Private ruling: GST and cruises outside Australia
Published: April 2013

Ruling: Q1: Is the supply by ABC Co of the transport of a passenger on a cruise from one place in Australia to another place in Australia partly GST-free, where the ship does not stop or lay anchor at a destination or port outside Australia? | A1: Yes the supply by ABC Co of the transport of a passenger on a cruise from one place in Australia to another place in Australia is partly GST-free where the ship does not stop or lay anchor at a destination or port outside Australia

Relevant facts and circumstances: ABC Co is a company group and operates under a listed company structure. ABC Co's portfolio of brands is operated by a number of group subsidiary entities (vessel operators), which sell tickets to passengers embarking in Australia. All the vessel operators are non-residents of Australia and are registered for GST. All vessels are owned and registered outside Australia. ABC Co has established an Australian branch that performs sales, operational and administrative functions ancillary to its operation of overseas vessels. The vessel operators predominantly provide international cruises with destinations outside Australia. However, in recent times there has been increasing interest, by passengers who either have limited time or seek an introduction to blue water cruising, in shorter itineraries outside Australia which do not involve calling at a foreign destination or port. ABC Co's itineraries have been expanded in response to this demand. In relation to the cruises that are the subject of the ruling request the vessel operated by ABC Co: · starts the cruise and ends the cruise at a port located in Australia; · travels for a significant or predominant portion of the total voyage (having regard to the distance travelled) in international waters outside Australia; · does not stop or lay anchor at any destination or port outside Australia's 12 nautical mile limit (i.e. 12 nautical miles beyond the territorial sea baseline of Australian land masses); and · may or may not stop at one or more other Australian ports during the voyage. ABC Co referred to item 3 in subsection 38-190(1) and submitted that each cruise which was the subject of the ruling request had a taxable component (to the extent that the cruise is within 12 nautical miles of the baseline of the territorial sea) and a GST-free component (to the extent that the cruise is outside 12 nautical miles of the baseline of the territorial sea). ABC Co submitted that the supply of such a cruise is a mixed supply which should be apportioned on a fair and reasonable basis. ABC Co submitted that section 38-355 does not apply to the supply of transport of a passenger on a cruise from one port in Australia to another port in Australia and which does not stop or lay anchor at a place outside Australia. ABC Co advised that it had treated supplies of such cruises made on or before Month 20YY as wholly taxable and had treated supplies of such cruises made on or after Month 20XX as X% taxable and Y% GST-free as an interim and conservative position, subject to determining a more fair and reasonable basis of apportionment once the ATO confirmed that supplies of the cruises are mixed supplies.

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 Subsection 38-190(1). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(2) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(2A) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(4). | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-355(1). | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: Item 1 and item 4 of subsection 355(1) of the GST Act do not apply to the supply by ABC Co to a passenger of a cruise from one place in Australia to another place in Australia. Such a supply is GST-free pursuant to item 3 in subsection 38-190(1) of the GST Act to the extent that the vessel is more than 12 nautical miles from the relevant territorial sea baseline. Subsections 38-190(2), (2A) and (3) do not apply. Based on the information provided in the ruling request it appears that the supply of such a cruise by ABC Co is a mixed supply. | Detailed Reasoning - Detailed reasoning: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the requirements of a taxable supply and it 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 for GST. 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 supply of a cruise by ABC Co to a passenger in the circumstances described in the ruling request satisfies the requirements of paragraphs 9-5(a), 9-5(b) 9-5(c) and 9-5(d) of the GST Act as: · the supply is made for consideration; · the supply is made in the course of the enterprise carried on by the supplier; · the supply is connected with Australia as it is done in Australia or through an enterprise carried on in Australia; and · the supplier is registered for GST. The supply of such a cruise is not input taxed under the GST Act or under any other Act. Therefore, what is left to determine is whether such a supply is GST-free. Subsection 38-355(1) Section 38-355 of the GST Act sets out two defined circumstances in which a supply of transport of passengers by sea may be GST free: | Detailed Reasoning - 38-355 Supplies of transport and related matters: (1) The third column of this table sets out supplies that are GST-free. | Detailed Reasoning - These supplies are GST-free: 1 Transport of passengers to, from or outside Australia the transport of a passenger: (a) from the last place of departure in Australia to a destination outside Australia; or (b) from a place outside Australia to the first place of arrival in Australia; or (c) from a place outside Australia to the same or another place outside Australia. 