Goods and services tax: supplies of goods connected with the indirect tax zone (Australia)

This Ruling discusses when supplies of goods are connected with Australia under subsections 9-25(1), (2) and (3) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). [1]

For a supplier to be liable for goods and services tax (GST) on a taxable supply [2] , one of the requirements is that the supply must be connected with the indirect tax zone. [3] In this Ruling, the 'indirect tax zone' is referred to as 'Australia'.

The Ruling also considers when supplies of goods are disconnected under paragraph 9-26(1)(c) (items 3 and 4).

The following diagram shows how the relevant provisions dealt with in this Ruling fit in with the other requirements for a supply to be a taxable supply.

This Ruling updates and replaces the Commissioner's view on supplies of goods provided in Goods and Services Tax Ruling GSTR 2000/31 Goods and services tax: supplies connected with Australia.

This Ruling concerns the supply of goods for the purposes of the GST Act. A supply of goods is a supply of any form of tangible personal property [4] , that is, any form of personal property that has a physical existence. Therefore, it does not include: (a) intangible personal property such as intellectual property like a copyright, or (b) land or an interest in land.

A supply of goods is not limited to a sale of goods. It can include other means of supply such as a lease or hire of the goods.

In determining whether a supply of goods is connected with Australia, a distinction is made in section 9-25 between supplies of goods: • wholly within Australia (subsection 9-25(1)) • from Australia (subsection 9-25(2)), and • to Australia (subsection 9-25(3)).

The place the supplier or recipient carries on their business is not relevant in determining if a supply of goods is connected with Australia under subsections 9-25(1), (2) or (3). However this can be relevant in determining when a supply of goods subject to a lease is disconnected under items 3 or 4 of subsection 9-26(1) (see paragraphs 44 to 57 of this Ruling).

In the context of subsection 9-25(1), goods are delivered in Australia if the goods are physically delivered in Australia. Goods are also made available in Australia if the goods are physically made available in Australia. The terms 'delivered' and 'made available' look at the place where the goods are at the relevant time.

Circumstances in which goods are delivered or made available by a supplier in Australia to the recipient include: • where the supplier physically delivers the goods from a place in Australia to the recipient's nominated place in Australia, and • where the supplier has the goods imported into Australia, and shipped to themselves, prior to delivering or making the goods available to the recipient of the supply in Australia.

'Made available' refers to the situation where goods are not actually delivered to the recipient but rather the supplier makes the goods physically available to the recipient in Australia. That is, a supplier may make goods available for collection by the recipient. For example, where a supplier of sand sells a load of sand to a customer, and the customer takes away the sand, the supplier has made the sand available.

Where the recipient imports the goods into Australia, the supply of goods is not connected with Australia under subsection 9-25(1) because the goods are not delivered, or made available, wholly within Australia to the recipient of the supply. [5]

Subsection 9-25(1) does not apply where the supply is a supply of goods from Australia or to Australia. Supplies of this kind are covered by subsections 9-25(2) and (3), respectively.

Richard, a computer wholesaler in Perth, sells computers to JP Pty Ltd, a computer retailer in Adelaide. The computers are transported from Richard's warehouse in Perth and delivered to the premises of JP Pty Ltd in Adelaide. This supply of goods is connected with Australia as the computers (goods) are delivered to JP Pty Ltd, the recipient, in Australia.

Joe goes to a car dealer in Perth and, after driving a demonstration model, agrees to purchase an Italian manufactured car of a particular model. The car dealer does not have that model car in stock. The car dealer orders and purchases the car from the Italian manufacturer and imports the car into Australia. When the car dealer receives the imported car, Joe is contacted and told that the car is ready for delivery.

Even though the car is imported by the car dealer, the supply from the car dealer to Joe is wholly within Australia. This supply is connected with Australia as the car is delivered to Joe wholly within Australia.

