Private ruling: supply of goods imported from overseas
Published: July 2012

Ruling: Q1: Do you make a taxable supply of goods to Australian customers? | A1: No you do not make a taxable supply of the goods to Australian customers.

Relevant facts and circumstances: You are an Australian company registered for GST in Australia. You have an online website where you conduct the sale of certain goods to customers in Australia. The goods come from D, an overseas company. D provides drop shipping and wholesale service for online retailers, resellers, wholesalers and distributors. You have provided a copy of the Sales Agency Agreement (agreement) between you and D. Sales agency arrangement (the agreement) Clause 1 provides that you agree to act as agent for the principal D and you will sell goods for D via a website in Australia on a commission percentage basis. Clause 2 provides that you will not be required to hold any product in your own right. Clause 4 provides that the price of the products will be set by D. Clause 5 provides that your advertised price to the end consumers is to be based on the predetermined price set by D plus a markup/commission for you. Clause 6 provides that when you find a customer (via your website), you will provide the customer's details to D so D can dispatch the product directly to the customer. Clause 9 provides that D will invoice you for the product price set by D. Once you pay D this amount, D agrees to send the product directly to your customer. Clause 13 and 14 provide that you are not required to provide a warranty to the customers for the products. D will offer a one year warranty to the customers for all products sold through you. Clause 15 provides that faulty goods should be returned by customers directly to D to resolve the problem. You state that you agree to purchase the goods from D for an agreed price when a buyer is found. You also refer us to your website to obtain a copy of the Terms and Conditions between you and your customers in Australia. Terms and Conditions between you and your customers in Australia Clause 1 provides the meaning of "goods" as any goods agreed in the accepted order form to be supplied by you to the buyer. Clause 14 provides that the price for the goods quoted on your website shall be exclusively of all costs of carriage and insurance and applicable import tax/GST and duty which the buyer shall pay in addition. For further information, you refer the buyer to the Australian Customs website. You provide that shipping and insurance costs are calculated at checkout. Clause 15 provides that for orders over $X AUD that are required to be imported, you will notify the buyer before shipment that the goods being imported will be subject to GST and/or duty. If the customer agrees to proceed and the order gets held up in Customs due to neglect of payment by the customer, you will contact the customer. Customs will only hold the shipment for up to 3 business days, so if no payment has been arranged with Customs by the customer in that time, the order will be returned to the sender. The customer will then be recharged for shipping duty and GST to receive the order on the second attempt. If the buyer does not agree to proceed upon receiving notice of GST/duty, a full refund will be issued for any deposit/payment made, and the order cancelled. Clause 16 provides that risk in the goods shall pass to the customer upon delivery. Ownership of the goods shall not pass to the customer until you have received full, cleared funds of the sum due to you for the goods, and all other sums which are due to you from the customers. Until ownership of the goods has passed to the customer, the customer shall hold the goods on a fiduciary basis as your bailee. Clause 18 provides that when the buyer orders goods from you, overseas delivery may be subject to import duty and taxes, which are levied once the package reaches destination. Any additional charges for Customs' clearance must be borne by the buyer, unless otherwise stated. Usually for orders totalling over $X AUD, the buyer will be subject to import duty and taxes. Invoices: · You have provided copies of two invoices. The first invoice was from D to you for a certain goods to be shipped to a customer in Australia at an agreed price. · The second invoice is dated on the same day from you to the customer for the same goods at a marked up price. You state that you will not request D to dispatch the goods from overseas until the customers have paid you full amount on the invoice you send to them. As soon as you receive the customer's payment, you send the agreed price to D. Then D will dispatch the goods to the customer in Australia. You also state that the customers import the goods into Australia and pay for all duties/tax at Customs.

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 9-25.

