Edited version of private ruling

Authorisation Number: 1011510928961

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Ruling

Subject: GST and international transport

Questions:

1. Is the place of consignment in Australia referenced via the overarching informal agreement between B and F to transport the goods from overseas to its warehouse in location Z, or should B rely on the formal 'contract of carriage' such as the house bill of lading that shows the destination as the nearest port?

Answer:

B should rely on the formal 'contract of carriage' such as the house bill of lading that shows the destination as the port in the nearest capital city for the place of consignment in Australia.

2. Is B's supply of customs clearance to F GST-free or taxable?

Answer:

B's supply of customs clearance to F is GST-free.

3. Are the port service charges invoiced by an Australian resident shipping line to B GST-free or taxable, and if they are on-charged by B to F, will they be GST-free or taxable?

Answer:

The port service charges invoiced by an Australian resident shipping line to B are taxable, and they will be GST-free if they are on-charged by B to F.

4. Are the quarantine attendance charges invoiced by G to B GST-free or taxable, and if they are on-charged by B to F, will they be GST-free or taxable?

Answer:

The quarantine attendance charges invoiced by G to B are taxable where the supply meets the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), and they will be GST-free if they are on-charged by B to F.

5. Is the supply of domestic transport services in Australia for the transport of goods to F's warehouse by G to B GST-free or taxable, and if it is subsequently invoiced from B to F, will it be GST-free or taxable?

Answer:

The supply of domestic transport services in Australia for the transport of goods to F's warehouse by G to B is taxable where the supply meets the requirements of section 9-5 the GST Act. The supply will be taxable if it is subsequently invoiced from B to F.

6. Is waiting time charged by G to B for the time taken to wait for picking up the container at the wharf GST-free or taxable, and if it is subsequently invoiced by B to F, will it be GST-free or taxable?

Answer:

Waiting time charged by G to B for the time taken to wait for picking up the container at the wharf is taxable where the supply meets the requirements of section 9-5 of the GST Act. It will be taxable when subsequently invoiced by B to F as it is for the supply of domestic transport services.

7. Are the storage expenses charged by G to B in respect of storing the container at its premises whilst waiting for a suitable delivery time GST-free or taxable, and if they are subsequently invoiced by B to F, will they be GST-free or taxable?

Answer:

The storage expenses charged by G to B in respect of storing the container at its premises whilst waiting for a suitable delivery time are taxable where the supply meets the requirements of section 9-5 of the GST Act. They will be taxable when subsequently invoiced by B to F as storage is not considered part of international transport.

8. If the domestic leg of the transport related supplies in Australia (including trucking, waiting time, storage and port service charges) are GST free, should they be estimated at the time of import and be included as part of the value of taxable importation (VoTI) on the import declaration to attract GST on import? If they were based on estimation, what would happen if the actual costs are different to those estimated?

Answer:

Pure estimates are not allowable under the policy of the Commissioner of Taxation (Commissioner) and therefore, actual costs are preferred. Please see discussion below. However, under the scenario outlined the charges for waiting time, storage and container detention will not be included in the VoTI.

9. Is the international freight charged by an Australian resident shipping line to B to transport the goods from the origin port to the Australian port GST free or taxable, and will the subsequent invoice from B to F that is used to calculate the VoTI be GST-free?

Answer:

The international freight charged by an Australian resident shipping line to B to transport the goods from the origin port to the Australian port is GST-free, and the subsequent invoice from B to F that is used to calculate the VoTI will also be GST-free.

10. Is container detention charged by the shipping line to B for late return of the containers following delivery GST free or taxable, and if it is subsequently invoiced by B to F, will it be GST-free or taxable?

Answer:

Container detention charged by the shipping line to B for late return of the containers following delivery is taxable, and it will also be taxable when subsequently invoiced by B to F.

Relevant facts

F is an Australian importer who sources products from suppliers overseas on FOB terms.

B has an informal agreement with F to transport the goods from the FOB port overseas to F's warehouse in location Z.

