Edited version of private advice

Authorisation Number: 1052060439098

Date of advice: 18 November 2022

Ruling

Subject: GST - sale of fridges for yacht visiting Australia

Question

Is GST payable on your sale of the fridges to X?

Answer

Yes.

This ruling applies for the following period

10/11/20XX to 09/11/20XX

The scheme commences on:

10/11/20XX

Relevant facts and circumstances

You are registered for GST.

You are a chandler. You operate your business of selling boat products in Australia.

You sold fridges to individual X, a non-resident.

X sailed from overseas to Australia in their yacht. X has been sailing around Australia in the yacht for leisure purposes and is covered by a cruising/control permit issued by Australian Border Force. The period covered by the permit is (date) to (date).

The control permit states:

Non-commercial foreign craft owned and operated by bona fide visitors and non-resident Australians, who are in Australia temporarily, may be granted a control permit to operate in Australian waters.

On (date), X applied for an extension to the control permit. X now has approval to leave the yacht in Australia until (date).

X will leave Australia by plane in the next few days and return to their home country so that they can apply for an extension to their Australian visa.

X will return to Australia in a number of months and resume cruising around Australia in their yacht. You will deliver the fridges to X upon their return to Australia in a number of months. In the meantime, the fridges will be stored at the Australian premises of the wholesaler. You have not been contracted by X to install the fridges in the yacht. Someone else will install the fridges into the yacht (either X or some third party they would hire). The fridges would be affixed to the boat with a significant degree of permanence. You do not work on boats. You simply buy and sell new items for boats.

You issued an invoice for the sale of the fridges to your customer on (date). The price specified on the invoice is (amount), which X paid you on (date). You describe this payment as a deposit. If the ATO issues an unfavourable ruling, you will then charge the customer an additional 10% to cover your GST liability on the sale.

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

Reasons for decision

Summary

Your supply of the fridges meets the requirements of paragraphs 9-5(a) to 9-5(d) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), that is:

• you will supply the fridges for consideration (the price)[paragraph 9-5(a)] and
• you will supply the fridges in the course or furtherance of an enterprise that you carry on [paragraph 9-5(b)]; and
• the supply will be connected with the indirect tax zone [paragraph 9-5(c)]; and
• you are registered for GST [paragraph 9-5(d)].

There are no provisions of the GST Act under which your supply of the fridges will be input taxed.

Your sale of the fridges is not GST-free under the 60 day export exemption, as the goods will not meet the 60 day deadline for export.

Your sale of the fridges is not GST-free under the ships stores and spare parts exemption as the fridges are not ships stores or spare parts.

Your sale of the fridges is not GST-free under the exemption for supplies of goods in the course of the renovation of goods from overseas whose destination is overseas because you have not been hired to perform any such work; you are just supplying goods.

There are no other rules under which your supply of the fridges is GST-free.

Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sale of the fridges.

Detailed reasoning

GST is payable on taxable supplies.

Section 9-5 of the GST Act states:

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)           (c)the supply is *connected with the indirect tax zone; and

(d)           (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.

(* Denotes a term defined in section 195-1 of the GST Act).

The indirect tax zone means Australia (within the meaning of the *ITAA 1997), but does not include any of the following:

(a) the external Territories;

(b) an offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006

other than an installation (within the meaning of the Customs Act 1901) that is deemed by section 5C of the Customs Act 190 1to be part of Australia and that is located in an offshore area.

References to Australia below are references to the indirect tax zone.

Your supply of the fridges meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, that is:

• you will supply the fridges for consideration (the price)[paragraph 9-5(a)] and
• you will supply the fridges in the course or furtherance of an enterprise that you carry on [paragraph 9-5(b)]; and
• the supply will be connected with Australia [paragraph 9-5(c)]; and
• you are registered for GST [paragraph 9-5(d)].

There are no provisions of the GST Act under which your supply of the fridges will be input taxed.

We shall now consider whether your sale of the fridges is GST-free.

