GST –Part 2

Readings: John McLaren (ed), Advanced Taxation Law (Thomson Reuters, 2015) Chapter
28
Miscellaneous Taxation Ruling MT 2006/1
Please, note any further reading instructions set out in the individual presentation
slides.

1
S13.5 of GSTA

(1)  You make a taxable importation if:

•                      (a)  goods are imported; and
•                      (b)  you enter the goods for home consumption (within the meaning of the 
Customs Act 1901 ).

(2) However, the importation is not a taxable importation to the extent that it is a * non-taxable
importation.
Note:          There is no registration requirement for taxable importations, and the importer need not
be carrying on an enterprise.

(3)  However, an importation of * money is not an importation of goods into the indirect tax zone.

2
S 13.10 of GSTA

An importation is a non-taxable importation if:
•                      (a)  it is a non-taxable importation under Part 3-2; or
•                      (b)  it would have been a supply that was * GST-free or *
input taxed if it had been a supply

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S 15.5 of GSTA

You make a creditable importation if:

•                      (a)  you import goods solely or partly for a * creditable
purpose; and
•                      (b)  the importation is a * taxable importation; and
•                      (c)  you are * registered, or * required to be registered.

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C) Third requirement – connection with Australia s
9-25
(1)  A supply of goods is connected with the indirect tax zone if the goods are
delivered, or made available, in the indirect tax zone to the recipient of the supply.

(2)  A supply of goods that involves the goods being removed from the indirect tax
zone is connected with the indirect tax zone .

(3)  A supply of goods that involves the goods being brought to the indirect tax zone
is connected with the indirect tax zone if the supplier  imports, installs or assembles
them into/ in the indirect tax zone.

(4)  A supply of * real property is connected with the indirect tax zone if the real
property, or the land to which the real property relates, is in the indirect tax zone.
5
Example 6 - Goods delivered in Australia

• 121. Richard, a computer wholesaler in Perth, sells computers to JB Co, a

computer retailer in Adelaide. The computers are delivered to the premises of JB
Co in Adelaide. This supply of goods is connected with Australia as the
computers (goods) are delivered to JB in Australia.
• 122. Subsection 9-25(1) does not apply to goods where the supply is a supply of
goods from Australia or to Australia. Supplies of this kind are covered by
subsections 9-25(2) and (3) respectively (refer paragraphs 126 and 131
respectively).
• 123. However, this does not mean that the goods, the subject of a supply wholly
within Australia, have to be domestic goods only. The goods being supplied may
be domestic or imported goods. This is illustrated in the example below.

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Example 7 - Supplies of imported goods wholly within Australia

• 124. Joe goes to a car dealer in Perth and, after driving a demonstration
model, agrees to purchase an Italian manufactured car of a particular
model. The car dealer does not have that model car in stock. The car
dealer orders and purchases the car from the Italian manufacturer and
imports the car into Australia. When the car dealer receives the imported
car, Joe is contacted and told that the car is ready for delivery.
• 125. Even though the car is imported by the car dealer, the supply from
the car dealer to Joe is wholly within Australia. This supply is connected
with Australia as the car is delivered to Joe in Australia.
• 126. This example illustrates that although the goods are supplied wholly
within Australia, the goods themselves may be imported goods.
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Supply of goods - from Australia
• 133. A supply of goods is connected with Australia if that supply
involves the goods being removed from Australia. 'Removed' in
subsection 9-25(2) has its ordinary meaning. 'Remove' means to move
from a place, to move or shift to another place, or to displace from a
position. Goods being removed from Australia means the goods are
physically taken out of Australia.
• 134. Subsection 9-25(2) is about a supply that involves the removal of
the goods from Australia. The subsection does not apply where
removal is not part of the supply.

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Example 10 - Goods removed from Australia

• 135. BrisCo, a Brisbane company, sells souvenirs to overseas retailers.

The souvenirs are to be shipped to their overseas purchasers. The
souvenirs are removed from Australia by export. The supply is
connected with Australia.
• 137. A supply of goods by way of lease may involve the goods being
removed from Australia. This is illustrated in the following example.

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Example 11 - Goods supplied by way of lease

• 138. Aust Co is an Australian biscuit manufacturer. It leases

specialised manufacturing equipment to its subsidiary in New
Zealand. The equipment is manufactured in Australia and exported to
New Zealand. The supply of those goods by way of lease to the New
Zealand subsidiary involves the goods being removed from Australia
and, therefore, the supply is connected with Australia under
subsection 9-25(2).
• As the goods are used outside Australia, the supply of those goods is
GST-free under section 38-187.