Reasons for decision: Summary: Where the goods are sold from D to you, there is effectively a transfer of ownership of the goods to you and the risk lies with you, even if the goods are not in your possession. There is a supply of goods from D to you and a supply of the same goods from you to your customers. Your customers import the goods into Australia when they make orders totalling over $X AUD. In addition, you sell finished goods, which does not involve your assembling or installing the goods in Australia. Your supply of goods is therefore not connected with Australia under paragraph 9-5(c) of the GST Act. Since section 9-5 of the GST Act is not satisfied, your supply of goods to Australian customers is not a taxable supply. | Detailed Reasoning - Detailed reasoning: First, it is necessary to examine the terms of the agreement between you and D and the Terms and Conditions between you and your customers in order to identify the relevant supply being made by each entity. Goods and Services Tax Ruling GSTR 2000/37 provides the view of the Australian Taxation Office (ATO) on agency relationships. Paragraph 30 of GSTR 2000/37 states: 30. Many intermediaries in commercial transactions are often described as 'agents', 'distributing agents', 'selling agents', 'marketing agents', 'sole agents' or 'exclusive agents'. Depending upon the terms of the arrangements the intermediary has with its suppliers, the intermediary could be acting as a buyer and a reseller rather than as an agent. It should be noted that when words such as agent/agency or consignment are used in a contract, the substance of the contract may not match up with the commercial law meaning of these words. Therefore, the word agent in a contract may only be indicative as to the relationship between the parties. Paragraphs 32 and 34 of GSTR 2000/37 state: 32. The relationship between the parties is determined by an examination of the particular facts surrounding relevant transactions. However, should there be any doubt about the position of the parties in a transaction, an agreement may contain descriptions that clarify the relationship. 34. A clause in an agreement which states that an agency relationship exists must be considered with all the other terms of the agreement. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole; the parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label…. Paragraph 28 of GSTR 2000/37 provides the factors that indicate an agency relationship and states: 28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative: · any description of you as an agent, having authority to act for another party, in an agreement(expressed or implied) between you and the other party; · any exercise of the authority that you are given to enter into legal relations with a third party; · whether you bear any significant commercial risk; · whether you act in your own name; · whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and · whether you decide the price of things that you might sell to third parties. You and D entered into the agreement for you to sell D's goods. You state that you sell the goods from D on a consignment basis. Clause 1 of your agreement provides that you agree to act as agent for the principal D and you will sell goods for D via a website in Australia on a commission percentage basis. | Detailed Reasoning - Consignment sale: The ATO has published a Tax Topic "GST & Consignment Sales". This Tax Topic is available on the ATO website www.ato.gov.au Tax topic "GST and consignment sales" states: | Detailed Reasoning - What is a consignment sale?: If you sell goods sold on consignment, you have agreed to sell the goods without first buying those goods from the owner. Typically, your agreement specifies one of the following: · you agree to sell the goods on behalf of the owner as an agent · you agree to purchase the goods for an agreed price when you find a buyer. | Detailed Reasoning - What goods are sold on consignment?: There are no restrictions on what goods can be sold on consignment. Goods regularly sold on consignment include motor vehicles, boats, wedding and formal dresses, cameras, farm machinery and artworks. Consignment sales often involve second hand-goods owned by people who are not registered for GST. | Detailed Reasoning - How does GST apply to goods sold on consignment?: The way GST applies to consignment sales you make depends on whether the sale is a 'sale or return' or an 'agency' sale. | Detailed Reasoning - 'Sale or return' sales: You are making a 'sale or return' sale when you purchase the goods from their owner when you find a buyer for those goods. This means you are selling the goods to the customer in your own right because you are purchasing the goods from the owner and selling them to the purchaser. If you make this type of sales and you are registered for GST, you are liable to pay GST on the full sale price of the goods. It is likely you are making 'sale or return' sales if any of the following apply: · the amount you pay to the owner when a buyer is found is agreed in advance. · any amount you receive from the buyer that is over the agreed amount you have to pay the owner is yours to keep · you set the sale price of the goods · you don't have to tell the owner of the goods the final selling price or details of how much profit you made on the sale · you have to provide a warranty on the goods · you have to guarantee title to the goods · you are prevented by a state law from selling goods as an agent - this is common in the motor vehicle industry · you do not bear any commercial risk; that is, if the goods are not sold, you don't have to purchase them. | Detailed Reasoning - Agency sales: You are making an agency sale when you sell consigned goods on behalf of the owner of the goods as their agent. Under these circumstances, you are not liable to pay GST to us on the sale; however, you must pay GST to us on the commission you receive. The owner of the goods is liable to pay GST on the sale if both of the following apply: · they are registered for GST · they make the sale in the course of running their business. If the owner is not registered for GST or is not selling the goods in the course of running a business and you are registered for GST, you must still pay GST to us on the commission you receive but the owner does not have to pay GST to us on the sale. It is likely you are making sales as an agent if any of the following apply: · you do not set the sale price of the goods · you receive either a flat rate or percentage commission on completion of the sale · you do not hold the goods out in your own right · you and the owner of the goods agree that you will act as an agent. You enter into an agreement with D. Clause 1 of the agreement provides that you agree to act as agent for the principal D and you will sell goods for D via a website in Australia on a commission percentage basis. Clause 2 of the agreement provides that you will not be required to hold