4 Transport of passengers on domestic legs of international sea voyages the transport of a passenger within Australia by sea, but only if: (a) the transport is part of a journey by sea from Australia to a destination outside Australia, or from a destination outside Australia to Australia; and (b) the transport is provided by the supplier who transports the passenger to or from Australia. For the purpose of making the supply which is the subject of the ruling request ABC Co's vessel departs from a port in Australia, does not stop or lay anchor at any place outside Australia, and may visit one or more other ports in Australia. Item 1(a) in subsection 38-355(1) refers to the transport of a passenger from the last place of departure in Australia, but requires that that transport is to a destination outside Australia. Similarly, item 4 refers to the transport of a passenger in Australia by sea, but only where the transport is part of a sea journey either from Australia to a destination outside Australia or from a destination outside Australia to Australia. Goods and Services Tax Ruling GSTR 2003/4 discusses whether ship's stores are supplied for use, consumption or sale on a ship on a voyage that has a 'destination outside Australia' for the purposes of item 5 in subsection 38-185(1) of the GST Act. GSTR 2003/4 states: 16. To be GST-free, the stores or spare parts must be supplied for a flight or voyage which has a destination outside Australia (that is, an international flight or voyage). An international flight or voyage may include a journey between places in Australia. 17. Destination means the predetermined end to a journey or voyage. For a voyage or flight to have a destination outside Australia, it must be intended that a ship 'lay anchor', or an aircraft land, at a predetermined location outside Australia. It is not enough for a ship to simply pass through international waters, or for an aircraft to merely fly through international air space. 18. A journey between places in Australia may form part of, or be a component of, an international flight of voyage. However, a journey between places in Australia is not part of an international flight or voyage if that journey is identifiable as a distinct and separate flight or voyage from the international flight or voyage. The first sentence in paragraph 17 of GSTR 2003/4 refers to the definition of 'destination' as the predetermined end to a voyage. The predetermined end of each cruise which is the subject of the ruling request is a port in Australia. The second sentence in paragraph 17 of GSTR 2003/4 states that a voyage has a 'destination outside Australia' if it is intended that the ship lays anchor at a predetermined location outside Australia. In respect of each cruise which is the subject of the ruling request it is not intended that the ship stop or lay anchor at any place or port which is outside Australia. Consequently neither item 1 nor item 4 in subsection 38-355(1) of the GST Act applies to the supply made by ABC Co. We therefore agree with the submission made in the ruling request that that section 38-355 does not apply to the supply of transport of a passenger on a cruise from one port in Australia to another port in Australia and which does not stop or lay anchor at a place outside Australia. Item 3 in subsection 38-190(1) In the ruling request it was submitted that a component of the supply made by ABC Co to a passenger was GST-free pursuant to item 3 in the table in subsection 38-190(1) of the GST Act (item 3): 38-190 Supplies of things, other than goods or real property, for consumption outside Australia (1) The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or *real property): | Detailed Reasoning - These supplies are GST-free (except to the extent that they are supplies of goods or *real property) ...: 3 Supplies used or enjoyed outside Australia a supply: (a) that is made to a *recipient who is not in Australia when the thing supplied is done; and (b) the effective use or enjoyment of which takes place outside Australia; other than a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply directly connected with real property situated in Australia. Paragraph (a) of item 3 Paragraph (a) of item 3 requires that the supply of things other than goods or real property is made to a recipient who is not in Australia when the thing supplied is done. Goods and Services Tax Ruling GSTR 2004/7 states (Para 181) that this requirement is in effect a proxy test for determining where the supply is consumed. The presumption is that if the recipient of the supply is 'not in Australia' when the thing supplied is done, the supply of that thing is for consumption outside Australia and is GST-free, provided the other requirements of item 3 are met. It is not a requirement of item 3 that the recipient is a non-resident entity. 