Edited version of private advice

Authorisation Number: 1051595574363

Date of advice: 28 October 2019

Ruling

Subject: GST and sale of goods

Question

Is the supply of goods made by the non-resident entity to the Australian entity a GST-free supply under item 1 in the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the supply of goods made by the non-resident entity to the Australian entity is not a GST-free supply under item 1 in the table in subsection 38-185(1) of the GST Act because the non-resident (supplier) is not the exporter when selling the goods to the Australian entity.

Relevant facts

You are a non-resident company that carries on your enterprise outside Australia. You are registered for GST.

You are currently in the process of negotiating the terms of a proposed sale with an Australian company.

You will purchase goods from third parties in Australia and have them delivered to an Australian storage depot. You will then sell the purchased goods to the Australian company which the Australian company in turn will sell with the purpose of the goods being exported from Australia. The Australian company will take title of the goods when payment is made and at the time of sale the goods will be made available to the Australian company at the Australian storage depot.

The Australian company is 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

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)    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 Australia; and

d)    you are 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.

From the information given you will satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as:

a)    you will make the sale of the goods for consideration;

b)    the sale is made in the course of a business carried you carry on;

c)    the sale of the goods to the Australian company is connected with Australia as you will make the goods available to the Australian company in Australia when the Australian company purchases the goods; and

d)    you are registered for GST.

However the sale of the goods is not a taxable supply to the extent that the sale is input taxed or GST-free.

The sale of goods to the Australian company is not an input taxed supply.

GST-free supply

A supply of goods where those goods are exported from Australia is GST-free under item 1 in the table in subsection 38-185(1) of the GST Act (item 1) only if the supplier exports them from Australia either before, or within, 60 days after the day on which either of the following events occurs, whichever is earlier:

·         the supplier receiving a payment for the goods; or

·         the supplier issues an invoice for the goods.

Item 1 requires, not only that there is an export of goods, but that the supplier must be the entity that exports them.

Goods and Services Tax Ruling GSTR 2002/6 provides guidance on when a supply of goods will be a GST-free export of goods under subsection 38-185(1) of the GST Act.

The requirement that the supplier is the entity that exports the goods is satisfied where either:

a)    the supplier contracts at the supplier's own expense with an international carrier for the transportation of the goods to a destination outside Australia; or

b)    the supplier is responsible for delivering the goods to the operator of a ship or aircraft who, or that, has been engaged by another party to transport those goods to a destination outside Australia; or

c)    the requirements of subsection 38-185(3) are met.

For an export to occur, the goods must be actually physically transported out of Australia. If goods are not in fact exported from Australia, item 1 does not apply, regardless of the actions or intentions of the supplier.

From the facts given there is a chain sales of goods under the arrangement. Under the whole arrangement the goods are exported.

In regard to chain sales paragraph 167 in GSTR 2002/6 states that each supply in the 'chain' is examined individually. Where a supply of goods in that chain is connected with Australia, the criteria for identifying if a supplier exports for the purposes of item 1 is applied to that supply.

In this case your sale of goods to the Australian is to be considered separately from the other chain sales. As such it is not relevant that a later sale ultimately leads to the export of those goods from Australia.

Supplier exports

From the facts given you will make the goods available to the Australian company at a storage location in Australia in making the supply to the Australian company. In this case no export has occurred since the goods are located in Australia and the Australian company will take possession of the goods by becoming the owner of those goods at the time payment is made to you.

A supplier who is not the exporter may still be treated as the exporter where the recipient exports the goods and the requirements of subsection 38-185(3) of the GST Act are met. If so, the supply can still be GST-free.

Subsection 38-185(3) of the GST Act operates to treat the supplier in certain circumstances as having exported the goods when in fact the recipient exports the goods. For example Australian or overseas residents may take possession of goods they have purchased for export before those goods leave Australia. Where subsection 38-185(3) applies the supply of goods may be GST-free under item 1.

Subsection 38-185(3) of the GST Act provides the following:

3)    Without limiting items 1 and 2 in the table in subsection (1), a supplier of goods is treated for the purposes of those items, as having exported the goods from Australia if:

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 Customs within the meaning of section 113 of the Customs Act 1901; and

d)    since their supply to that entity, the goods have not been altered or used in any way, except to the extent (if any) necessary to prepare them for export; and

e)    the supplier holds sufficient documentary evidence to show that the goods were exported by the purchaser; and

f)     if that entity is covered by paragraph 168-5(1A)( c) - the supplier has a declaration by that entity stating that:

·         a payment has not been sought under section 168-5 for the supply; and

·         if the goods are wine - a payment has not been sought under section 25-5 of that Act for the supply.

However, if the goods are reimported into Australia, the supply is not GST-free unless the re importation is a taxable importation.

The Australian company is registered for GST as such paragraph 38-185(3)(a) fails and therefore subsection 38-185(3) of the GST Act does not apply to the sale made by you to the Australian company.

The supply by you to the Australian company is not GST-free under item 1 given you will not satisfy the requirement 'the supplier exports the goods'.

Accordingly the sale of goods by you to the Australian company will be a taxable supply under section 9-5 of the GST Act.