Edited version of private advice

Authorisation Number: 1051992601603

Date of advice: 8 June 2022

Ruling

Subject: GST and supply of second hand clothes outside Australia

Question

Is the supply of second hand clothes by an Australian entity to a non-resident entity located outside Australia, a GST-free supply under section 38-185 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The supply of second hand clothes by the Australian entity to the non-resident entity located outside Australia will be GST-free under table item 1 of subsection 38-185(1) of the GST Act where all of the following are satisfied:

•         All requirements (excluding paragraph (f)) in subsection 38-185(3) of the GST Act are met; and

•         You obtain documentary evidence of the export of the second hand clothes within the 60 day period or documentary evidence is obtained after the end of the 60 day period and before the due date for lodgement of its next Business Activity Statement (BAS).

Relevant facts and circumstances

You are an Australian entity registered for GST.

You sell second hand clothes to overseas clients. The goods are exported.

The clothes are loaded into containers owned by the shipping lines.

You do not contract at your expense any carriers for transportation of the goods. This arrangement is organised and paid for by your clients.

Once the container is loaded and leaves your premises you are no longer involved in shipping process.

The goods are delivered directly to the ports to be loaded onto a ship. The goods are loaded within 7 days and the ship departs the port. You are paid within 7 days of the goods leaving your premises.

The second hand clothes are exported out of Australia within 60 days from loading.

The goods are sold to companies and private distributors located overseas.

Some of your clients are registered for Australian GST.

No goods in the container are sold separately in Australia or for the purpose of being re-manufactured in Australia.

The goods have not been altered in any shape or form and have not been repaired.

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 38-185

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

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.

Detailed reasoning

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 of an enterprise that the supplier carries on; and

c)    the supply is connected with Australia; and

d)    the supplier is registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

You must satisfy all of the above for your supply to be a taxable supply and liable for GST.

Based on the information you have provided, you will satisfy the requirements in paragraphs 9-5(a) to (d) of the GST Act when you supply second hand clothes to a non-resident entity outside of Australia as:

a)    you will make your supply for consideration;

b)    you will make the supply in the course of an enterprise that you carry on in Australia;

c)    your supply will be connected with Australia as the supply will be made through a business that you carry on in Australia; and

d)    you are registered for GST.

However, your supply of second hand clothes will not be a taxable supply to the extent that it is GST-free or input taxed.

There is no provision under the GST Act that makes the supply of second hand clothes input taxed.

What remains to be considered is whether your supply of second hand clothes constitutes a GST-free supply.

GST-free supply

Relevant to your supply of second hand clothes is table item 1 of subsection 38-185(1) of the GST Act (item 1). Goods and Services Tax Ruling GSTR 2002/6, Goods and Services Tax: Exports of goods, item 1 to 4 of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2002/6) provides guidance on when a supply of goods is a GST-free export of goods.

For a supplier to treat their supply of goods as a GST-free export of goods under item 1 there must be:

•         an export of goods; and

•         the supplier is the entity that exports them within the 60 days; and

•         the supplier must hold evidence that the goods have been exported - for example a clear export declaration and a valid transport document issued by a shipping line or airline showing that the goods were received by a shipping line or aircraft operator and that the ship or airline has been contracted to carry the goods to a destination outside Australia.

Export

The word 'export' is not defined in the GST Act and therefore it takes its ordinary meaning of sending goods to other countries or places for sale or exchange or taking goods out of one country with the intention of landing them in another country.

Paragraph 97 in GSTR 2002/6 states that for the purposes of section 38-185 of the GST Act, to export goods is to physically send or take goods out of Australia with the intention that the goods be landed at a place outside Australia.

Supplier is the entity that exports

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) of the GST Act are met.

Regarding 'supplier exports' paragraphs 106 to 109 and 125 in GSTR 2022/6 state:

106. The question of whether the supplier exports, that is, whether the supplier send or takes goods from Australia, is answered by examining the role the supplier plays in bringing about the removal of the goods from Australia.

107. The supplier is the exporter for the purposes of item 1 or 2, if the part played by the supplier in bringing about the removal of the goods from Australia is sufficient to justify the supplier being described as the sender of those goods out of Australia.

108. The policy intent of requiring the supplier to export is to ensure that the goods are not used or consumed in Australia. If the supplier exports the goods, the supplier then knows that the goods are not used or consumed in Australia, and the goods can be supplied GST-free.

109. Against this policy background, we consider that the role of the supplier is sufficient to justify describing the supplier as the entity that exports goods from Australia, where:

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.