Joe decides to fit his car with specialised seat covers valued at $1,500. He approaches Seat Pty Ltd in Sydney to supply the seat covers. However, the seat covers have to be imported from Italy. Under the arrangements with Seat Pty Ltd, Joe takes delivery of the seat covers in Italy and imports the seat covers into Australia. The supply of goods, by Seat Pty Ltd to Joe, is not connected with Australia because the goods are not delivered, or made available to Joe, in Australia.

Joe makes a taxable importation on which GST is payable through border processes. [6]

A lease of goods is a supply of goods and may be connected with Australia as a supply of goods delivered or made available wholly within Australia.

Finance Pty Ltd (an Australian resident business) leases laptops to domestic and overseas customers. If the laptops are delivered, or made available in Australia, to the recipient of the supply, the supply of those laptops by way of lease is a supply connected with Australia.

A supply of goods is connected with Australia, if the supply involves those goods being removed from Australia. [7]

'Removed' in subsection 9-25(2) has its ordinary meaning. 'Remove' means to move from a place, to move or shift to another place, or to displace from a position. [8]

Subsection 9-25(2) does not apply where removal is not part of the supply.

BrisCo Pty Ltd sells souvenirs to overseas retailers. The souvenirs are to be shipped to their overseas purchasers from BrisCo Pty Ltd's premises in Australia. The souvenirs are removed from Australia by export as part of the supply. The supply is connected with Australia.

Notwithstanding that this supply is connected with Australia, it may be GST-free. If BrisCo Pty Ltd exports the souvenirs from Australia within the specified time [9] the supply is GST-free. [10]

A supply of goods by way of lease may involve the goods being removed from Australia. This is illustrated in the following example.

Aust Pty Ltd is an Australian manufacturer. It leases equipment to its subsidiary in New Zealand. The equipment is manufactured in Australia and exported to New Zealand. The supply of those goods by way of lease to the New Zealand subsidiary involves the goods being removed from Australia and, therefore, the supply is connected with Australia under subsection 9-25(2).

Although the supply will be GST-free under section 38-187 to the extent the leased goods are used in New Zealand, GST could arise if the leased goods are used in Australia.

A supply of goods is connected with Australia if the supply involves those goods being brought to Australia and the supplier imports the goods into Australia. [11]

Subsection 9-25(3) does not apply to a supply of goods that involves goods being brought to Australia where the recipient imports the goods into Australia.

A supplier imports the goods into Australia where it is the importer for the purposes of determining who (if any entity) makes a creditable importation under section 15-5. [12]

If a supply of goods involves the goods being delivered, or made available, to the recipient outside of Australia and the recipient subsequently imports the goods into Australia, the supply is not connected with Australia under subsection 9-25(1), (2) or (3). [13] However, the importation can be a taxable importation and the recipient (importer) would be liable to pay GST on the taxable importation. [14]

US Co sells a tractor to Tract Pty Ltd. Tract Pty Ltd agrees to be responsible for the importation of the tractor from the United States. The supply of the tractor involves the goods being brought to Australia but is not connected with Australia under subsection 9-25(3) given the supplier, US Co is not the importer. Additionally, the tractor is not delivered, or made available, in Australia to Tract Pty Ltd. The supply of the tractor by US Co is not connected with Australia under subsection 9-25(1). However, the importation of the tractor by Tract Pty Ltd is a taxable importation and Tract Pty Ltd is liable to pay GST on the taxable importation. [15]

A supply of goods by way of lease may involve a supply of goods to Australia. This is illustrated in the following example.

UK Crane Co leases a specialised crane to Construct Pty Ltd for use in Australia. UK Crane Co imports the crane into Australia from the United Kingdom.

As the supplier, UK Crane Co, imports the goods into Australia, the supply is connected with Australia under subsection 9-25(3). The supply is also a taxable importation under section 13-5.