'Recipient' is defined in section 195-1 of the GST Act to mean, in relation to a supply, the entity to which the supply is made. An entity is defined in subsection 184-1(1) to include an 'individual' and 'individual' is defined in section 195-1 to mean a natural person. For the purposes of item 3 it is also necessary to determine when the thing supplied is 'done'. GSTR 2004/7 states (Para 199) that if the thing supplied is a service, 'the thing supplied is done' during the period of time when the service is performed. We consider the supply of a cruise to be the supply of a service and that that supply is 'done' during the period for which the cruise lasts. 'Australia' is defined in section 195-1 of the GST Act as follows: Australia does not include any external Territory. However, it includes an installation (within the meaning of the Customs Act 1901) that is deemed by section 5C of the Customs Act 1901 to be part of Australia. 'External territory' is not defined in the GST Act, but is defined in section 2B of the Acts Interpretation Act 1901 (AIA) as a Territory, other than an internal Territory where an Act makes provision for the government of the Territory as a Territory. Christmas Island, Cocos (Keeling) Islands and Norfolk Island are external Territories. 'Internal Territory' is defined in section 2B of the AIA as the Australian Capital Territory, the Northern Territory, and the Jervis Bay Territory. Section 2B of the AIA also defines 'Australia' to mean the Commonwealth of Australia and, when used in a geographical sense, includes the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands, but does not include any other external Territory, but the specific definition of 'Australia' in section 195-1 of the GST Act (which does not include an external Territory) would prevail for GST purposes. Subsection 15B(2) of the AIA states that a reference in an Act to Australia is taken to include a reference to the coastal sea of Australia and paragraph 15B(4)(a) of the AIA defines 'coastal sea' in relation to Australia as the territorial sea of Australia, the sea on the landward side of the territorial sea of Australia and not within the limits of a State or internal Territory and includes the airspace over and the sea bed and subsoil beneath any such sea. Article 3 in Part II of the United Nations Convention on the Law of the Sea (Convention) grants every State the right to establish the breadth of its territorial sea up to a limit not exceeding 12 nautical miles measured from baselines determined in accordance with the Convention. Section 6 of the Seas and Submerged Lands (Territorial Sea Baseline) Proclamation 2006 (Proclamation), made pursuant to section 7 of the Seas and Submerged Lands Act 1973 , sets the baseline around mainland Australia from which the breadth of the territorial sea is to be measured as the low-water mark on the coast. Section 7 of the Proclamation sets a similar baseline for Tasmania. Goods and Services Tax Ruling GSTR 2003/4 refers to the definition of 'Australia' in section 195-1 of the GST Act and summarises the effect of the provisions discussed above (Para 50): Australia therefore includes the entire land territory of Australia, and Australia's coastal areas and sea bed, but not any external Territories, such as Norfolk Island, Christmas Island or the Australian Antarctic Territory. Under section 5C of the Customs Act, Australia also includes sea and resources installations (such as oil or gas rigs) that are attached to the sea bed within the territorial boundaries of Australia, or to an adjacent area or coastal area as defined in that Act. The description of the cruise in the ruling request requires the vessel to depart a port located in Australia, travel in international waters outside Australia, and possibly stop at one or more ports in Australia before ending the cruise at a port located in Australia. To the extent that, during such a cruise, the ship is more than 12 nautical miles from the relevant territorial sea baseline, the ship is not in Australia. To the extent that, during such a cruise, the ship is 12 nautical miles or less from the relevant territorial sea baseline, the ship is in Australia. GSTR 2004/7 discusses how to determine whether a recipient of the relevant supply who is an individual is 'in Australia' for the purposes of item 3 in subsection 38-190(1) (Para 221): Item 3 requires that the individual to whom a supply is made is not in Australia when the thing supplied is done and, as explained at paragraphs 202 to 213 in relation to item 2 and paragraph (b) of item 4, we consider that the physical presence of an individual establishes whether that individual is in Australia when the thing supplied is done. However, unlike item 2, item 3 may apply whether the recipient of the supply is a resident of Australia or a non-resident. GSTR 2004/7 also states (Para 222) that an Australian resident individual (i.e. an individual who is a resident of Australia as defined in subsection 6(1) of the Income Tax Assessment Act 1936 , i.e. an