spare parts, for use, consumption or sale on an aircraft or ship, that has a destination outside the indirect tax zone, is GST-free whether or not part of the flight or voyage involves a journey between places in the indirect tax zone.

Paragraph 12 of Goods and Services Tax Ruling GSTR 2003/4 explains that the term 'stores' in Item 5 includes all consumable goods such as food, water and beverages intended for consumption on board an aircraft or ship, and any goods taken on board to be sold, such as souvenirs, photographic film, confectionery and tobacco products. 'Stores' also includes consumables necessary for the operation and maintenance of an aircraft or ship, such as fuel and lubricants.

The definition in the Customs Act and the further explanation of ‘stores’ in GSTR 2003/4 confirms that the phrase is restricted to certain types of goods and does not extend to the services in question.

Question 2

Are the Services considered to be a ‘telecommunication supply’ within Division 85 of the GST Act?

Detailed reasoning

To be taxable for GST purposes, a supply must (amongst other things) be connected with the indirect tax zone. Section 9-25 of the GST Act details the general rules on connectivity, but there is a specific provision Division 85 of the GST Act for a ‘telecommunication supply’.

Division 85 ensures that a ‘telecommunication supply’ is connected with the indirect tax zone (and capable of being taxable) if the supply is effectively used or enjoyed by the recipient inside the indirect tax zone (regardless of where the supplier has a physical presence).

For GST purposes, ‘telecommunication supply’ is a supply relating to the transmission, emission or reception of signals, writing, images, sounds or information of any kind by wire, radio, optical or other electromagnetic systems. It includes:

● the related transfer or assignment of the right to use capacity for such transmission, emission or reception, and

● provision of access to global information networks.

Goods and Services Tax Determination GSTD 2012/10 advises that ‘telecommunication supply’ also includes a supply of e-mail and internet access.

The Entity’s service falls within the definition of ‘telecommunication supply’ for GST purposes.

Question 3

Are the Services provided to recipients GST-free under item 3 in the table to subsection 38-190(1) of the GST Act (Item 3)?

Detailed reasoning

The services in question are taxable as the requirements in section 9-5 of the GST Act are met, including the supply being connected with Australia (either under section 9-25(5)(b) or Division 85). However, section 9-5 operates to only tax the supply of the services; to the extent those services are not GST-free.

Item 3 in the table in subsection 38-190(1) deals with supplies used or enjoyed outside the indirect tax zone. Under this exemption, a supply is GST-free if:

a) it is made to a recipient who is not in the indirect tax zone when the thing supplied is done; and

b) the effective use or enjoyment of which takes place outside the indirect tax zone.

This exemption does not apply to a supply of work physically performed on goods situated in the indirect tax zone when the thing supplied is done, or a supply directly connected with real property situated in the indirect tax zone. Neither of these exemptions applies to this particular situation.

Meaning of ‘Indirect tax zone’

'Indirect tax zone' is defined in section 195-1 to mean:

Australia (within the meaning of the Income Tax Assessment Act 1997), but does not include any of the following:

● the external Territories;

● an offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006;

● the Joint Petroleum Development Area (within the meaning of the Petroleum (Timor Sea Treaty) Act 2003;

other than an installation (within the meaning of the Customs Act) that is deemed by section 5C of the Customs Act to be part of Australia and that is located in an offshore area or the Joint Petroleum Development Area.

Australia includes the entire land territory of Australia, coastal areas and seabed, but not any external Territories, such as Norfolk Island, Christmas Island or the Australian Antarctic Territory. Australia also includes sea installations and resources installations (such as oil or gas rigs) that are attached to the seabed within the territorial boundaries of Australia, or to an adjacent or coastal area as defined in that Act.

The territorial limit of the coastal seas surrounding Australia is 12 nautical miles from the territorial sea baseline of Australian land masses. This was established in November 199X, by proclamation under section 7 of the Seas and Submerged Lands Act 1973.

The entity is supplying services to customers. This supply has a part that is effectively used or enjoyed within the indirect tax zone, and is taxable; and a part that is effectively used or enjoyed outside the indirect tax zone (in this case, 12 nautical miles from the territorial sea baseline of Australian land masses), and is GST-free. The separation of the supply into its taxable and GST-free parts is dependent upon a number of variables.

Goods and Services Tax Ruling GSTR 2001/8 discusses apportionment of supplies that contain taxable and non-taxable parts. It uses the term ‘mixed supply’ for a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. It uses the term ‘composite supply’ for a supply that has a dominant part and something else that is integral, ancillary or incidental to that dominant part. A composite supply is either wholly taxable or non-taxable, whereas the parts of a mixed supply have different GST treatment.

Paragraphs 19 to 22 of GSTR 2001/8 state:

19. Where a transaction comprises a bundle of features and acts, you must consider all of the circumstances of the transaction to ascertain its essential character. You also need to consider the effect the GST Act has on the supply or any of its individual parts. You can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a common sense approach.

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of:

● $3.00; or

● 20% of the consideration for the total supply.

22. If you choose not to apply this approach, then you need to make an objective assessment about whether the thing is integral, ancillary or incidental.

GSTR 2001/8 advocates a ‘common sense’ approach to determining whether a supply is treated as mixed or composite. Further, the de-minimus test in paragraph 21 of GSTR 2001/8 is not exhaustive – paragraph 22 still allows for an objective assessment to be made should the de-minimus rule not be followed.

On analysis provided, the Entity can choose to treat the ‘taxable’ part of its supply as incidental or ancillary to the GST-free part of the supply used or enjoyed outside the indirect tax zone. Therefore the entity’s supply may be classified entirely as GST-free under Item 3.

Question 4

Is the Entity required to issue a tax invoice to the recipient of services?

Detailed reasoning

Generally, the supplier of a taxable supply must issue the recipient of the supply with a tax invoice, within 28 days of the recipient requesting one, pursuant to section 29-70(2). However, under section 29-80(1), the requirement to issue a tax invoice under section 29-70(2) does not apply to low value transactions. Paragraph 58 of Goods and Services Tax Ruling GSTR 2013/1 stipulates that a supplier need not issue a tax invoice in relation to a supply if the GST exclusive value of the supply does not exceed $75. This equates to a GST inclusive price of $82.50.