Section 38-185 of the GST Act is about export of goods and lists 7 items of supplies that are GST-free in a table within the section. Of relevance in this case are items 1, 5 and 6.

Item 1 and the 60 day export exemption

A sale of goods to be exported from Australia by the purchaser is potentially GST-free under item 1 in the table in subsection 38-185(1) of the GST Act (item 1) if the purchaser exports the goods from Australia before, or within 60 days after, the earlier of the following dates:

• the date the seller receives any of the consideration for the supply
• the date the seller issues an invoice.

There are also a number of other criteria to meet for a sale of goods to be GST-free under item 1 in cases where the buyer exports the goods.

The 60 day deadline will not be met in your case. Therefore, the sale cannot be GST-free under item 1.

Item 5 and the sale of ships stores and spare parts for ships

Item 5 in the table in subsection 38-185(1) of the GST Act provides for GST-free supplies of aircraft's stores and ship's stores and spare parts for use, sale or consumption on flights and voyages with a destination outside Australia.

Paragraph 12 of GSTR 2003/4 defines ships stores. It states:

12. The term 'stores' includes all consumable goods such as food, water and beverages intended for consumption on board an aircraft or ship, and any goods taken on board to be sold, such as souvenirs, photographic film, confectionery and tobacco products. 'Stores' also includes consumables necessary for the operation and maintenance of an aircraft or ship, such as fuel and lubricants.

Paragraph 14 of GSTR 2003/4 defines spare parts. It states:

14. Spare parts are parts or components of a ship or aircraft that are intended to be used to replace defective or worn parts or components, whether or not they are supplied for immediate use in fixing to the craft or vessel.

The fridges you have sold are not ships stores as:

• they are not consumables, such as food, for consumption on board the yacht (they are instead durable goods) and they are not consumables necessary for the operation and maintenance of the yacht, such as fuel; and
• they will not be sold on board the yacht

These fridges are not parts or components of a ship that are intended to be used to replace defective parts or components.

Therefore, your sale of your fridges to X is not GST-free under item 5.

Item 6 and a supply of goods in the course of repairing, renovating, modifying or treating other goods from outside Australia whose destination is outside Australia.

A supply of goods in the course of repairing, renovating, modifying or treating other goods from outside Australia whose destination is outside Australia is GST-free under item 6 in the table in subsection 38-185(1) of the GST Act, but only if:

(a) the goods are attached to, or become part of, the other goods; or

(b) the goods become unusable or worthless as a direct result of being used to repair, renovate, modify or treat the other goods.

In the course of repairing etc other goods

Paragraphs 23 to 26 of GSTR 2005/2 explain the meaning of 'in the course of repairing etc other goods'. They state:

23. For a supply of goods to be 'in the course of' repairing, other goods, it must be made by a person who is carrying out a repair of the other goods.

24. The present tense of the words 'repairing, renovating, modifying or treating' in item 6 requires the supply to be made as the process is being carried out. It follows that the supplier must be carrying out the process, although it is not a requirement that the supplier charge a separate fee for the process.

25. A supplier is the entity that carries out the repair, if it physically does so itself (or through its employees), or if it engages a subcontractor to undertake the process for it. In the case where a subcontractor is engaged, both the head contractor's and the subcontractor's supply is in the course of repairing other goods.

26. A supply of goods is not 'in the course of' repairing other goods if the supplier of the goods is not carrying out (or contractually responsible to arrange the carrying out of) a physical process in respect of the other goods. For example, a supply of a part to the owner of the other goods is not a supply of goods in the course of repairing the other goods if the owner will use the part to repair the other goods.

In accordance with paragraphs 23 to 26 of GSTR 2005/2, you will not be undertaking any of the processes listed in item 6 in relation to the yacht, such as renovating the yacht, but will only supply goods (which will be affixed to the boat by someone else, who will not be your subcontractor). Therefore, you will not make a GST-free supply under item 6.

There are no other relevant GST-free provisions to consider in relation to the supply of the fridges in this case.

Therefore, as all of the requirements of section 9-5 of the GST Act are met, GST is payable on your sale of the fridges in this case.