individual who resides in Australia, including a person whose domicile is in Australia (unless the Commissioner is satisfied that his permanent place of abode is outside Australia)) is 'in Australia' for the purposes of item 3 if the individual is physically located in Australia when the thing supplied is done. GSTR 2004/7 further states (Para 224) that if a supply is made to a non-resident individual who is physically in Australia when the thing supplied is done, the non-resident individual is 'in Australia' for the purposes of paragraph (a) of item 3 if the non-resident individual is in Australia in relation to that supply. Applying the tests set out in GSTR 2004/7 (Paras 214-220) for whether an individual is in Australia in relation to a supply (i.e. whether the non-resident individuals' presence in Australia at the relevant time is merely coincidental and whether there is any contact (other than contact of a minor nature) with the supplier), we consider that the presence in Australia of a non-resident recipient of a supply of a cruise would be in relation to the supply of that cruise. We therefore consider that, for the purposes of paragraph (a) in item 3, the supply of a cruise which is the subject of the ruling request is made to a resident or non-resident recipient who is not in Australia when the thing supplied is done to the extent that the relevant ship is more than 12 nautical miles from the relevant territorial sea baseline during that cruise. Paragraph (b) of item 3 Paragraph (b) of item 3 in subsection 38-190(1) requires that the effective use or enjoyment of the supply of things other than goods or real property takes place outside Australia. Goods and Services Tax Ruling GSTR 2007/2 deals with the application of paragraph (b) of item 3. For the purposes of determining where the effective use or enjoyment of a supply takes place GSTR 2007/2 distinguishes (Paras 38-42) between: the entity to which a supply is made contractually (the recipient); and the entity to which that supply is actually provided (the providee entity) and acknowledges that a supply may be made to one entity and provided to another entity. GSTR 2007/2 then sets out the method for determining whether effective use or enjoyment of a supply takes place outside Australia (Para 49): Thus to work out whether effective use or enjoyment of a supply takes place outside Australia we take a two step approach. First, we determine the entity to which the supply is provided - the providee entity (we explain how to determine this at paragraphs 52 to 81). We then determine whether provision of the supply to the providee entity is outside Australia (we explain how to determine this at paragraphs 82 to 136). Effective use or enjoyment of the supply takes place outside Australia if there is provision of the supply to the providee entity outside Australia. For the purposes of the first step, GSTR 2007/2 identifies the providee entity by distinguishing between the contractual flow and the actual flow of the relevant supply (Para 55): For example, if a supply of entertainment services is made to a recipient that is a company and in the performance of that service the employees are the entities that are entertained, the actual flow of that service is to another entity, each employee. The supply is made to the non-resident employer company and provided to another entity, each employee (thus each employee is a providee). Applying that example to the present case, we consider that the actual flow of the supply of a cruise by ABC Co is to each passenger on board the relevant vessel. The ABC Co brochure requires the person who books and pays for a cruise to provide the full name and gender for each passenger and includes certain Terms and Conditions. These Terms and Conditions indicate that ABC Co makes a supply of a cruise contractually to the person who books and pays for the cruise (the recipient). However, as the supply of that cruise may be provided to another person either in addition to or instead of the recipient (i.e. 'all passengers on the booking'), ABC Co requires the recipient to accept the Terms and Conditions on behalf of that other person. In our view each 'passenger on the booking' (as described in the Terms and Conditions) is the providee entity which has the effective use and enjoyment of the supply of the cruise made by ABC Co for the purposes of the first step in paragraph 49 of GSTR 2007/2. The second step in paragraph 49 of GSTR 2007/2 is to determine where provision of the supply made by ABC Co to the providee entity takes place. GSTR 2007/2 states (Para 88): A supply is provided as and when the thing supplied is done. This is the relevant time for determining whether a supply is provided to an entity in Australia or outside Australia and thus whether effective use or enjoyment of the supply takes place outside Australia. and (Para 91): To determine whether effective use or enjoyment of a supply by a providee that is an individual takes place outside Australia, we determine whether there is provision of the supply to the individual in Australia or outside Australia. Only if there is provision of the supply to the individual outside Australia does