On 26 February 2010, the Assistant Treasurer released draft legislation and explanatory material to change the application of GST on domestic transport where it is part of international transport. These changes were announced in the last Federal Budget and are aimed at reducing the GST compliance burden for transport providers. The Government has only provided one week for public submissions to be made on the draft legislation with the deadline being 5 March. This leaves interested parties with minimal time to absorb the proposed changes and determine whether they provide a solution for the current complicated GST outcomes that arise for resident and non-resident transporters of goods.

While, the amendments seem to provide some positive changes, the amendments do not address all the GST issues currently facing transporters of goods. We note that the amendments need to be considered in context with other GST amendments relating to non-residents such as the agency provisions and the GST registration requirements for non-resident entities. The legislation regarding the agency provisions (which are currently sitting in the Senate) provide some relief for non-resident transporters that have entered into agreements with agents who will effectively account for GST on their behalf. However, the non-resident registration requirements amendments are still to be addressed which seem to negate any of the benefit these changes and the agency amendments may bring to transporters.

The amendments, when legislated, are proposed to apply from 1 July 2010 and are as follows:

Imports - Inbound transporters

• The current GST rules will treat the transport of goods from a place outside Australia to the port or airport of final destination in Australia as GST-free. However, the transport of goods from the port or airport to the recipient of the goods is subject to GST, even when provided by a non-resident transporter. The new rules treat the transport of goods by a supplier bringing in goods into Australia as GST free for the full leg of the transport (including delivery to the recipient). Although this is a positive change, this does not remove the administrative burden for non-resident entities transporting goods into Australia who may still be required to register for GST and lodge business activity statements (even if there all transactions are GST free).
• The current GST rules treat the transport of goods by subcontractors for the domestic leg of international transport as taxable even when the service is provided to non-resident transporters. The new rules provide that such services (which will include ancillary services such as loading and handling) will be GST-free if the subcontracting service is provided to a non-resident entity that is not in Australia. It is not clear what services will constitute loading and handling services. This will be a cost-saving for non-resident entities that are not registered for GST and hence are not able to claim input tax credits. For domestic transport and other subcontractors, they will now have determine whether the entity is a non-resident entity and whether it “is not in Australia” at the time of supply.
  
• The GST will still be collected however, as the obligation to pay GST on the cost of domestic transport supply and related ancillary services will be shifted from transport suppliers to the importer of the goods (by including it in the VOTI calculation at the time of customs clearance).  Importers will have to fund this amount of GST until they claim the amount back as an Input Tax Credit. Theoretically there may even be a reduction in the price of goods as the importer is able to claim input tax credits for any GST charged whereas the non-resident entity would not have been able to claim input tax credits if they were not registered for GST.
  
  

 Exports - Outbound transporters

• Under the current GST rules, the domestic and international transport legs of an export transport service from the place of containerisation of the goods are GST-free where the transport supplier provides both the domestic and international leg of the transport. However, the part of the transport service from the address of the exporter to the place of containerisation is treated as taxable in most circumstances.  The new rules will ensure that the full leg of the transport from the address of the exporter to the overseas destination will be GST-free.
• The new rules also provide that the transport of goods by transport sub contractors within Australia which forms part of the international transport of these goods by another entity will be taxable unless the subcontracting service is provided to a non-resident entity. This will provide relief for domestic subcontractors who currently need to apportion their transport supplies between taxable and GST-free parts where they carry mixed loads of goods for domestic and international destinations.

The amendments contained in this Exposure Draft will provide a starting point for some sensible relief for non-resident and resident transport providers who are currently faced with very difficult GST outcomes.  However it may be difficult to foresee the extent of that relief while other associated GST amendments are still outstanding, in particular the registration requirements for non residents. 

Moore Stephens will be making a submission on these changes. Please contact us if you would like to participate on this or need any assistance in preparing a submission.

The draft Bill can be found on the Treasury website and consultation closes on 5 March 2010. 

Authors: Stephen Adrian, Lin Ma and Abi Mahendranthan, Moore Stephens Melbourne