ATO Interpretative Decision
ATO ID 2015/26
Goods and Services Tax
GST and inwards port service charges
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Are the fees paid for loading, handling and associated activities consideration for GST-free supplies of international transport made by the non-resident shipping line under item 5 in subsection 38-355(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Yes. The fees paid for loading, handling and associated activities form part of the consideration for a GST-free supply of international transport made by the non-resident shipping line and are therefore GST-free under item 5 in subsection 38-355(1) of the GST Act.
The non-resident shipping line enters into an international carriage contract (either through its Australian agent or independently) with Australian resident and non-resident customers for the international shipping of goods to the indirect tax zone (the extent of 'Australia' for GST purposes as defined in section 195-1 of the GST Act). A document called a bill of lading or ocean bill of lading (or similar) is issued to the relevant parties and this document includes details such as the consignor, consignee, port of discharge and if the delivery point is beyond the port of discharge, the place of delivery of the goods.
The non-resident shipping line does not generally hold, or have access to, the relevant sale of goods contract for the freight it carries. Under the sale of goods contract the buyer and seller determine which party is responsible for the transport costs in sending the goods to the indirect tax zone. Importation of the cargo is not the responsibility of the shipping line.
The shipping line's Australian agent looks after all of the indirect tax zone based aspects of the line's international shipping operations including; arranging the docking and unloading of vessels at indirect tax zone ports, delivery of the goods (where the Place of Delivery is in the indirect tax zone), preparation of the necessary indirect tax zone import documentation and the inspection of shipping containers returned in the indirect tax zone.
The shipping line (independently or via its Australian agent) invoices the customer cost elements for various supplies that are separate to the cost of the ocean freight including (but not limited to):
- Terminal Handling Charge (THC): the recovery of a charge incurred by the shipping line that incorporates the discharge of the container by the Stevedore and storing into the stack for pick-up.
- ISPS Security Fee (SEC): the recovery of a levy paid by the agent which is applied against the carriers for security to both the Stevedore and Port Operator.
- Import Delivery Order Fee (DOC): the recovery of costs incurred by the agent in preparing the necessary Import Delivery Orders prepared by the agent and provided to the Notify Party listed on the Bill of Lading to inform that party of the arrival of the goods in the indirect tax zone.
- Equipment Handover Charge (EHC): the recovery of costs incurred by the agent for inspecting the container once returned to the agent and returning the inspected container to circulation.
While the fees for the services are itemised separately, they are still invoiced in accordance with the standard services supplied under the international carriage contract between the customer and the shipping line for the provision of international shipping services. The shipping line does not have any separate agreement with the customer for supplying the services or charging these fees.
Reasons for Decision
The services charged for by the non-resident shipping line (or its agent) to its customer form part of the supply of international transport. The supply of international transport by a shipping line is GST-free under item 5 in the table under subsection 38-355(1) up to and including the activities carried out by the shipping line at the port of discharge.
The fees in question are for activities necessarily carried out by the shipping line (or acquired by the shipping line) in transporting the cargo and are included in the standard services supplied by the shipping line under the international carriage contract.
Under item 5 in subsection 38-355(1) the inbound international transport of goods is GST-free to the place of consignment in the indirect tax zone.
The 'place of consignment' is set out in section 195-1 of the GST Act:
- if the goods are posted to a place in the indirect tax zone--the place in the indirect tax zone to which the goods are addressed; or
- if the supplier of the goods is to deliver the goods to a place in the indirect tax zone--the place in the indirect tax zone to which the goods are to be delivered under the contract for the supply of the goods; or
- neither paragraph (a) nor (aa) applies; and
- the goods are to be transported into the indirect tax zone by an entity supplying a transport service to an entity that is to import the goods into the indirect tax zone;
the place in the indirect tax zone to which the goods are to be delivered under the contract for the supply of the transport service; or
- in any other case--the port or airport of final destination as indicated on the *transportation document.
As the non-resident shipping line does not generally hold or have access to the sales contract relevant to the freighted goods, it will not be able to determine where the place of consignment is under its contractual relationship with the customer. In these circumstances, the ATO allows the shipping line to assume that the place of consignment under paragraphs (aa) or (ab) should be at least at the port of discharge specified on the relevant Bill. The ATO accepts that the port of discharge in these circumstances is the 'terminal gate' and therefore activities carried out at the port are within the place of consignment.
This means that services related to the transport and handling of the goods (including issuing or processing associated documentation) made by the shipping line under its international carriage contract will be GST-free if the goods are released to the customer at the port of discharge, as these services are made at, or prior to, the place of consignment.
If the goods are released to the customer after the port of discharge (that is, beyond the terminal gate) then all services after the terminal gate can only be treated as GST-free by the shipping line if it obtains information from the buyer or seller of the goods that the place of consignment of the goods is a place beyond the port of discharge.
This outcome ensures that all services performed by the shipping line at the port in fulfilling its international transport contract can be included as GST-free international transport with the services having the same GST treatment as the international transport.
The services included as part of GST-free international transport are typically activities associated with transport that are normally carried out under a bill of lading (standard international carriage contract).
Note that item 5 is limited by subsection 38-355(2) of the GST Act under which the transport of goods to and from the indirect tax zone can only be GST-free under item 5 where either:
- the transport was supplied by the same transport supplier that transported the goods from or to the indirect tax zone, or
- the transport is supplied to a recipient that is a non-resident and is not in the indirect tax zone at the time.
In the circumstances at hand subsection 38-355(2) will not limit item 5 given the transport services within the indirect tax zone are being supplied by the shipping line that transported the goods to the indirect tax zone.
Note 1: other charges that are not directly associated to transport should be considered separately. For example the charges of detention and demurrage, penalty fees and damages are not considered here. These charges do not relate to a typical international transport related activity in a bill of lading and are likely to occur after the place of consignment. It is possible that the relevant activities could be assessed against the GST-free status provided under item 5A in subsection 38-355(1).
Note 2: item 5A in subsection 38-355(1) is relevant for supplies that facilitate the international transport of goods but are not supplied by the supplier of the transport, or if they are supplied by the supplier of transport, are services that are separate to the standard services under the international carriage contract.
Note 3: Former references to 'Australia' in the GST law have been replaced with 'indirect tax zone'; a term defined in section 195-1 of the GST Act:
indirect tax zone means Australia (within the meaning of the *ITAA 1997), but does not include any of the following:
- the external Territories;
- an offshore area for the purpose of the Offshore Petroleum and Greenhouse Gas Storage Act 2006;
- the Joint Petroleum Development Area (within the meaning of the Petroleum (Timor Sea Treaty) Act 2003);
other than 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 and that is located in an offshore area or the Joint Petroleum Development Area.]
Date of decision: 28 September 2015
A New Tax System (Goods and Service Tax) Act 1999
Related Public Rulings (including Determinations)
Bill of lading
Goods and services tax
Transport of goods
Business Line: Indirect Tax
Date of publication: 2 October 2015