effective use or enjoyment take place outside Australia. Where the providee entity is an individual, the place where effective use or enjoyment takes place is determined by both where that individual is physically located and whether that individual's presence is integral to the provision of the supply. GSTR 2007/2 states (Para 295) that one indicator that an individual's presence at a particular location is integral to the provision of a supply is that the individual's presence at that location is integral to the performance, receipt, or delivery of the supply, and provides the following example: | Detailed Reasoning - Example 8 - supply of face to face training and entertainment provided to a non-resident employee of a non-resident company: 325. A non-resident US company contracts with an Australian firm to provide training to its employee, Kris (also a non-resident). Kris is required to attend the training in Melbourne. As Kris is in Australia over a weekend the company also purchases tickets for Kris to attend a football game and to take a bus tour of the Great Ocean road. 326. The non-resident company does not carry on business in Australia through a place of its own or through an agent. Paragraph (a) of item 3 327. Each of the supplies mentioned (that is, the training, the football game and the bus tour) are made to the non-resident company that is not in Australia in relation to the supply when the thing supplied is done. Each supply therefore satisfies paragraph (a) of item 3. Paragraph (b) of item 3 328. With respect to the training, what is being supplied is the teaching and tutoring of Kris. It is in the nature of such training services that it is Kris who is trained, not her employer, and it is therefore Kris who is provided with the training. Similarly with the supply of the football game and the bus tour, it is Kris that travels and is entertained, respectively. These services are of a kind that can only be provided to the individual, Kris. The flow of the actual services of training, travel and entertainment is to Kris and not to her non-resident employer. Each supply is therefore provided to Kris. 329. The contract with the supplier of the training course requires Kris to attend the training course in Melbourne. As Kris' presence in Australia is integral to her receiving the training, the supply is provided to Kris in Australia. Similarly Kris' presence in Australia is integral to partaking of the football game and undertaking the bus tour. Each supply is therefore provided to Kris in Australia and effective use or enjoyment of each supply does not take place outside Australia. Paragraph (b) of item 3 is not satisfied with respect to any supply and therefore the supplies of training, football game and bus tour are not GST-free under item 3. In the case of a cruise which is the subject of the ruling request it is in the nature of what is being supplied by ABC Co that that supply is provided to each passenger and the passenger's presence on board the relevant ship is integral to the performance, receipt and delivery of that supply. Consequently, applying the Ruling section of GSTR 2007/2, paragraph (b) of item 3 is or is not satisfied in relation to the supply of a cruise by ABC Co to a providee entity (passenger) as follows: GSTR 2007/2 states (Paras 93-94) that where the providee entity is an individual who is an Australian resident and is physically in Australia when the thing supplied is done, the effective use or enjoyment does not take place outside Australia and paragraph 3(b) of item 3 is not satisfied. GSTR 2007/2 also states (Paras 95-96) that where the providee entity is an individual who is an Australian resident who is not physically in Australia when the thing supplied is done and the individual's presence outside Australia is integral to the provision of the supply then the effective use or enjoyment of the supply takes place outside Australia and paragraph (b) of item 3 is satisfied. GSTR 2007/2 further states (Paras 99-100) that where the providee entity is not an Australian resident and is not physically in Australia when the thing supplied by ABC Co is done the effective use and enjoyment of the supply takes place outside Australia and paragraph (b) of item 3 is satisfied. GSTR 2007/2 also states (Paras 101-102) that where the providee entity is not an Australian resident but is physically in Australia when the thing supplied by ABC Co is done, the effective use or enjoyment of that supply takes place in Australia because the presence in Australia of the providee entity is integral to the provision of the supply. Other than a supply of work physically performed on goods or directly connected with real property situated in Australia Item 3 in subsection 38-190(1) also requires that the supply is not a supply of work physically performed on goods situated in Australia when the thing supplied is done, or a supply that is directly connected with real property situated in Australia. We do not consider that ABC Co makes a supply that is directly connected with real property in Australia. Although the ABC Co brochure indicates that the ship operator has physical premises in Australia, we do not consider that the