GST implications for importers and exporters

Key ideas 

Underlying policy 

The policy underlying the GST cross-border rules is simple — i.e., based on the destination principle, GST is levied where goods and services are consumed — this means, broadly, that:

• inbound supplies are taxed; and 
• outbound supplies are GST-free. 

Complex provisions 

• The GST cross-border rules themselves are complex, with strict requirements in different provisions applying to: 

• inbound goods; 

Importing goods (Inbound Goods)

Summary

• ϒ  There are specific rules about when an entity may be: 
  • ϒ  liable for GST on a taxable importation; and 
  • ϒ  entitled to claim ITCs on a creditable importation. 
• ϒ  These rules are separate from the general rules for taxable supplies and creditable acquisitions which means that: 
  • ϒ  unregistered businesses and private individuals can be liable for GST if they import goods; 
  • ϒ  a transaction can give rise to both a taxable importation and a taxable supply; and 
  • ϒ  a registered business that makes a taxable importation cannot assume that it will always be entitled to an ITC. 

Taxable importations 

Section 13-5 provides that an entity³⁹ makes a taxable importation if: 

1. (a)  goods are imported; and 
2. (b)  the entity enters the goods for home consumption.⁴⁰ 

Term	Meaning
Goods are imported	· ϒ  Goods means any form of tangible personal property.41 · ϒ  The term import is defined to mean ‘import goods into the ITZ’42, accordingly the ordinary meaning applies. The Commissioner’s view is that goods are imported where they are brought to Australia with the intention of being unloaded in Australia.43  · ϒ  The importation process includes the physical importation of the goods, and also the release from Customs control after lodgement of an import declaration.44
Entry for home consumption	–  In broad terms, home consumption means that the goods enter into the commerce of Australia. –  Entry for home consumption occurs when an entity lodges an import declaration with Customs. It is the entity that enters goods for home consumption that is liable for any GST.

Example 1 — Taxable importation of goods by unregistered business 

Lucas has recently established an electronics business. As his turnover is still fairly low, he has not yet registered for GST.
He sells stock that is locally produced, as well as the latest imports from Japan and Korea, and high end audio equipment from Europe.
Lucas is also a hi-fi fan himself.
He acquires two amplifiers and a tuner from Japan which he intends to sell, and a turntable from Germany for himself. Each of the items is worth more than $1,000.
Lucas enters the goods for home consumption and is liable for GST on the importation of all of the goods — i.e. regardless of the fact that he is unregistered, and including the turntable which is for his own private use.

International transport — imported goods 

The international transport of goods (including the arranging of such services) is GST-free from a place outside the ITZ to the place of consignment in the ITZ.⁵⁷ 

In broad terms, the ‘place of consignment’ is generally determined by the agreement between the entity responsible for delivering the goods and its contractual counterparty. For example, it will commonly be the place in Australia to which the supplier is required (under the contract of sale) to deliver the goods. 

Loading, handling⁵⁸ and facilitation or arranging services⁵⁹ provided during the course of the international transport are also GST-free where those services are: 

• ϒ  provided to a non-resident recipient who is not in the ITZ when the supply is made; or 
• ϒ  supplied by the supplier of the international transport service. 

GST on low value imported goods 

The Treasury Laws Amendment (GST Low Value Goods) Act 2017⁶⁷ amended the GST Act to ensure that GST is payable on certain supplies of low value goods that are purchased by consumers and are imported into Australia, by: 

• ϒ  making supplies of goods valued at $1,000 or less at the time of supply connected with the ITZ if the goods are, broadly, purchased by consumers⁶⁸ and are brought to the ITZ with the assistance of the supplier; and 
• ϒ  requiring overseas suppliers, operators of electronic distribution platforms (EDPs)⁶⁹ or redeliverers⁷⁰ to account for GST on these supplies. 

The amendments prevent double taxation by making importations of goods non-taxable importations if the supply of the goods is a taxable supply only as a result of these amendments and notice is provided in the approved form. 

Calculating GST payable 

The amount of GST on a taxable importation is 10 per cent of the value of the taxable importation.⁷⁶ 

The value of a taxable importation is the sum of⁷⁷: 

• the customs value of the goods⁷⁸; 
• the cost of the international transport of the goods to their place of consignment in the ITZ — see page 18; 
• insurance of the goods for that transport; 
• certain loading, handling and facilitation costs⁷⁹; 
• any customs duty payable in respect of the importation⁸⁰; and 
• any wine tax payable in respect of the local entry of the goods. 

