Edited version of private advice

Authorisation Number: 1051731131955

Date of advice: 14 August 2020

Ruling

Subject: Is the supply of shipping and handling services a separate supply?

Question 1

Is the supply of shipping and handling services a separate supply made by you to the customers who purchase goods through the website?

Answer

No, the supply of shipping and handling services is not considered as a separate supply made by you to the customers who purchase goods through the website. The supply is a composite supply of delivered goods to the customers in Australia.

Question 2

If the answer to Question 1 is yes, is that supply a GST-free supply that falls within paragraph (b) of item 5 in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Given that shipping and handling service is not a separate supply, paragraph (b) of item 5 in subsection 38-355(1) of the GST Act does not apply to provide GST-free treatment to the shipping and handling services included in the supply of the delivered goods.

Relevant facts and circumstances

You own and operate a website and a mobile application.

Through the website third party merchants (merchants) offer a variety of consumer goods for sale to customers registered on the website (customers).

The website is a global marketplace with customers located all around the world.

Merchants using the website are predominantly located outside Australia and ship goods from a place of export outside Australia to customers in Australia.

You operate a website and are not directly involved in the transaction between merchants and customers.

Typically, goods sold by merchants are valued at less than AUD $1,000 that fall within the meaning of 'supply of low value goods' under section 84-79 of the A New Tax System (Goods and Services Tax) Act 1999.

You are registered for goods and services tax (GST) under the simplified registration scheme.

Goods sold by merchants on the website typically indicates the shipping fees charged by the merchants in the invoices issued to customers. These shipping fees are shown separately to the price for the item.

Customers do not have the option to arrange their own transportation when goods are purchased through the website. Accordingly, customers cannot opt to not pay shipping charges.

Customers are consumers of the supply.

Relevant legislative provisions

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

Subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

GST is payable on supplies made by an entity if the supplies fall within the definition of a taxable supply under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

A taxable supply is defined in section 9-5 of the GST Act as follows:

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

(terms marked with asterisks (*) are defined in section 195-1 of the GST Act).

Accordingly, in determining whether a taxable supply has been made, among other things, it is necessary to determine the character of the supply made and 'who' (i.e. the entity) made that identified supply.

Supply

The supply of goods through the website is a 'supply of low value goods' as per section 84-79 of the GST Act.

Supplier

Section 84-81 of the GST lists who is taken to have made an offshore supply of low value goods. By virtue of subsection 84-81(3), section 84-55 applies to a supply as it were an inbound intangible consumer supply if:

(a)  the supply is made through an electronic distribution platform and

(b)  the supply is an offshore supply of low value goods.

Under section 84-55 of the GST Act, the operator of the electronic distribution platform is treated as the supplier of supplies made through the platform.

An electronic distribution platform is defined in subsection 84-70(1) of the GST Act as follows:

A service (including a website, internet portal, gateway, store or marketplace) is an electronic distribution platform if:

(a)  the service allows entities to make supplies available to end-users; and

(b)  the service is delivered by means of *electronic communication; and

(c)   any of the supplies that are *inbound intangible consumer supplies are to be made by means of electronic communication

The website operated by you falls within the definition of an electronic distribution platform because you allow merchants to make supplies available to end users, the service is delivered by means of electronic communication, and the supplies are made by means of electronic communication.

Accordingly, given that you are the operator of the electronic distribution platform of the website, you are considered as the supplier of any goods sold through the website.

Other requirements of section 9-5 of the GST Act

You are registered for GST.

Pursuant to subsection 84-55(1) of the GST Act, in addition to being treated as the supplier of the inbound intangible consumer supply for consideration, you (the electronic distribution platform operator) are also considered to have made the supply in the course or furtherance of an enterprise that you carry on.

The supplies are connected with the Indirect Tax Zone as the goods are delivered to consumers of the supply/goods.

Accordingly, the supply of goods through the website meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act.

GST-free supplies

It has been contended that you make two supplies (i.e. one being the supply of the goods and the other being a separate GST-free supply of international transport of goods that falls under item 5 and/or 7 of the table in subsection 38-355(1) of the GST Act.

Subsection 38-355(1) provides supplies of transport and related matters that are GST-free.

