Edited version of private advice

Authorisation Number: 1051790802171

Date of advice: 18 December 2020

Ruling

Subject: Goods and services tax and international transport services

Question 1

Is the entity making a GST-free supply under section 38-355 of the A New Tax System (Goods and Services Tax) Act 1999 when it provides to the non-resident, freight handling and delivery services which are outsourced to another Australian entity for distribution to end customers?

Answer 1

Yes, the entity is making a GST-free supply under item 5 of the table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999.

Question 2

Is the entity making a GST-free supply under section 38-355 of the A New Tax System (Goods and Services Tax) Act 1999 when it provides freight handling, warehousing and pick and pack (unbundling) services to the non-resident?

Answer 2

Yes, the entity is making a GST-free supply under item 5A of the table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999.

Question 3

Is the entity making a GST-free supply under section 38-355 of the A New Tax System (Goods and Services Tax) Act 1999 when it provides services to the non-resident, of collecting goods from the port of importation, transporting those goods to a warehouse, unbundling those goods and then delivering those goods to the end customer where the end customer is known at the time of importation?

Answer 3

Yes, the entity is making a GST-free supply under items 5 and 5A of the table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999.

Question 4

Is the entity making a GST-free supply under Division 38 of the A New Tax System (Goods and Services Tax) Act 1999 when it provides services to the non-resident, of collecting goods from the port of importation, transporting those goods to a warehouse, unbundling those goods and subsequently delivering those goods to the end customer where the end customer is not known at the time of importation?

Answer 4

The entity is making a GST-free supply in relation to the transportation of good from the port of importation to the warehouse and unbundling and storing those goods in the warehouse. The subsequent transportation of the goods to the end customer is GST-free.

Relevant facts and circumstances

The entity provides warehousing, third party logistics and transport services. The entity has entered into an agreement with a number of related entities which provides that it may provide a range of services to any other group member. These services include:

•         transport, delivery and handling services;

•         fulfillment services (including transport and warehousing services);

•         services directly linked to delivery services such as

o   customs clearance;

o   refund and returns handling;

o   permits and licencing applications;

•         call centre services.

The entity has been engaged by the non-resident to provide freight handling, logistics and final stage delivery services in Australia. The non-resident is also a group member and acts as an inbound and outbound gateway for the group around the world. The non-resident is registered for Australian GST although it has no presence, nor employees within Australia.

The non-resident provides international transportation services to US and UK based clients which are registered for GST in Australia and charge and remit GST for the product sales. The product sales originate from outside of Australia for delivery to the final customer's nominated address within Australia. The non-resident will often bundle multiple end customer orders into one shipment. At the time of the importation of the goods into Australia, the final end customer is known however the whole shipment is first required to be collected from the port of entry and moved to the entity's facilities to unbundle and then distribute the individual items to the known customers.

The entity also provides transport, warehousing and pick-pack services to the non-resident where the entity collects the goods from the port of entry and then holds the goods on consignment in its warehouse facilities awaiting final customer order details to be provided at which time the entity delivers the goods.

The entity does not own the goods that are being held in its warehouse or being delivered.

Some of the services supplied by the entity to the non-resident are outsourced to another Australian entity.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

A New Tax System (Goods and Services Tax) Act 1999 section 38-355

Reasons for decision

Question 1, 2 & 3

The table in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides a list of transport related supplies that are GST-free. Item 5 in the table provides that the 'international transport of goods' from a place outside Australia to their 'place of consignment' in Australia is GST-free. However, subsection 38-355(2) of the GST Act provides that the supply will only be GST-free if the recipient of the supply is a non-resident and is not in the indirect tax zone (Australia) when the thing supplied is done.

'International transport' is defined by section 195-1 of the GST Act to mean 'the transport of the goods from a place outside the indirect tax zone to their place of consignment in the indirect tax zone' and the 'place of consignment' generally means the place to which the goods are to be delivered. Entities which provide (or arrange) domestic transport and associated services to a non-resident who is not in Australia when the services are provided, make a GST-free supply where those services form part of the international transport of goods.

The entity is contracted to provide the non-resident freight handling and delivery services. This involves collecting the goods from their port of importation and delivering them to the end customer of the overseas seller of the goods. As the services the entity supplies are part of the international transport of goods and the entity makes the supply to the non-resident that is not in Australia, the entity is making a GST-free supply of those transport related services. That the entity out-sources those supplies to another entity does not alter the nature of the supply that is made by the entity to the non-resident.