A supply that is connected with Australia under subsection 9-25(3) may involve both a taxable supply under section 9-5 and a taxable importation of the supplier under section 13-5. [16] The GST payable on a taxable supply is payable by the supplier. If the supplier also makes a taxable importation, the supplier must pay the GST on the taxable importation. [17] However, if the supplier makes a creditable importation the supplier is entitled to an input tax credit for the GST payable on the importation. [18]

NZ Co enters into a contract with Aust Ice Pty Ltd, a Brisbane ice-cream production company, to supply Aust Ice Pty Ltd with an ice-cream maker from New Zealand for $5,500. NZ Co is registered for GST purposes in Australia and agrees to be the importer.

The supply of the ice-cream maker (goods) is connected with Australia under subsection 9-25(3) because the supply involves the goods being brought to Australia and NZ Co, the supplier, imports the goods into Australia. The supply is a taxable supply and NZ Co is liable to pay GST on that supply. [19]

The importation of the ice-cream maker by NZ Co is also a taxable importation. [20] GST is payable on the taxable importation by NZ Co. NZ Co is entitled to an input tax credit for the importation because it is a creditable importation of trading stock. [21]

If a supply of goods involves the goods being brought into Australia and the supplier installs or assembles the goods in Australia, this supply is treated as if there are two separate supplies. The characterisation of these two supplies is as follows: • the installation or assembly of the goods is a separate supply of services connected with Australia, and • the remainder of the supply is treated as if it were a separate supply of goods involving the goods being brought to Australia, but not involving the installation or assembly of the goods. [22]

However, where the supplier is a non-resident, the services component may be disconnected with Australia under section 9-26.

Ordinarily, a supply of goods that is delivered or made available in Australia is connected with Australia. This is the case even where the supply is made between two non-residents, neither of which makes the supply or acquisition in the course of an enterprise they carry on in Australia.

However, section 9-26 provides two exceptions to the connected with Australia rules in section 9-25(1) for supplies that involve a transfer of ownership of goods that are subject to a lease. [23] If these exceptions apply, the supply will not be connected with Australia.

The first exception relates to a supply of goods subject to a lease involving a transfer of ownership from one non-resident lessor to a new non-resident lessor. A supply of this kind is disconnected if: [24] • the supplier is a non-resident [25] • the supplier does not make the supply through an enterprise that they carry on in Australia [26] • the non-resident recipient (the new lessor) does not acquire the goods to any extent for the purpose of an enterprise they carry on in Australia • the goods were leased to an entity (the lessee) that made a taxable importation of the goods before the transfer of ownership occurred, and • after the supply is made, the goods continue to be leased to the lessee on substantially similar terms and conditions to those that operated under the lease before the transfer of ownership occurred.

The second exception relates to new lease arrangements that are entered into between the non-resident that acquired ownership of the goods and the entity that continues to lease the goods. The supply of goods by way of a lease between a new non-resident lessor and lessee is disconnected if: [27] • the supplier is a non-resident • the supplier does not make the supply through an enterprise that they carry on in Australia [28] • the goods were leased to an entity that made a taxable importation of the goods before the transfer of ownership occurred, and • the goods continue to be leased to the entity that made the taxable importation on substantially similar terms and conditions to those that operated under the lease before the transfer of ownership occurred.

Whether or not there is a continued lease of goods may depend on the contractual arrangements adopted by the parties.

The requirement that the goods continue to be leased on 'substantially similar' terms and conditions requires that the rights and obligations between the lessee and the new non-resident lessor to be on substantially similar terms and conditions as those that operated under the original lease. However, it is not necessary for the terms and conditions to be the same or identical. Some variations are permissible, including to account for the fact that the lessor of the goods has changed.

Additionally, it is open to the non-resident supplier (old lessor) and the recipient (new non-resident lessor), if registered, to utilise the voluntary reverse charge provisions in Division 83 for the supply of the transfer of the asset.

Singapore Co, a non-resident entity, leases an aircraft to North Australia Travel Pty Ltd for 10 years. Under the lease agreement the aircraft was made available in Singapore to North Australia Travel Pty Ltd and North Australia Travel Pty Ltd imported the aircraft into Australia. The importation was a taxable importation.