125. Where a supplier is only responsible for delivery of goods at a place inside Australia and to a person in Australia who, or that, is not a ship or airline operator, the supplier is not considered to be the exporter. This is the case under and Ex-works (EXW) or Free Carrier (FCA) contract of sale where the supplier is only required to deliver the goods either at the supplier's own premises, or to a carrier, other than a ship or aircraft operator, named by the buyer. The named carrier may be an agent of the buyer, a freight forwarder, consolidator, or any other third party who, or that, is not a ship or airline operator contracted to carry the goods to an overseas destination. If the supplier is not the exporter, the supply is not GST-free under item1 or 2 unless the requirements of subsection 38-185(3) are met (see paragraphs 237 to 294).

From the facts given you have not exported the goods as your client arranges and pays for the goods to be delivered from your warehouse to the port. You deliver the goods to a third party entity contracted by the buyer to carry the goods to the ship operator. You have not contracted at your own expense with an international carrier for the transportation of the goods to a destination outside Australia and you do not deliver the goods to the operator of a ship to transport those goods to a destination outside Australia.

However, you may still be the exporter of the second hand clothes where your client exports the goods and the requirements in subsection 38-185(3) of the GST Act are met.

Subsection 38-185(3) of the GST Act - supplier treated as exporter

Under subsection 38-185(3) of the GST Act a supplier who has not exported goods is treated as having exported them for the purposes of item 1 if the requirements in subsection 38-185(3) of the GST Act are met. The requirements are:

a)    before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered;

b)    that entity exports the goods from Australia,

c)    the goods have been entered for export within the meaning of section 113 of the Customs Act;

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;

e)    the supplier has sufficient documentary evidence to show that the goods were exported; and

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

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

(ii)   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 reimportation is a taxable importation.

When a supplier delivers the goods sold to the buyer or the buyer's representatives in Australia and relies on subsection 38-185(3) of the GST Act to treat their supply as GST-free, it is the supplier's choice to supply the goods GST-free to the buyer and the supplier bears the risk of the goods not being exported.

If the goods are not exported, then the supplier is liable for GST.

Further the supplier is liable for GST unless it has documentary evidence that the buyer is not registered or not required to be registered for GST, the goods have been exported by the buyer, the goods have not been used or altered prior to export and the goods have been entered for export.

We will now consider subsection 38-135(3) of the GST Act.

Paragraph 38-185(3)(a) of the GST Act

For the purposes of paragraph 38-185(3)(a) of the GST Act, a supplier who has supplied the goods when the goods are delivered in accordance with the contract of sale. Where the contract of sale requires physical delivery to a third party who is acting for the buyer (for example, a freight forwarder, consolidator etc.) such delivery constitutes a supply to the buyer/recipient, not to the third party.

Under paragraph 38-185(3)(a) of the GST Act, it is also a requirement that the recipient of the supply is not registered, and that the recipient is not required to be registered for GST.

A supplier is able to ensure that a recipient/buyer is not registered for GST by checking the Australian Business Register. Further the supplier must be satisfied, on reasonable grounds, that the entity it supplies to is not required to be registered. Where a supplier is not in the position to be aware of these circumstances, enquiries should be made of the recipient.

The Commissioner accepts that the supplier has reasonable grounds to be satisfied, if the entity has provided a signed written statement, declaring that the entity is not required to be registered. This is only accepted where the supplier has no reason to believe that the statement is not accurate.

You have advised that some recipients/buyers may be registered for GST.

Note: If they are registered for GST, the supply of second hand clothes will not be GST-free. Where you can substantiate that the recipient is not required to be registered for GST, the requirement in paragraph 38-185(3)(a) is satisfied.

Paragraph 38-185(3)(b) of the GST Act

The requirement that the recipient exports the goods is satisfied where either:

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

b)    the recipient 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.

The recipient may satisfy the requirements by engaging an international transport operator, such as a freight forwarder, consolidator, air express courier or postal agency to deliver the goods to the ship or airline operator. Similarly, the recipient may enter a contract of carriage to a foreign destination through an agent, such as a freight forwarder and so on.

You have advised that the recipient will arrange for the delivery of the goods via ship at their own expense. In this instance this paragraph is satisfied.

Paragraph 38-185(3)(c) of the GST Act - entered for export

Under paragraph 38-185(3)(c), the goods supplied must be entered for export within the meaning of section 113 of the Customs Act.

The Customs Act requires most goods that are to be exported to be reported to Customs on an entry for export. An entry for export is a document lodged manually or electronically with Customs that provides details of the goods to be exported and their destination. Goods are taken to be entered when Customs electronically transmits an export entry advice back to the person who lodged the export entry, or for paper entries, when a Customs officer stamps the entry as being received.

It is not necessary that it be the supplier who, or that, enters the goods for export, however, the supplier needs to be able to substantiate that the entry was made.

If the supplier has a record of the Export Declaration Number (EDN) in respect of the goods, the supplier is able to show that the goods were entered for export. If the supplier does not have an EDN, the Commissioner accepts the evidence of actual export (such as transport documents) as evidence that an export entry was lodged, provided Customs requires an export entry for the particular goods.