Example 6 — Calculating the value of a taxable importation (actual costs) 

Butcher importers imports equipment into Australia: 

•   the customs value of the equipment is $10,000; 
•   the duty rate is 5 per cent; and 
•   international transport and insurance is $1,500. 

The value of the taxable importation of the equipment is $12,000 — being the sum of the Customs Value ($10,000) the Customs duty (5% of $10,000) and the international transport and insurance ($1,500). 

The GST payable on the taxable importation is 10% of $12,000 = $1,200.

Example 7A in GSTR 2003/15 

Paying GST 

The general rule is that GST on a taxable importation is payable to the CEO of Customs at the same time and in the same manner as customs duty on the goods is payable (or would be payable if the goods were subject to customs duty).⁸⁶ This means that the GST must be paid before the goods are released from Customs control. 

An important exception is where the Commissioner gives approval for the entity to defer payment of GST — see below. 

Claiming ITCs 

Entitlement to ITCs for creditable importations is dealt with in Div 15 (about creditable importations). 

An entity that is registered (or required to be registered) for GST makes a creditable importation if: 

ϒ the entity imports goods solely or partly for a creditable purpose (as defined in relation to importations in s. 15-10); and 

ϒ the importation is a taxable importation. 

Inbound services and intangibles; 

Acquiring services or intangibles from offshore (Inbound Services or intangibles)

Summary 

• Supplies by non-residents of services or intangibles to Australian businesses are subject to GST only in limited circumstances. 
• However, Australian businesses may have a liability — under a reverse charge mechanism — for certain acquisitions of services and intangibles from non-residents. 

Background 

The general rule is that the supply of services or intangibles by a non-resident is out of scope of Australian GST unless: 

•  it is connected with the ITZ pursuant to s. 9-25(5) — see page 7; and 
•  the other requirements of s. 9-5 are met — i.e. that the supplier is registered¹⁸⁷, and makes the supply for consideration in the course or furtherance of its enterprise — such that the supply is a taxable supply. 

Liability for GST — reverse charge 

The key circumstances in which an Australian business that is registered (or required to be registered) for GST¹⁹² will have a Div 84 reverse charged GST liability on the acquisition of services or intangibles from offshore are summarised in the table below. 

Important 

The reverse charge applies only in relation to acquisitions for consideration¹⁹³ that are: 

–  solely or partly for the purpose of the Australian recipient’s enterprise in the ITZ¹⁹⁴; but 

– not solely for a creditable purpose¹⁹⁵ — e.g. the acquisition is partly of a private or domestic nature, or relates to some extent to making input taxed supplies. 

This means that the reverse charge does not apply for acquisitions which are fully creditable. The reverse charge also does not apply to the extent that a supply is GST-free or input taxed. 

Paying reverse charged GST 

The amount of GST on a supply that is a taxable supply under s. 84-5 is 10 per cent of the price of the supply — s. 84-12. 

Implications 

This means that the recipient must account for GST on the whole amount, and then claim an ITC to the extent that its acquisition is a creditable acquisition — see below. 

Claiming ITCs 

The recipient will be entitled to claim ITCs on a reverse charged supply to the extent that the acquisition is acquired partly²⁰⁴ for a creditable purpose²⁰⁵, i.e. to the extent that the recipient acquires it: 

• ϒ  in carrying on its enterprise²⁰⁶; 
• ϒ  but not to the extent that the acquisition relates to making supplies that would be input taxed or is of a private or domestic nature.

Tax invoices and adjustment notes are not required for supplies subject to s. 84-5.²⁰⁷ 

Implications 

This means that to the extent that a reverse charged supply is partly creditable, the recipient will include the GST payable, and any ITC to which it is entitled, in the same BAS. ²⁰⁸ Although the effect is that the amounts would net off, the gross amounts must still be included at the relevant labels. 

Example 27 — Paying reversed charged GST and claiming ITCs 

Following on from Example 12, assume that Leslie is a quarterly remitter, and that her 3 August acquisition of software was: 

• ϒ  for a total price of $600; and 
• ϒ  80 per cent for business use. 

GST implications 

Leslie is: 

• ϒ  required to account for GST of $60 (i.e. 10 per cent of the price of the software); and 
• ϒ  entitled to an ITC of $48 (i.e. 80 per cent of the GST paid).

Leslie would include both of these amounts in her September quarter BAS due on 28 October 2017

Outbound goods; 

Exporting goods (Outbound Goods)

Summary 

• Exports of goods are only GST-free where the strict legislative requirements are met, including that: 
  •  there is a supply of goods. 
  •   the supplier exports the goods from the ITZ; and 
  •   the export occurs within the specified time period. 
• Substantiation requirements also apply. 
• A supplier will have an increasing adjustment if it treats a supply of goods as a GST-free export in circumstances where any of the requirements are not met. 

