On 1 April 2013, the Federal Commissioner of Taxation issued ATO Interpretive Decision 2013/20 providing guidance on when the transport component of an international supply of transport of goods by an online retailer into Australia will be GST-free.
In the commissioner's view, a supply made on "deliver at place" terms of trade (DAP under INCOTERMS 2010) is a composite supply of delivered goods and as such, its GST treatment will be determined by reference to the GST treatment applicable on the supply of the goods.
Where goods are supplied from outside Australia on DAP terms of trade, the supplier supplies and delivers the goods from overseas to an address in Australia nominated by the recipient and also bears all risks involved in bringing the goods to that address. The recipient bears all liability for customs formalities with respect to the goods, including payment of duty and GST on import. The recipient is not entitled to make their own delivery arrangements.
Under Subdivision 38-K of the GST Act, a supply of international transport of goods from a place outside Australia to their place of consignment in Australia will be GST-free where the supply is done by the supplier of the transport of the goods from or to Australia.
In determining whether the transport component of the supply of the goods will be GST-free, it must first be determined whether the supply is a "composite" or a "mixed" supply.
A composite supply will be treated as a single supply and its GST status will be determined by the dominant part of the supply. A mixed supply will have separately identifiable parts that require individual recognition due to their relative significance in the supply. If the supply is a mixed supply, separate GST treatment will apply to each part.
In the commissioner's view, a supply made on DAP terms of trade is a composite supply of delivered goods. In reaching this conclusion, the commissioner had regard to whether the supply of the transport services was integral, ancillary or incidental to the supply of goods (being the dominant part of the supply). He considered that in this case it was.
There being no single factor and no sole test for determining the question, the commissioner looked at all the relevant circumstances including whether the transport contributed to the proper performance of the contract to supply the goods, whether the delivery service was significant (i.e., an aim in itself), and whether the recipient had a genuine choice under the contract as to whether the supplier delivers the goods. As to the last element, the commissioner considered that indicia of choice included whether the recipient was obliged to use the delivery services and whether the supplier provided reasonable access, at no extra charge, to recipients to make their own arrangements to collect the goods.
The GST Act also requires that the commissioner consider whether any other provision of the GST Act would require the commissioner to treat the delivery part of the supply of delivered goods as a mixed supply, notwithstanding its scale or connection with the supply.
The commissioner did not consider that in this case, any other provision of the GST Act required it to separate out the international supply of transport from the supply of the goods. He believed that the GST outcomes which would follow (in treating the supply as a composite supply) were consistent with the policy intent of other provisions of the GST Act which allowed international transport suppliers (as opposed to suppliers of goods) to treat the supply of transport as GST-free when their transport costs were included in the value of taxable importations (upon which GST would be paid by the importer of the goods on the full value of the goods and the Australian leg of the international transport at customs).
The commissioner's views as set out in the ATOID reinforce the need for suppliers of goods into Australia to carefully consider the transport terms of trade under which those goods are shipped.