However the formal 'contract of carriage' for the transport from the origin port to the destination port as evidenced by the house bill of lading would infer the place of consignment to the nearest port.

To fulfil this obligation B, through its agent overseas, contracts a shipping line to bring the container to the port on freight collect terms and subsequently to pay for the freight plus the related port service charges to the shipping line's office in Australia.

B also completes the customs clearance and sea cargo automation for F at this time.

A third party logistics provider G is contracted by B to pick up the container from the wharf and deliver it to its premises for storage until such time that F is able to accept it into its warehouse.

The container will not be customs cleared when storage at the wharf is due to commence. As such, it is standard practice to move those containers under-bond from the wharf to a bonded warehouse to save on storage. G does not charge for the pickup at wharf and drop off to bonded warehouse as it is included in the rest of its charges. Once the container has been customs cleared, it will then be moved from the bonded warehouse to G's warehouse to await subsequent delivery to F.

If Q requires an inspection of the consignment then the container would be transported from the wharf to H where inspection is carried out.

H then invoices B for the costs of having a Q officer attend the inspection. During the inspection the Q officer may decide that the goods require fumigation before they can be released. In this case H will fumigate the goods as required and invoice B for this service.

Finally, once the shipment is cleared through both customs and Q, F can receive the goods into its warehouse. B delivers the container to F.

G will invoice B for the transport, any waiting time required to pick up the container and the storage for keeping the container at its premises.

B then invoices F for international freight, port service charges, customs clearance, sea cargo automation, domestic transport, waiting time, storage, any applicable Q's attendance fees and subsequent Q's treatment costs associated with the consignment.

The shipping line may invoice B for container detention incurred due to late return of the container used in the shipment. There are generally 10 free days provided by the shipping line between container availability at the wharf and return of the container after delivery. It is possible that the container could still be at G or H awaiting either clearance or a suitable delivery time when the 10 free days runs out.

This means that the costs are incurred before the place of consignment if B uses the informal overarching agreement to determine such, however it does not receive the invoice for this until weeks later. If this occurs then there is a subsequent invoice raised from B to F for container detention.

For the ruling request purposes, a copy of the tax invoice from G to B and a copy of the tax invoice from B to F are provided for perusal.

Reasons for decision

GST-free supplies of international transport in general

Section 38-355 of the GST Act specifies the general rules for the GST-free supplies of international transport of goods and related matters. The purpose of this section is to allow only certain aspects of the supply of transportation of goods to be GST-free. The legislation is not intended to exempt all costs of transport of goods. If you are registered or required to be registered and you acquire goods or services for a creditable purpose for use in your business, then you are able to claim an input tax credit for the GST included in the price of the supply of the goods or services in accordance with section 11-5 of the GST Act.

Items 5 and 5A together in the table in section 38-355 of the GST Act allow for the GST-free transport of goods in certain circumstances:

The third column of this table sets out supplies that are GST-free:

In relation to the importation of goods, Item 5(b) in the table in section 38-355 of the GST Act ensures that the supply of the international transport from outside of Australia to the port or airport of final destination in Australia continues to be GST-free but GST-free treatment may extend beyond this point if the place of consignment includes any further leg of Australian transport.

Hence, the term 'place of consignment' is important in as much as it defines the limits of the GST-free status afforded to international transport. The term is defined in section 195-1 of the GST Act:

place of consignment of goods means:

(a) if the goods are posted to Australia - the place in Australia to which the goods are addressed; or

(aa) if the supplier of the goods is to deliver the goods in Australia - the place in Australia to which the goods are to be delivered under the contract for the supply of the goods; or

(ab) if:

(i) neither paragraph (a) nor (aa) applies; and

(ii) the goods are to be transported into Australia by an entity supplying a transport service to an entity that is to import the goods into Australia:;

the place in Australia to which the goods are to be delivered under the contract for the supply of the transport service; or

(b) in any other case - the port or airport of final destination as indicated on the *transportation document.