Overview 

The policy underlying GST is that it is intended to be a tax on consumption in Australia, therefore, as a matter of policy, exported goods should not be subject to GST. 

Section 38-185 sets out various circumstances in which the export of goods is GST-free, including general rules for goods, as well as specific rules for: 

• ϒ  goods paid for by instalments. 
• ϒ  export of aircraft and ships (including new recreational boats); 
• ϒ  goods used to repair imported goods which will be re-exported; and
• ϒ  travellers’ accompanied baggage. 

GST-free export of goods — general rule 

For a GST-registered business making supplies of goods, the requirements for a taxable supply (see page 6) will generally be met — i.e. in particular, the supply will generally be: 

–  for consideration; and
–  connected with the ITZ — i.e. note that a supply of goods that involves the goods being 

removed from the ITZ is connected with the ITZ — see s. 9-25(2).
This means that if the rules in Subdiv 38-E (about exports and other cross-border supplies) do not apply, a supply involving the export of goods will prima facie be a taxable supply.
The general rule for the export of goods to be GST-free has three basic requirements¹¹⁰: 

1. there is a supply of goods; 
2. the supplier exports the goods from the ITZ; and 
3. the export occurs within the 60-day time period. 

A supply is not GST-free if the supplier re-imports the goods into the ITZ.¹¹¹ Each of these requirements is considered in more detail below. 

Supply of goods 

This requirement includes two elements: 

1. There must be a supply — e.g. s. 38-385 does not apply to a movement of goods within the same entity, such as an Australian branch of a non-resident company sending goods to the non-resident head office. 
2. The supply must be of goods — defined as any form of tangible personal property.¹¹² 

Export through an agent 

It is common for Australian businesses that export goods to engage another party — such as a freight forwarder, consolidator, express courier or other intermediary — to deliver the goods to the ship or aircraft operator, and/or to enter the international contract of carriage. 

The supplier is still considered to be the exporter where the supplier’s agent: 

ϒ makes the necessary delivery of the goods on the supplier’s behalf to the international transporter engaged by another; and/or 

ϒ arranges the international contract of carriage on the supplier’s behalf. 

¹¹⁹ See GSTR 2002/6 at para. 115. For other examples, also see paras. 116 to 125 of the ruling. © TAXBANTER PTY LTD 

GST implications for importers and exporters 

Warning 

Additional documentation requirements apply for suppliers who make export supplies through an agent 

Timing 

The third general requirement for an export of goods to be GST-free relates to the time by which the goods must be exported. 

A supply of goods is GST-free only if the supplier exports them within a 60-day period (or such other period as the Commissioner allows) after the earlier of: 

– the day on which the supplier receives any of the consideration for the supply; or 
– the day the supplier gives an invoice for the supply. 

Outbound services and intangibles; and 

Supplying services or intangibles to non-residents intangibles

Overview of GST-free categories 

The same overall policy underlying the rules dealing with outbound goods also underlies the rules dealing with outbound services and intangibles — i.e. as GST is intended to be a tax on consumption in Australia, intangibles which are not consumed in Australia should not be subject to GST. 

Section 38-190(1) sets out the following types of supplies that are GST-free¹³⁷: 

Supplies of things, other than goods or real property, for consumption outside the ITZ 

1	Supply connected with property outside the ITZ	a supply that is directly connected with goods or real property situated outside the ITZ.
2	Supply to a non-resident outside the ITZ	a supply that is made to a non-resident who is not in the ITZ when the thing supplied is done, and: (a)  the supply is neither a supply of work physically performed on goods situated in the ITZ when the work is done nor a supply directly connected with real property situated in the ITZ; or (b)  the non-resident acquires the thing in carrying on the non-resident’s enterprise, but is not registered or required to be registered.
3	Supplies used or enjoyed outside the ITZ	a supply: (a)  that is made to a recipient who is not in the ITZ when the thing supplied is done; and (b)  the effective use or enjoyment of which takes place outside the ITZ; other than a supply of work physically performed on goods situated in the ITZ when the thing supplied is done, or a supply directly connected with real property situated in the ITZ.
4	Rights	a supply that is made in relation to rights if: (a)  the rights are for use outside the ITZ; or (b)  the supply is to an entity that is not an Australian resident and is outside the ITZ when the thing supplied is done.
5	Export of services used to repair etc. imported goods	a supply that is constituted by the repair, renovation, modification or treatment of goods from outside the ITZ whose destination is outside the ITZ.