Item 5A in the table in subsection 38-355(1) of the GST Act provides that a range of services that are connected to a GST-free supply of international transport are also GST-free. This includes 'loading or handling' and a service that 'facilitates' the international transport.

Loading or handling are not defined in the GST Act and take their ordinary meaning. Consequently, handling of goods that are in being transported from outside of Australia to their final destination in Australia will include unbundling, sorting, storing and loading off or onto transport vehicles.

The entity's supplies of freight handling, warehousing and pick and pack (unbundling) services which are provided to the non-resident are part of the service of handling goods within item 5A of the table in subsection 38-355(1) of the GST Act and, as the supplies are made to the non-resident that is not in Australia, the entity is making GST-free supplies of those services.

Question 4

Where the entity collects and transports goods from the port of importation to a warehouse, unbundles those goods and holds them on consignment for the non-resident awaiting final delivery instructions, the services provided are a combination of supplies made to the non-resident:

•         step 1 - the transportation of goods from the port of entry to the entity's warehouse;

•         step 2 - the storage of the goods in the warehouse; and

•         step 3 - the picking, packing and transportation of the goods to their final destination (customer).

As discussed above, the supply by the entity to the non-resdient of transportation of the goods from the port of importation to the place of consignment (in this case, the entity's warehouse as step 1) is GST-free under item 5 of the table in subsection 38-355(1) of the GST Act.

The storage and handling of the goods at the warehouse (step 2) is not part of the international transport as the eventual final destination is not known. However, item 2 of the table in subsection 38-190(1) of the GST Act provides that a supply of services to a non-resident is GST-free if:

•         the non-resident is not in the indirect tax zone (Australia) when the service is done; and

•         the service not of work physically performed on goods.

The non-resident has no presence in Australia even though it is registered for Australian GST. The Goods and Services Tax Ruling, Goods and services tax: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999? (GSTR 2003/7) states:

58. A supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods.

59. In contrast, where activities do not change or affect goods in a physical way, there is no supply of work physically performed on goods. For example, a supply of transporting goods is not work physically performed on goods because the supply only changes the location of the goods, not the goods themselves.

The unbundling, storage and handling of goods is not 'work physically performed on goods' as these services do not change the goods in any way. Consequently, the storage and handling of the goods at the entity's warehouse is covered by item 2 in the table in subsection 38-190(1) of the GST Act.

However, in certain circumstances, subsection 38-190(3) of the GST Act negates the GST-free status of supplies that are covered by item 2 in the table in subsection 38-190(1) of the GST Act. This provision only applies if the supply is provided to an entity within the indirect tax zone (Australia) amongst other criteria. The services of handling and storing the goods whilst awaiting final delivery instructions is a supply made by the entity to the non-resident. As these services are not provided to any other entity subsection 38-190(3) does not apply to these services.

Therefore, the supply of handling and storage services by the entity to the non-resident is GST-free under item 2 of the table in subsection 38-190(1) of the GST Act.

The subsequent delivery of the goods from the entity's warehouse to the end customer (step 3) is also a supply of services that is made to the non-resident and Example 1 in GSTR 2003/7 states that this supply is also GST-free under item 2 of the table in subsection 38-190(1) of the GST Act:

60. An Australian based transport company supplies transport services within Australia to a non-resident shipping company. The non-resident shipping company is not in Australia when the services are performed and the services are not provided to another entity in Australia. Is the supply of transport services a supply of work physically performed on goods situated in Australia?

61. No. The supply of transport services is not a supply of work physically performed on goods. Although the goods are moved from one location to another, the supply does not have any physical effect on the goods themselves.

62. The supply is GST-free under paragraph (a) of item 2. Paragraph (a) of item 2 is satisfied because the supply does not fall within either of the exceptions in that paragraph. Subsection 38-190(3) does not apply because the services are not provided to another entity in Australia.

It should be noted that GSTR 2003/7 is being reviewed to incorporate the amendments made by the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Act 2016. The changes impact how GST applies to cross-border supplies. The review may result in the above example being altered to better align with Goods and Services Tax Ruling, Goods and services tax: the scope of subsection 38-190(3) and its application to supplies of things (other than goods or real property) made to non-residents that are GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2005/6), specifically Example 11.

However, subsection 357-60(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a ruling 'binds the Commissioner' where an entity relies on the ruling by acting (or omitting to act) in accordance with the ruling and subsection 357-60(3) of Schedule 1 to the TAA provides that the GST payable on a supply is the amount worked out in accordance with relying on that ruling.