Following recent amendments to the GST Act, Australian carriers, forwarders and brokers will no longer be subject to GST exposure when they provide local transport services to a foreign transport company in relation to international transport of goods.
The amendments, which have effect from 1 July 2010, were enacted as a result of a concerted industry campaign led by groups including the Customs Brokers and Forwarders Council of Australia and the Australian Federation of International Forwarders.
The changes will result in significant cost savings and simplified arrangements for all carriers, forwarders and brokers involved in the carriage of goods into and out of Australia. However, in order to take advantage of the recent amendments, local and foreign operators will need to ensure they satisfy the new legislative requirements. For many operators, this will require a careful review of the current arrangements between the foreign transport company and their Australian subcontractors and the documentation recording those arrangements.
Outbound transport for the export of goods
Prior to the recent amendments, Australian subcontractors of a foreign transport company could only treat the carriage of goods to the place of containerisation (that is, the place where the goods are packed into a container) as GST-free if they knew the goods were destined for export. As the Australian sub-contractor often did not know whether the goods they were carrying were to be exported, they charged GST to their foreign principal in order to avoid Australian Tax Office compliance issues down the track.
Under the amendments, the supply of all domestic transportation services from the last point of collection prior to the place of containerisation is exempt from GST, provided the Australian subcontractor is acting as an agent for a foreign transport company.
Put another way, local subcontractors who do not carry goods outside of Australia but contribute to the provision of an international transport supply within Australia, will not be required to charge GST as long as their services are being provided to a foreign transport company and involve carriage from the last point of collection prior to containerisation.
Inbound transport for the import of goods
Prior to the recent amendments:
- the carriage of goods into Australia by a foreign transport company was exempt from GST up to the place of disembarkation at the airport or port terminal (somewhat confusingly referred to in the GST Actas the "place of consignment")
- any supply of transport services within Australia beyond the "place of consignment" attracted GST, whether undertaken by the non-resident or a local subcontractor.
As a result of these arrangements, foreign transport companies were liable to pay GST on the movement of goods within Australia and could only claim input tax credits if they were registered for GST. If they were not registered, the GST expense would be embedded in the cost of their goods and services, resulting in a cascading of GST.
Under the amendments, the "place of consignment" is no longer the Australian port or airport, and is now the final place in Australia to which the goods are to be delivered under the contract for the international transportation of goods ("place of delivery").
As a consequence of the amendments, the transport of goods into Australia will be exempt from GST up to the place of delivery and local subcontractors will make a GST-free supply if their services are provided to a foreign transport company that is not in Australia at the time of the supply.
The amendments to the GST Act are a welcome development for all companies involved in the carriage of goods into and out of Australia as they have the potential to significantly reduce the GST-exposure of local carriers, forwarders and brokers when acting as sub-contractors to foreign transport companies. The amendments also decrease the need for foreign companies to register for GST and claim input tax credits.
However, in order to take advantage of the amendments, both Australian and foreign companies will need to carefully review the arrangements they have in place and also the documentation recording those arrangements. In particular:
- agreements between foreign transport companies and their local subcontractors will need to clearly specify that the latter is providing their services directly to the former
- for inbound moves, the wording of agreements and the arrangements with consignors will be critical in determining the "place of consignment" and the extent to which the supply of transport services within Australia is exempt from GST.
Middletons' Tax and Revenue Group, led by Philip Diviny, has many years experience providing taxation advice to domestic and foreign operators involved in the transport industry. Our expertise in this area is complemented by our Transport, Logistics & Defence Group which has a wealth of experience drafting and advising on terms and conditions and contractual arrangements for the international carriage of goods by all modes of transport. Accordingly, Middletons has the depth and breadth of experience to assist your business in taking full advantage of the recent and important amendments to the GST Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.