Cross-border transactions involving real property in Australia. 

Key GST concepts for cross-border transactions 

Summary 

• ϒ  There are two main features of the GST law that determine jurisdiction to tax: 
  • the ‘connected with the ITZ’ rules — i.e. connection with the ITZ is one of the requirements for a taxable supply; and 
  • the GST-free rules for exports. 

• ϒ  Taxpayers with GST obligations arising out of cross-border transactions also need to be aware of some relevant concepts which come from customs and trade law and income tax law. 

Taxable supply 

The starting point for GST analysis of any transaction is the meaning of taxable supply. Even in the case of cross-border supplies, many of which are not taxable, it is still a necessary framework for understanding the rules.¹¹ 

Connected with the ITZ Definition — ITZ 

The indirect tax zone (ITZ) broadly means Australia¹², as it is defined for income tax purposes¹³, subject to certain exclusions.¹⁴ 

The connected with the ITZ rules are contained in s. 9-25, and — with effect from 1 October 2016 — also in ss. 9-26¹⁵ and 9-27. The rules differ according to whether the supply is a supply of: 

• goods;  
•  real property; or 
•  anything else (such as services and intangibles). 
• Supplies that are connected with the ITZ also form part of GST turnover for the purposes of Div 188 of the GST Act, which is relevant, among other things, to whether an entity meets the GST registration threshold and so is required to register for GST in Australia.¹⁶

The basic ‘connected with the ITZ’ rules in s. 9-25 are summarised in the following table: 

Type of supply	Connected with the ITZ if …
1. Supplies of goods wholly within the ITZ	the goods are delivered, or made available, in the ITZ to the recipient of the supply.
2 Supplies of goods from the ITZ	the supply involves the goods being removed from the ITZ.
3.Supplies of goods to the ITZ	The supply involves the goods being brought to the ITZ and the supplier imports the goods into the ITZ.17
4.Supplies of real property	the real property18, or the land to which the real property relates, is in the ITZ.
5. Supplies of anything else (e.g. services and intangibles19)	1. (a)  the thing is done in the ITZ — see page 9;  2. (b)  the supplier makes the supply through an enterprise it carries on in the ITZ; or  3. (c)  all of the following apply:  · (i)  neither para. (a) nor (b) applies in respect of the thing;  · (ii)  the thing is a right or option to acquire another thing;  · (iii)  the supply of the other thing would be connected with the ITZ; or  4. (d)  the recipient of the supply is an Australian consumer.20

Note — Installation or assembly services 

Pursuant to s. 9-25(6)²¹, if a supply of goods involves the goods being brought to the ITZ and installed or assembled in the ITZ, then the supply is treated as two separate supplies, i.e.: 

• a supply of installation or assembly services in the ITZ; and
• the supply of goods involving the goods being brought to the ITZ. 

 Each transaction must be considered on its own facts, and a small change in circumstances (e.g. to the terms of trade for a transaction involving goods, or to the location of the recipient of a supply of services or intangibles) can result in a completely different GST outcome. 

GST-free supplies 

As noted above, a supply which meets all the requirements of s. 9-5 is taxable, except to the extent that it is input taxed or GST-free.³¹ 

The GST-free rules that are relevant to importers and exporters cover: 

• ϒ  exports of goods (s. 38-185) — see page 31; 
• ϒ  lease or hire of goods for use outside the ITZ (s. 38-187)³²; 
• ϒ  tooling used by non-residents to manufacture goods for export (s. 38-188)³³; and 
• ϒ  supplies of things other than goods or real property for consumption outside the ITZ (s. 38-190) — see page 41. 

Customs and international trade concepts 

Entities which engage in cross border transactions involving goods should be aware of the customs and international trade concepts that are also relevant in determining the GST implications for some supplies. 

These include the Incoterms, which are the international rules for the interpretation of trade terms used in international trade. 