The term 'transportation document' too is defined in section 195-1:

transportation document includes the following:

(a) a consignment note;

(b) a house bill of lading;

(c) an ocean bill of lading;

(d) a house air waybill;

(e) a master air waybill;

(f) a sea waybill;

(g) a straight line air waybill;

(h) a sub-master air waybill;

(i) other similar documents.

In addition, the Explanatory Memorandum to the Tax Laws Amendment (2010 GST Administration Measures No.3) Bill 2010 (EM) provides guidance for a transportation document. Paragraph 1.18 to 1.20 of the EM state:

1.18 The primary agreement for the importation of goods refers to the agreement under which goods are delivered into Australia under the contract for the supply of the goods or where a local entity brings the goods to Australia, the primary agreement is the agreement for the transport of the goods to Australia.

1.19 If goods from outside Australia are supplied to a local purchaser on 'delivered duty paid', 'delivered duty unpaid' or under 'cost, insurance and freight' terms, the primary agreement will be the supply agreement for the sale of the goods to the local purchaser. in contrast, the primary agreement under terms of trade involving 'free on board' will generally be the agreement between a transport company and a local importer in which the goods are transported from a foreign port or airport to the local importer.

1.20 The place where an Australian transport supplier delivers goods in Australia is the place of consignment for inbound goods from overseas if they can show that this is the final place in Australia to which the goods are required to be transported under the contract or arrangement for the international transport of the goods.

As the definition of 'transport documentation' refers to a document, the 'place of consignment' for goods transported into Australia will be determined with reference to under a written agreement for the transport of goods to Australia. It is considered that in this case the relevant agreement is the house bill of lading. Accordingly, the place of consignment is the nearest port.

Once the place of consignment is decided, it will determine both:

· the extent to which transport services and other services associated with bringing goods to Australia will be GST-free; and

· the extent of the transport and other service costs that need to be included in calculating the VoTI needed to determine the GST liability on import.

Transport supplier who brings the goods to Australia

Provided the supply is made by the entity that has been contracted to provide the international transport to Australia, the supply is GST-free for the transport supplier who bring the goods to Australia.

For transport undertaken within Australia, this will not necessarily be the supplier that physically carries out the service. Supplies of loading, handling and other services that facilitate the international transport of goods by the supplier will be GST-free.

In the current case, the transport supplier will be B.

Subcontractor who does not bring the goods to Australia

A subcontractor who only provides transport services within Australia as part of an international transport supply will make a taxable supply. This is because it will be contracted to an entity that is in Australia when it makes the supply.

As discussed, any transport services that occur after arrival at the place of consignment are not international transport. Additionally, loading, handling and other services that facilitate transport services that occur after arrival at the place of consignment do not facilitate international transport and therefore will not be GST-free.

In the current case, the subcontracting entity will be G.

Waiting time

Waiting time is considered to be a component of the domestic transport of goods. Therefore, if the supply of transport is taxable, so is to the relevant supply of waiting time.

Consequently, where G's supply of transport to B is taxable, the waiting time will be taxable and subject to GST.

Storage and contain detention

These activities occurred to the goods after their arrival at the relevant place of consignment are separately identifiable.

Whilst B has contracted with F to supply international transport of goods, it is necessary to determine whether those supplies are being made in connection with this transport and whether they are being made for consideration.

A supply is a taxable supply if all the conditions under section 9-5 of the GST Act are satisfied. 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) the supply is *connected with Australia; 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.

(The asterisks in this ruling indicate terms defined under section 195-1 of the GST Act.)

In the current case the requirements in paragraphs (b), (c) and (d) of section 9-5 of the GST Act are satisfied and assuming that any supply made will not be GST-free or input taxed, the relevant criterion to be resolved is the requirement in paragraph (a).

To satisfy the requirement of paragraph 9-5(a) of the GST Act there must be a supply and consideration, and there must be a sufficient connection between the two.

Subsection 9-10(1) of the GST Act defines supply as any form of supply whatsoever.