supply of a cruise is directly connected with those premises. Goods and Services Tax Ruling GSTR 2003/7 states (Para 55): A supplier may use goods or real property as inputs in making a supply. However, that use does not make that supply directly connected with the goods or real property used. A direct connection between a supply and goods or real property does not extend to a connection between the supply and the business infrastructure used by the supplier to make that supply. Nor do we consider that ABC Co makes a supply of work physically performed on goods situated in Australia when the thing supplied is done as there is no physical intervention with any goods. GSTR 2003/7 states (Paras 56-58): The Indirect Tax Legislation Amendment Act 2000 amended items 2 and 3, changing the words 'a supply directly connected with goods' to 'a supply of work physically performed on goods'. The Explanatory Memorandum for the amending Bill indicates that the amendment was made to 'allow a wider range of services to be GST-free'. This has been achieved by narrowing the scope of the exception to the GST-free status provided by item 2 paragraph (a) and item 3. The range of supplies that are directly connected with goods includes supplies of work physically performed on goods. That is, a supply of work physically performed on goods is always directly connected with goods. However, not all supplies directly connected with goods are also supplies of work physically performed on goods. A supply of work physically performed on goods requires a much closer connection with the goods: it requires a physical intervention with the goods. For example, a supply of legal services in preparing an agreement for the lease of goods is directly connected with goods but it is not a supply of work physically performed on goods as there is no physical intervention with the goods. A supply is a supply of work physically performed on goods where something is done deliberately to the goods to change them or to otherwise affect them in some physical way. The repair of goods is an example of work that is physically performed on goods. Subsections 39-190(2), (2A) and (4) Subsection 38-190(2) states that a supply covered by any of items 1 to 5 in the table in subsection 38-190(1) is not GST-free if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free. Goods and Services Tax Ruling GSTR 2003/8 explains subsection 38-190(2) as follows (Paras 143-144): Subsection 38-190(2) is designed to ensure that the supply of a right or option is not GST-free if the right or option can be redeemed for the supply of something else, the supply of which would be a taxable supply. A supply to which subsection 38-190(2) applies is not GST-free even if item 4 or another item in the table in subsection 38190(1) would otherwise apply. Without subsection 38-190(2), the supply of a thing that is connected with Australia, and not otherwise GST-free, could occur without GST being payable, if all of the consideration were to be provided for the granting of a right or option to acquire the thing, notwithstanding that when the thing itself is supplied it may be consumed in Australia. We do not consider that the supply made by ABC Co to a passenger is the supply of a right or option as envisaged by subsection 38-190(2). The Consolidated Explanatory Memorandum to the GST Act provides the following example of a supply to which subsection 38-190(2) applies (Para 5.90): An Australian based hotel chain supplies rights to accommodation in Australian hotels to a New Zealand travel agency. The travel agency supplies accommodation vouchers to New Zealand tourists who may use the vouchers to obtain accommodation at the Australian hotels. The supply of the accommodation to the tourists is a supply that is connected with Australia. See 3.11 the supply to the travel agency of the rights to the accommodation is therefore not GST-free. Goods and Services Tax Ruling GSTR 2003/8 provides another example of the type of supply covered by subsection 38-190(2) (Para 149): An Australian company grants an option to acquire equipment in Australia to a non-resident company that is not in Australia when the grant occurs. There are within the one contract both the creation of the contractual right to acquire the equipment and the entry into the contractual obligation to supply the equipment (if the option is exercised). The supply of the option is the substance of the supply. Subsection 38-190(2) ensures that the supply of the right to acquire the equipment is excluded from GST-free status under any of the items in the table in subsection 38-190(1), as the supply of the equipment would be connected with Australia and would not be GST-free. The Terms and Conditions in the ABC Co brochure indicate that the substance of the transaction is the supply of a cruise, not the supply of either a transferable right of the type referred to in the Explanatory Memorandum or an option of the type referred to in GSTR 2003/8. Subsection 38-190(2A) states that a supply covered by any of items 2 to 4 in the table in subsection 38-190(1) is not GST-free if the acquisition of the supply relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be, wholly