Five years into the 10 year lease, Singapore Co sells the aircraft to Ireland Co, another non-resident entity. Immediately after the sale, the existing lease is terminated and North Australia Travel Pty Ltd enters into a new lease of the aircraft from Ireland Co on substantially similar terms and conditions as were in their lease with Singapore Co.

Although the aircraft is made available to Ireland Co in Australia, the supply is disconnected with Australia under item 3 in the table of paragraph 9-26(1)(c) because: • Singapore Co is a non-resident • Singapore Co did not make the supply of the aircraft through an enterprise that it carries on in Australia • Singapore Co transferred the ownership of the leased aircraft to Ireland Co • Ireland Co is a non-resident • Ireland Co did not acquire the aircraft for the purposes of an enterprise that it carries on in Australia • North Australia Travel Pty Ltd made a taxable importation of the aircraft, and • North Australia Travel Pty Ltd continued to lease the aircraft from Ireland Co on substantially similar terms and conditions.

Ireland Co's supply of the aircraft by way of lease to North Australia Travel Pty Ltd is a new supply by way of lease. This supply is disconnected under item 4 in the table of paragraph 9-26(1)(c) because: • Ireland Co is a non-resident • Ireland Co does not make the supply of the aircraft by way of lease through an enterprise that it carries on in Australia [29] , and • North Australia Travel Pty Ltd made a taxable importation of the aircraft and continues to lease the aircraft on substantially similar terms and conditions from Ireland Co as it did with Singapore Co.

A common variation to the situation outlined in example 10 of this Ruling may involve a chain of leases. For example, the entity that makes a taxable importation of the aircraft (North Australia Pty Ltd) may sublease the aircraft from an interposed entity (possibly a finance company) that is in turn leasing it from the new owner (Ireland Co).

In this situation, the Commissioner accepts that the ownership supply is disconnected under item 3 in the table of paragraph 9-26(1)(c) provided that a taxable importation has occurred and the other requirements are satisfied. It does not matter that North Australia Pty Ltd is not party to any new lease with Ireland Co.

However, item 4 in the table of paragraph 9-26(1)(c) will not apply to the new supply by way of lease by Ireland Co to the interposed entity, as the recipient of the new lease is not the lessee referred to in item 3(b) in the table of paragraph 9-26(1)(c). In these cases the Division 83 'reverse charge' may be utilised.

This Ruling applies from its date of issue. However, paragraphs 42 to 57 of this Ruling apply in working out net amounts for tax periods starting on or after 1 October 2016.

Additionally, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10 Public Rulings ).

The following is a detailed contents list for this Ruling: Paragraph Summary - what this Ruling is about 1 Relevant provisions 4 Previous rulings 5 Ruling 6 Supplies of goods 6 Supplies of goods connected with Australia 8 Supplies of goods wholly within Australia 10 Example 1 - goods delivered in Australia 15 Example 2 - supplies of imported goods wholly within Australia 16 Example 3 - goods supplied outside Australia and imported by recipient - not connected with Australia 18 Example 4 - goods supplied by way of lease 21 Supplies of goods from Australia 22 Example 5 - goods removed from Australia 25 Example 6 - goods supplied by way of lease 28 Supplies of goods to Australia 30 Supplier as importer 32 Example 7 - goods imported into Australia by recipient 34 Example 8 - goods supplied by way of lease 36 Interaction of the GST concepts of taxable supply and taxable importation 38 Example 9 - supply of goods connected with Australia and taxable importation 39 Supplies of goods involving installation or assembly services 42 Exceptions to the connected with Australia rule for goods 44 Supply between non-residents of leased goods 46 Supply by way of continued lease of goods 47 Example 10 - supply of leased goods to a new non-resident lessor 51 Date of effect 58 Appendix 1 - Detailed contents list 60