ATO ID 2007/169: GST and the supply of services for the construction of plant on an oil rig in the Joint Petroleum Development Area
Date of decision: 16 August 2007
Business line: Indirect Tax

Issue
Is the entity, a supplier of services, making a GST-free supply under item 1 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies services for the construction of plant on an oil rig in the Joint Petroleum Development Area (JPDA)?

Decision
Yes, the entity is making a GST-free supply under item 1 in the table in subsection 38-190(1) of the GST Act (Item 1) when it supplies services for the construction of plant on an oil rig in the JPDA.

Facts
The entity is a supplier of services. The entity supplies services for the construction of plant on an oil rig in the JPDA. The JPDA is a specified area in the Timor Sea between Australia and East Timor. Australia and East Timor signed a treaty (the Timor Sea Treaty [2003]), in relation to the JPDA, to jointly control, manage and facilitate the exploration, development and exploitation of the petroleum resources of the specified area. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Under section 38-190 of the GST Act, certain supplies, other than goods or real property for consumption outside of Australia, are GST-free. As the entity's supply of services is not a supply of goods or real property, its GST status is appropriately considered under section 38-190 of the GST Act. Item 1 in the table in subsection 38-190(1) of the GST Act provides that a supply is GST-free where the supply is directly connected with goods or real property situated outside Australia. As the entity supplies services for the construction of plant on an oil rig in the JPDA, its supply is directly connected with goods. Therefore, if the oil rig in the JPDA is situated outside of Australia, the supply satisfies the requirements of Item 1 in the table in subsection 38-190(1) of the GST Act and is GST-free. 'Australia', as defined in section 195-1 of the GST Act, does not include any external territory, but includes an installation that is deemed by section 5C of the Customs Act 1901 to be part of Australia. For the following reasons the JPDA is not deemed to be part of Australia. Subject to subsections 5C(2) and 5C(3) of the Customs Act, subsection 5C(1) of the Customs Act provides that the following installations are deemed to be part of Australia: There are two aspects of paragraph 5C(1)(a) of the Customs Act that need to be considered: what is a resource installation and what is the area the Australian seabed covers. In the Customs Act, a 'resources installation' is either a resources industry fixed structure within the meaning of subsection 4(5) of the Customs Act or a resources industry mobile unit within the meaning of subsection 4(6) of the Customs Act. Many oil rigs will be a resources installation so that in this case this aspect would be satisfied. Subsection 4(1) of the Customs Act defines the area that is considered to be 'Australian seabed'. However it specifically states that the seabed to which it applies is seabed 'other than the seabed within the JPDA'. As such, the oil rig that is a resources installation in the JPDA is a resources installation that is not attached to the Australian seabed and so not deemed to be part of Australia. Accordingly, paragraph 5C(1)(a) of the Customs Act is not satisfied and therefore paragraph 5C(1)(b) of the Customs Act needs to be considered. Under subsection 4(1) of the Customs Act, '"sea installation" has the same meaning as in the Sea Installations Act 1987 '. Under subsection 4(1) of the Sea Installations Act the term "sea installation" is explained to include certain structures but to not include certain other structures, units, vessels and so on. Two of the exclusions mentioned in subsection 4(1) of the Sea Installations Act, ...(k) a resources industry fixed structure;... and ...(m) a resources industry mobile unit... are explained in subsections 4(2) and 4(3), respectively, of that Act. As the oil rig falls within one of these exclusions, it is not a sea installation. This means that the definition in paragraph 5C(1)(b) of the Customs Act is not applicable to such an oil rig and that the oil rig is not deemed to be part of Australia. For the purposes of the Customs Act, the oil rig in the JPDA is not deemed to be part of Australia. Therefore, the entity's supply of services for the construction of plant on such an oil rig in the JPDA is directly connected with goods situated outside Australia and the entity is making a GST-free supply under Item 1 in the table in subsection 38-190(1) of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 38-190 subsection 38-190(1) table item 1 section 195-1
Subject references: Connected with Australia Consumption outside Australia Goods and services tax GST free GST international services Supplies used or enjoyed outside Australia Supply directly connected with goods or real property situated outside Australia