or partly, input taxed. We do not consider that subsection 38-190(2A) applies to the supply made by ABC Co. Subsection 38-190(4) of the GST Act extends the scope of item 3. Subsection 38-190(4) states that a supply to a recipient who is in Australia in relation to the supply is taken for the purposes of item 3, to be a supply made to a recipient who is not in Australia if: the supply is made under an agreement entered into, whether directly or indirectly, with an Australian resident; and the supply is provided, or the agreement requires it to be provided, to another entity outside Australia. GSTR 2004/7 states (Para 188) that an agreement is entered into directly with an Australian resident if the parties to the agreement are an Australian resident and the supplier and (Para 193) the expression 'provided to another entity' seeks to identify the entity to whom the supply actually flows. GSTR 2004/7 explains the operation of subsection 38-190(4) as follows (Para 197): Subsection 38-190(4) recognises that a supply under an agreement with an Australia resident may be provided, or be required by an agreement to be provided, to another entity. If that other entity is located outside Australia, subsection 38-190(4) requires the location test in paragraph (a) of item 3 to take account of the location of that other entity. If the supply is made under an agreement with an Australian resident but the thing supplied is provided, or the agreement requires it to be provided to another entity located outside Australia, subsection 38-190(4) of the GST Act applies and the 'not in Australia' requirement in item 3 is satisfied. GSTR 2004/7 provides the following example (Para 196): BrisAir Pty Ltd, a Brisbane based airline, enters into an agreement with Australian Hospitality Training ('AHT') to have its employees attend a training course conducted by AHT in Fiji. Subsection 38-190(4) applies to treat BrisAir as not in Australia in relation to the supply when the training services are performed as, under the agreement with AHT, the training is provided to another entity, the employee, outside Australia. In the present case subsection 38-190(4) would apply to the extent that a cruise booking was made by an Australian resident who was not a passenger on that booking to the extent that, pursuant to the Terms and Conditions, ABC Co is required to supply the cruise to a passenger on that booking more than 12 nautical miles from the relevant territorial sea baseline. | Detailed Reasoning - Apportionment: GSTR 2004/7 states that section 9-5 of the GST Act creates a general apportionment rule for GST as section 9-5 states that a supply is taxable except to the extent that it is GST-free or input taxed. In relation to item 3 GSTR 2004/7 states (Paras 442, 445-446): The need to apportion in the context of items 2 and 3 arises if the thing supplied is done over a period of time. For example, apportionment is necessary if the recipient of a supply of services is in Australia in relation to the supply for part of the time over which the services are performed. That part of the supply that is done when the recipient is in Australia in relation to the supply is the taxable part of the supply. That part of the supply that is done when the recipient is not in Australia in relation to the supply is the GST-free part of the supply, provided the other requirements of the item are met. … If a supply is partly GST-free and partly taxable under item 2 or item 3 because the recipient of the supply is in Australia in relation to the supply for part of the time when the thing supplied is done, the supplier is required to apportion the consideration between the GST-free and taxable parts of the supply. To work out the value of the taxable part of the supply, the consideration has to be apportioned to each of the parts to find the consideration for the taxable part. The supplier can use any reasonable method that is supportable in the particular circumstances to apportion the consideration. The supplier should keep records that explain the method used. ABC Co advised that from Month 20XX, it treated the cruises that are the subject of the ruling request as X% taxable and Y% GST-free and that ABC Co would apportion those supplies on a more reasonable basis once the ATO confirms that the supplies are mixed supplies for GST purposes. Paragraph 442 of GSTR 2004/7 does not suggest that a supply which is partly taxable under item 3 of subsection 38-190(1) according to whether an individual is in or outside Australia during the period when the thing supplied is done is a composite supply (in which case apportionment is not appropriate). In most cases neither the taxable nor the GST-free portion of the supply of a cruise would be something that is integral, ancillary or incidental to the other portion of the supply in terms of Goods and Services Tax Ruling GSTR 2001/8. Based on the information provided in the ruling request it appears that ABC Co does make a mixed supply in relation to a cruise that is the subject of the ruling request, although GSTR 2001/8 states (Para 18A) that all of the circumstances of a supply must be considered to work out whether the supply is mixed or composite.