You have advised that you do not have any export documentation in respect on the second hand clothes supplied. If you do not have any export documentation to show that the second hand clothes were entered for export, your supply of second hand clothes will not be GST-free.

Based on the information you have provided, the recipient/buyer is responsible for arranging the export of the second hand clothes. You may request from your client, export documentation that provides details of the goods to be exported and their destination to satisfy this requirement.

Note: If you are able to substantiate that the entry for export has been made, for example you have a record of the Export Declaration Number in respect of the goods you sold or you have transport documents as evidence that an export entry was lodged for the goods you have sold this paragraph will be satisfied.

Paragraph 38-185(3)(d) of the GST Act

Paragraph 38-185(3)(d) is satisfied where the goods, since their supply, have not been altered or used in any way except to the extent necessary to prepare them for export

You advised that the goods will not be used or altered in any way. In this instance paragraph (d) is satisfied.

Paragraph 38-185(3)(e) of the GST Act - sufficient documentary evidence

Paragraph 38-185(3)(e) specifically requires that the supplier holds sufficient documentary evidence.

Paragraphs 279 to 282, 302 and 303 in GSTR 2002/6 state:

279. A supplier is required to have sufficient documentary evidence to show that the goods were exported. This evidence does not usually come into existence at least until the goods are in the process of being exported. Evidence that simply demonstrates that it is intended that the goods are be exported is not sufficient.

280. Where the supplier is the entity that actually exports the goods, the supplier receives evidence that shows that the goods are exported. However, where the supplier is treated as the exporter under subsection 38-185(3), the recipient is the exporting entity and the supplier will only know that the goods have been exported if the recipient provides the supplier with evidence of export. Thus, the GST law specifically requires the supplier to obtain and hold such evidence.

281. The onus is on the supplier to obtain evidence that the goods were exported. If a supplier does not obtain and hold sufficient evidence to show that the goods have been exported, that is, the goods physically have left Australia on board a ship or aircraft for landing at some place outside Australia, the supplier cannot be treated as having exported them for the purposes of item 1. The supply is not GST-free.

282. Provided that there is no information to the contrary, a supplier will have sufficient documentary evidence to show that goods were exported where the documents held by the supplier provide a reasonable basis for an independent party to conclude that the goods were exported.

302. Under items 1, 2 and 2A, to demonstrate that a supply of goods is a GST-free export, the supplier must have documentary evidence to show that the goods supplied were exported and that the supplier exported them within the specified time.

303. In most cases, the documents a supplier obtains in the ordinary course of the transaction will be sufficient, provided normal commercial procedures are followed. These documents will usually consist of:

(a) the transport documents evidencing the carriage of the goods out of Australia;

(b) the commercial documents in relation to the supply that identify the supplier, the recipient, the goods and the payment arrangements. The commercial documents should clearly link to the transport documents; and

(c) Customs and other official documents

For information on 'what should be contained in the documents' and 'documentary evidence' you can refer to paragraphs 283 to 285 and paragraphs 295 to 312 in GSTR 2002/6.

Note: Where you obtain evidence from the recipient/buyer that the goods you have sold to them are exported within the 60 day period paragraph (e) will be satisfied.

Paragraph 38-185(30(f)

Paragraph (f) applies to individuals who reside in an Australian external territory.

You advised that the recipient is not a resident of an Australian external territory. Paragraph (f) does not apply in this instance.

Summary

Where any of the requirements in subsection 38-185(3) of the GST Act (excluding paragraph (f)) is not satisfied, for the purposes of item 1 you will not be considered to be the exporter for your sale of second hand clothes to the recipient/buyer. Your sale of second hand clothes will not be GST-free.

Where all requirements in subsection 38-185(3) of the GST Act are met, you are treated for the purposes of item 1 as the exporting entity for the second hand clothes you sold and exported by the recipient/buyer. Your sale of second hand clothes may be GST-free. The GST-free status of your supply to the buyer then depends on the other requirements of item 1 being met. For instance, the export must occur with the 60 day period.

60-day period to export

Under item 1 a supply of goods is GST-free only if the supplier exports them from Australia before or within 60 days (or such further period as the Commissioner allows) after:

•         the day on which the supplier receives any of the consideration for the supply; or

•         if, on an earlier day, the supplier gives an invoice for the supply - the day on which the supplier gives the invoice.

The supply of the goods by you will be GST-free if you export the goods before, or within the 60-day period. You have stated that the containers are exported out of Australia within 60 days from loading, therefore the goods will be exported from Australia before, or within the 60-day period.

Accordingly, the supply of the goods by you satisfies all the requirements in item 1 and the supply will be GST-free under subsection 38-185(1) of the GST Act.

Hold evidence that the goods have been exported

You must obtain and hold sufficient documentary evidence to show that the second hand clothes are exported by that date.