Edited version of your written advice

Authorisation Number: 1051454048551

Date of advice: 13 November 2018

Ruling

Subject: GST and supply of pre-shipment inspection services to a non-resident

Question

Is the supply of pre-shipment inspection of goods made by you to the non-resident company a GST-free supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of pre-shipment inspection of goods made by you to the non-resident company is a GST-free supply of services under item 2 in the table in subsection 38-190(1) of the GST Act.

Relevant facts

You are an Australian company and registered for the goods and services tax (GST).You supply pre-shipment inspection services in Australia.

You have been contracted by a non-resident company to supply pre-shipment inspection services for the goods purchased in Australia and to be shipped from Australia. You invoice the non-resident company for your supply and issue a certificate to the non-resident company after the pre-shipment inspection is done.

The non-resident company is not registered for GST. It does not have any employee, agent or representative in Australia when you supply your services.

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

Reasons for decision

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

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a. the supplier makes the supply for consideration; and

b. the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

c. the supply is connected with Australia; and

d. the supplier is registered or required to be 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 supply of pre-shipment inspection services to be a taxable supply.

From the information given, your supply of pre-shipment inspection services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

a) you make your supply for consideration; and

b) the supply is made in the course of a business that you carry on; and

c) your supply is connected with Australia as it is made through a business that you carry on in Australia; and

d) you are registered for GST.

However, your supply of pre-shipment inspection services is not a taxable supply to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that makes your supply of pre-shipment inspection services input taxed.

GST-free supply

Relevant to your supply of pre-shipment inspection services is item 2 in the table in subsection 38-190(1) of GST Act (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 it is a supply that is made to a non-resident that 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 for GST.

Only one of the paragraphs in item 2 needs to be satisfied.

Paragraph (a) of item 2

From the fact given, your supply of pre-shipment inspection services satisfy paragraph (a) of item 2 as:

● your supply of pre-shipment inspection services is made to a non-resident who is not in Australia in relation to your supply; and

● your supply of pre-shipment inspection services is not a supply directly connected with real property situated in Australia; and

● in regard to the ore-shipment inspection services, the issue of the certificate to the non-resident is the result of the inspection of the goods. In this instance when you issue the certificate you are supplying information; the inspection of the goods enables the information to be compiled and is ancillary to the information being given in the certificate. Accordingly, your supply of pre-shipment inspection services is not a supply of work physically performed on goods situated in Australia when the work is done.

As paragraph (a) is satisfied there is no need to consider paragraph (b) of item 2. However, item 2 is limited by subsection 38-190(3) of the GST Act.

Subsection 38-190(3) of the GST Act

Subsection 38-190(3) of the GST Act provides that without limiting subsection 38-190(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 Australia; and

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.

From the facts given, subsection 38-190(3) of the GST Act does not apply to your supply of pre-shipment inspection services as you are not required to provide your supply to another entity in Australia. Your supply of pre-shipment inspection services is therefore GST-free under item 2.