Relevantly, pursuant to paragraph (b) of item 5 in subsection 38-355(1) of the GST Act, the international transport of goods from a place outside the indirect tax zone to their place of consignment in the indirect tax zone is GST-free (this is subject to subsections 38-355(2) and 38-355 (3)).

Under item 7 of the table in subsection 38-355(1), arranging international transport of goods covered by item 5 is also GST-free.

The Commissioner of Taxation's (the Commissioner) has expressed his views comprehensively in relation to the treatment of international transport of goods by a non-resident to a recipient in Australia in ATO ID 2013/20. This ATO ID forms part of the reasoning of this Private Ruling and as such full details of this ATO/ID have not been reproduced here. Please refer to ATO ID 2013/20 for a full explanation.

ATO ID 2013/20 states:

Goods and Services Tax Ruling GSTR 2001/8 provides that where a supply consists of more than one part, such as with goods and delivery (that is, transport), the supply could be either a mixed or a composite supply.

If the delivery services are integral, ancillary or incidental to the supply of goods, the supply is a composite supply of delivered goods. A composite supply of delivered goods is treated as a single supply and takes its GST status from the dominant part of the supply, being the goods. If this is the case then Item 5 of the GST Act will not be relevant and therefore will not apply.

However, if the supply of goods and delivery has separately identifiable parts that require individual recognition due to their relative significance in the supply, the supply is a mixed supply. A supply is also a mixed supply where the GST Act requires you to treat a part of a supply in a particular way. The GST status of the component parts of a mixed supply, being the goods and delivery, is determined separately. If the supply is a mixed supply then the delivery services can be considered separately to determine if that part of the supply meets the requirements of being GST-free under Item 5 of the GST Act.

Is delivery part of a mixed supply or composite supply?

Paragraph 59 of GSTR 2001/8 provides that no single factor (by itself) will provide the sole test for determining whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. All relevant circumstances should be taken into account, including for example, whether the transport contributes to the proper performance of the contract to supply the dominant part.

Paragraph 2 of GSTD 2002/3 provides that a delivery service is significant where it is an aim in itself. That is, where the recipient has a genuine choice under the contract as to whether the supplier delivers the goods.

A choice is indicated where:

·         the recipient is not obliged to use the delivery services; and

·         the supplier provides reasonable access, at no extra charge, to recipients who choose to make their own arrangements to collect the goods.

Relevantly, in this case,

·         under the agreement, customers are not given a choice to arrange their own transportation,

·         a single contract has been entered into that requires the goods to be delivered to the recipient in Australia,

·         the purchaser is not able to make their own delivery arrangements to bring the goods into Australia,

·         the merchant bears all risks in respect of the goods until they are delivered to the recipient,

·         it is the Commissioners' view that, delivery is a means necessary for the recipient to receive the goods and therefore is not an aim in itself. Under the agreement, without the shipping and handling services the goods cannot be delivered.

We do acknowledge that where a specific provision of the GST Act requires a supply to be treated in a particular way then that supply needs to be characterised in the manner that the GST Act specifies. However, as provided in the following example in ATO ID 2013/20, it is the Commissioner's view that international transport of goods is not a separate supply when it is an essential element of the delivered goods.

In paragraph 38-90(2)(b) of the GST Act, there is a specific reference and requirement to treat a supply of food as part of the excursion or field trip as GST-free. By contrast, item 5 of the GST Act refers only to supplies of international transport of goods, rather than transport specifically supplied as part of a supply of goods.

The fact that the agreement requires shipping and handling charges to be itemised separately does not constitute a separate supply of shipping and handling. The Commissioner considers that itemisation of shipping and handling charges is merely a reporting requirement (one perhaps that is based on Commercial law requirements) under agreement.

Given that shipping and handling (i.e. delivery services) are an integral part of the supply of the goods, the Commissioner considers that the supply made by you is a composite supply of the delivered goods. Therefore paragraph (b) of item 5 in subsection 38-355(1) of the GST Act does not apply to provide GST-free treatment to the shipping and handling services (i.e. the international transportation) as it is an integral part of the oversell supply of the goods. Therefore Item 7 in subsection 38-355(1) does not apply either.

The supply of goods by you through the website is not GST-free or input taxed under any other provision of the GST Act.

The supply of goods (which includes shipping and handling) is a taxable supply.

As a consequence of subsection 84-55(1) of the GST Act, GST on supplies made through the website is payable by you.