The intended scope of subsection 9-10(1) of the GST Act is more fully illustrated in subsection 9-10(2) of the GST which states that without limiting subsection 9-10(1) of the GST Act, supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of *real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything;

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

Therefore, a supply is something that passes from one entity to another. The supply may be one of particular goods, services or something else that is reflected in an agreement by one party to do something for another. This view is contained in Goods and Services Tax Ruling GSTR 2006/9 titled 'supplies' which sets out a number of propositions for characterising and analysing supplies.

'Consideration' is defined under section 9-15 of the GST Act. The definition extends beyond payments to include such things as acts and forbearances to act. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of the supply.

Following on from the above discussion we take the view that these services have amounted to a 'supply' of the services under section 9-10 of the GST Act. We also take the view that such a supply is being made for consideration as there is sufficient nexus between the payment for the supply of the services.

Goods and Services Tax ruling GSTR 2001/8 sets out the view of the Commissioner on apportioning the consideration for a supply that includes taxable and non-taxable parts. GSTR 2001/8 is a public ruling which is the highest form of technical interpretative advice issued by the Tax Office and represents the Commissioner's view of the operation of the GST legislation. It provides certainty for taxpayers in conducting their business activities.

GSTR 2001/8 discusses the concepts of a mixed supply and a composite supply and differentiates between mixed and composite supplies. At paragraph 15 of the ruling it states:

You need to consider all of the circumstances of a supply to work out whether the supply is mixed or composite. GST is only payable on the taxable part of a mixed supply. If a composite supply is taxable, then GST is payable on the whole supply. If a composite supply is non-taxable then no GST is payable on the supply.'

Paragraph 16 of the ruling discusses the concept of a mixed supply:

A mixed supply is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. Paragraphs 45 to 54 provide further explanation on what amounts to be separately identifiable parts of a supply.

The concept of a composite supply is discussed in paragraph 17 of the ruling:

If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to the part, then the supply is composite. You treat a composite supply as a supply of a single thing. Paragraphs 55 to 63 provide further explanation on integral, ancillary or incidental parts of a supply.

The ruling concludes at paragraph 20 in differentiating between mixed and composite supplies:

The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

In light of the guidance provided in GSTR 2001/8, the supply of the services such as storage, container detention, etc, and international transport is considered to be a mixed supply because the supply consists of separately identifiable parts that need to be recognised. Neither of these parts is integral, ancillary or incidental in relation to the whole supply of the international transport of goods as indicated in paragraph 17 of GSTR 2001/8.

Further, supplies of storage and container detention are not considered to be the facilitation of international transport as required under Item 5A(b) in the table in section 38-355 of the GST Act.

Any payment made in connection with the supply of these services (i.e. any payment made in response to or for the inducement of a supply) is considered to be consideration for a supply.

Therefore we conclude that services supplied in connection with the supply of the international transport, are supplies that are made for consideration as there is a nexus between the payment and the supply of those services. As these supplies do not form part of the GST-free international transport of goods, they fall for consideration as taxable supplies.

Ascertaining costs for storage and container detention

Where a supply with the above characteristics of a mixed supply exists, Section 9-80 will allow apportionment between the supply that is partly taxable and partly GST-free. GSTR 2001/8 provides further guidance in relation to the application of an apportionment.

Reasonable methods of apportionment

92. Where there is no legislative provision specifying a basis for apportionment you may use any reasonable method to apportion the consideration to the parts of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances.

93. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case. In some cases, there will be only one reasonable method you may use.

94. Depending on your circumstances, you may use a direct or indirect method when apportioning the consideration for a mixed supply.

95. The method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. You may need to use different methods, or a combination of methods, for different supplies to ensure the appropriate amount of GST is payable. You need to keep records that explain all transactions and other acts you engage in that are relevant to supplies you make, including supplies that are GST-free and input taxed.

As noted above, costs such as waiting time, storage and container detention will not form part of the VoTI for the importation of goods. Therefore, use of estimates will no longer be relevant.

However, the Commissioner generally does not allow the use of 'pure' estimates but will not concede that a reasonable and verifiable methodology can be used in calculations. Where the initial calculation proves incorrect for an importation, the entry should be corrected by way of amendment.

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