Incoterms	The seller delivers …	Importer36
DAP — Delivered At Place	when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller bears all risks involved in bringing the goods to the named place.	Recipient
DDP — Delivered Duty Paid38	when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and is obliged to clear the goods and pay any duty for both export and import, and to carry out all customs formalities.	Supplier
FOB — Free on Board	on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards.	Recipient

Recent amendments 

Although many of the recent and substantial changes to the cross-border rules have focussed on the GST obligations of non-residents, the changes affect Australian resident businesses insofar as they: 

• have further increased the complexity of the rules — especially in relation to the supply of services or intangibles to non-residents; and 

In general the entity responsible for paying GST to the Commissioner is the supplier. However, in some circumstances, the law requires the recipient of a supply to pay the GST. This is referred to as reverse-charging. There are two different types of reverse charge rules in the GST law: 

Voluntary reverse charge (Div 83)

This allows a non-resident supplier to agree with a resident recipient in certain circumstances that the recipient will pay the GST on the supply. The recent amendments to the cross-border rules have reduced the range of supplies to which this rule can apply — see page 69.

Mandatory reverse charge (Div 84)

These rules provide that certain intangible supplies from offshore are taxable supplies for which the GST is payable by the recipient.189 Broadly, s. 84-5 applies to:  ϒ  supplies for consideration, ϒ  of things other than goods or real property,  ϒ  that are not connected with the ITZ,  ϒ  where the registered recipient acquires the thing solely or partly for the purpose of its enterprise in the ITZ, but not solely for a creditable purpose. A supply is not treated as a taxable supply under the Div 84 reverse charge rule to the extent that it is GST-free or input taxed. The policy behind this reverse charge rule is to ensure that there is neutrality between acquiring services or intangibles locally or from offshore (given that entities which make input taxed supplies, and would therefore be denied ITCs to

change the GST treatment — e.g. by imposing a reverse charge on an Australian recipient in a broader range of circumstances. 

Exceptions to GST-free treatment 

The rules in the table in s. 38-190(1) are modified so that the following supplies are not GST-free:

• ϒ  a supply covered by any of items 1 to 5 if it is the supply of a right or option to acquire something the supply of which would be connected with the ITZ and would not be GST-free¹³⁸; 
• ϒ  a supply covered by any of items 2 to 4 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 the ITZ that would be wholly or partly input taxed¹³⁹ — see Example 15; 
• ϒ  a supply covered by item 2 made under an agreement entered into with a non-resident which requires the supply to be provided to another entity in the ITZ — see page 49. 

Each of the five items in s. 38-190(1) is considered separately below. 

Common errors 

– change     fA theme running through the common errors identified by the ATO in relation to GST and imports and exports arises from taxpayers being too simplistic in their approach — e.g. assuming that all supplies of exported goods are GST-free. 

1. Common error — On-sale of imported goods 

Australian businesses⁵² that import goods — and are liable to pay GST on their taxable importation — should be aware that the on-sale of those goods may also be a taxable supply pursuant to s. 9-5 (see page 6). 

If so, the business must also account for GST on the on-sale. The ATO has identified⁵³ a number of GST-registered taxpayers that have not accounted for the on-sale of imported goods in their BAS. 

If the importation of the goods was for a creditable purpose, then the entity can claim an ITC for the creditable importation in the same BAS as it accounts for the output tax on the on-sale — see page 26.⁵⁴ 

Example 1 — Taxable importation of goods by unregistered business 

Lucas has recently established an electronics business. As his turnover is still fairly low, he has not yet registered for GST. 

He sells stock that is locally produced, as well as the latest imports from Japan and Korea, and high end audio equipment from Europe. 

Lucas is also a hi-fi fan himself. 

He acquires two amplifiers and a tuner from Japan which he intends to sell, and a turntable from Germany for himself. Each of the items is worth more than $1,000. Lucas enters the goods for home consumption and is liable for GST on the importation of all of the goods — i.e. regardless of the fact that he is unregistered, and including the turntable which is for his own private use. 

2. Common error — Incorrectly classifying exports 

The ATO has identified¹⁰⁹ a common error whereby taxpayers incorrectly treat transactions as GST-free exports. Exports are only GST-free when the strict requirements in the legislation are met. Therefore supplies will not be GST-free if they fail to meet the requirements about: 

• ϒ  the timeframe for making a GST-free export; 
• ϒ  documentation; or 
• ϒ  the supplier being the exporter. 

In particular, the ATO notes the importance of the terms of delivery — including the Incoterms that apply (see page 11) — as a change to these terms, e.g. from DDP (delivered duty paid) to ex-works, can mean that the supplier is no longer the exporter, and the supply may be taxable. 

Disclaimer

This content is intended for general information in summary form on tax and legal matters at the time of first publication and is not intended to provide, and should not be relied upon in place of appropriate professional advice.  Please consult your tax, legal and accounting advisors before acting or relying on any content provided. 

References
https://www.ato.gov.au/Business/GST/In-detail/Rules-for-specific-transactions/International-transactions/Common-GST-errors—importing-or-exporting/