any product in your own right. Clause 4 of your agreement provides that the price of the products will be set by D. Clause 5 of your agreement provides that your advertised price to the end consumers is to be based on the predetermined price set by D plus a markup/commission for you. You provide copies of two invoices. The first invoice was from D to you for a certain goods to be shipped to a customer in Australia at an agreed price. The second invoice is dated on the same day from you to the customer for the same goods at a marked up price. You state that you will not request D to dispatch the goods from Overseas until the customers have paid you full amount on the invoice you send to them. As soon as you receive the customer's payment you send the agreed price to D. Then D will dispatch the goods to the customer in Australia. We accept that it is D who sets the price of the goods you sell to your customers. You contend that you are an agent because you do not provide a warranty for the goods; it is D which provides one year warranty for the goods. In addition, you never hold the goods in physical possession at any time, because D sends the goods directly to the customer. However, clause 9 of the agreement stipulates that D will invoice you for the goods and you will pay D for the goods before D agrees to send the goods to your customer, whom you find through your website. Likewise, you state that you agree to buy the goods from D once you find a customer for the goods from your website. In addition, the two invoices show that D invoices you for the goods, and you invoice your customer for the same goods on the same day. It appears you are selling the goods to the customer in your own right. To do this, you acquire title to those goods at the time that you make the sale. You are making an acquisition of the goods from D at the same time as you are making a supply of the same goods to your customers. Where the goods are sold from D to you, there is effectively a transfer of ownership of the goods to you and the risk lies with you, even if the goods are not in your possession. There is a supply of goods from D to you and a supply of the same goods from you to your customers. Therefore, it is considered that the sale of goods in your agreement with D is a sale or return arrangement and not an agency arrangement. The mark up between the agreed price you paid to D and the price you charge your customers in Australia is not your commission from D. It forms part of your sale price, that is, part of the consideration for your supply of goods to the Australian customers. | Detailed Reasoning - Your supply of the goods to the customers in Australia:: A supply will be a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 (* denotes a defined term under section 195-1 of the GST Act) Your supply satisfies the requirements under paragraphs 9-5(a), 9-5(b) and 9-5(d) of the GST Act as your supply of goods to customers is for consideration and the supply is made in the course of an enterprise that you carry on; and you are registered for GST in Australia. | Detailed Reasoning - Paragraph 9-5(c) of the GST Act: is your supply of goods connected with Australia?: Subsections 9-25(1), (2) and (3) of the GST Act state as follows: Supplies connected with Australia | Detailed Reasoning - Supplies of goods wholly within Australia: (1) A supply of goods is connected with Australia if the goods are delivered, or made available, in Australia to the *recipient of the supply. Supplies of goods from Australia (2) A supply of goods that involves the goods being removed from Australia is connected with Australia. | Detailed Reasoning - Supplies of goods to Australia: A supply of goods that involves the goods being brought to Australia is connected with Australia if the supplier either: (a) imports the goods into Australia; or (b) installs or assembles the goods in Australia. Paragraphs 118, 119, 120, 129 and 130 of Goods and Services Tax Ruling GSTR 2000/31 state as follows: 118. In the context of subsection 9-25(1) the phrase 'delivered, or made available' takes the meaning that the goods are either physically delivered, or if not physically delivered, physically made available in Australia. 119. 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. For example, a supplier may make goods available for collection by the recipient. This is the case where a supplier of sand sells a load of sand to a customer and the customer takes away the sand which the supplier makes available. 120. Thus, goods are 'delivered' in Australia if the goods are actually physically delivered in Australia. Goods are made available in Australia if the goods are physically available for the recipient in Australia. Both 'delivered' and 'made available' look at the place where the physical goods are at the relevant time. 129. A supply of goods that involves the recipient importing the goods into Australia is not connected with Australia under subsection 9-25(1) as the goods are not delivered, or made available, in Australia to the recipient of the supply. Also, the supply of goods is not connected with Australia under paragraph 9-25(3)(a) because the supplier does not import the goods. However, the recipient importer will make a taxable importation. | Detailed Reasoning - Example 8 - Goods supplied by resident supplier and imported by resident recipient: 130. Joe decides to fit his car with specialised seat covers. He approaches Seat Co in Sydney to supply the seat covers. However, the seat covers have to be imported from Italy. Under the arrangements with Seat Co, Joe imports the seat covers into Australia and pays Seat Co for the goods once the seat covers are cleared through Customs. The supply of goods, specialised seat covers by Seatco to Joe, is not connected with Australia because the goods are not delivered, or made available to Joe, in Australia. However, Joe makes a taxable importation upon which GST is payable. Clause 16 of the Terms and Conditions between you and your customers in Australia provides that risk in the goods shall pass to the customer upon delivery. Ownership of the goods shall not pass to the customer until you have received full, cleared funds of the sum due to you for the goods, and all other sums which are due to you from the customers. You state that customers have to pay you in full for the price of the goods before you request D to dispatch the goods. Therefore at the delivery time, the title of the goods would have passed to your customers. You also state that the customers import the goods into Australia when they make orders totalling over $X AUD. In addition, you sell finished goods, which does not involve your assembling or installing the goods in Australia. Your supply of goods is therefore not connected with Australia under paragraph 9-5(c) of the GST Act. Hence section 9-5 of the GST Act is not satisfied and your supply is not a taxable supply.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.