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Example 12 - Goods imported into Australia by supplier

• 140. US Co, a US company sells a tractor to Tract Co, an Australian

earthmoving operator, on a DDP basis. US Co has to import the tractor
into Australia. The supply made by US Co to Tract Co is a supply
connected with Australia as the tractor (goods) is brought to Australia
and it is US Co (the supplier) that imports it into Australia.
• 141. If a supply of goods involves the goods being delivered, or made
available, to the recipient outside of Australia and the recipient
subsequently imports the goods into Australia, the supply is not
connected with Australia. The supply is not a taxable supply under
section 9-5. However, the importation is a taxable importation and the
recipient is liable to pay GST on the taxable importation
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Example 13 - Goods imported into Australia by recipient

• 142. If in Example 12 US Co sells the tractor to Tract Co on an

FOB basis, the tractor is imported into Australia by the recipient and
the supply of the tractor is not connected with Australia under
paragraph 9-25(3)(a). As the tractor is not delivered, or made
available, in Australia to Tract Co, the supply of the tractor is not
connected with Australia under subsection 9-25(1). However, the
supply is a taxable importation made by Tract Co and Tract Co is liable
to pay GST on the taxable importation.

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Example 14 - Goods imported into Australia by recipient through a
permanent establishment

• 143. Aust Cork Ltd, an Australian resident cork importer, has a

permanent establishment in Portugal and contracts for the supply of
cork from a Portuguese cork supplier. The cork is delivered to the
permanent establishment of Aust Cork Ltd in Portugal and Aust Cork
Ltd then imports the cork into Australia.
• 144. The supply of cork from the Portuguese cork supplier to Aust Cork
Ltd is not connected with Australia because the arrangement between
them does not involve the cork being brought to Australia and the
supplier is not the party which imports the goods into Australia.
However, the importation of the cork into Australia by Aust Cork Ltd is a
taxable importation.[44]
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Example 15 - Goods imported into Australia by recipient and
assembled in Australia by supplier

• 146. Aero Lite , an Australian resident, decides to buy a light aircraft

manufactured by Flight UK in the UK. The light aircraft parts need to be imported
into, and assembled in, Australia. Flight UK agrees to supply and assemble the
aircraft in Australia on the basis that Aero Lite arranges for the importation of the
aircraft parts. Aero Lite imports the goods on a FOB basis.[45]

• 147. The supply of the aircraft is connected with Australia because the supply
involves the aircraft parts being brought to Australia and the supplier assembling
the aircraft in Australia. This is so regardless of the fact that it is the recipient who
imports the parts of the aircraft into Australia.

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Example 15 cont
• Flight UK makes a taxable supply to Aero Lite and GST is payable by
Flight UK on the taxable supply made to Aero Lite. The importation of
the parts of the aircraft into Australia by Aero Lite is a taxable
importation and Aero Lite is liable to pay GST on the importation.[46]
 Aero Lite is entitled to an input tax credit for the GST payable on the
importation provided the importation is a creditable importation.[47]

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Example 19 - taxable supply/taxable importation
• 157. Tracey operates a business in New Zealand. Tracey regularly imports things into Australia. Bruce
operates a business in Australia. Tracey and Bruce are both registered. Tracey sells some goods to Bruce
which he is going to use in his business in Australia. The sale is done under a supply and install contract,
so Tracey imports the goods and also installs them at Bruce's factory.
• 158. The importation of the goods by Tracey is a taxable importation. GST is charged on the importation,
but she is entitled to an input tax credit for the importation because the importation is also a creditable
importation.[56] Under paragraph 9-25(3)(a) the supply of the goods is connected with Australia and is a
taxable supply. Bruce is entitled to an input tax credit for the creditable acquisition of the goods.
• 159. Bruce pays Tracey a GST inclusive price of $110,000 under the contract for the supply and
installation of the goods. This is the consideration for the supply. GST on a supply is charged in relation
to the consideration for the supply. GST on an importation is charged on the customs value of the
goods, plus the transport and insurance costs, plus the customs duty. Here, the customs value plus the
transport and insurance costs plus the duty adds up to $70,000.
• 160. Tracey pays $7,000 GST on the importation (10% of $70,000) and is entitled to an input tax credit
of $7,000 on the importation, netting out to zero GST.
• 161. Tracey also pays $10,000 GST (1/11 of the price of $110,000) on the supply. Bruce is entitled to an
input tax credit of $10,000 on the acquisition.
• 162. This means that Tracey pays $7,000 GST on the importation, which she gets back as an input tax
credit and accounts for $10,000 GST for the supply, which Bruce gets back as an input tax credit.
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Supplies connected with Australia
“real property” is defined in s 195-1
For the purposes of para (b) of Section 9-25(5), s 9-25(6) provides
that an enterprise is carried on in Australia by reference to the
definition of “permanent establishment” in the ITAA 1936 but without
the exclusions to that definition applying.

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Example 22A - Contractual right exercisable
over or in relation to land

• 167A. A non-resident tour operator acquires Australian holiday

packages from Australian tour operators and supplies those tour
packages to non-resident individuals. The supply of the tour package
by the non-resident tour operator includes a supply of rights to
accommodation in Australia. The supply of rights to accommodation
in Australia is a supply of a contractual right exercisable over or in
relation to land in Australia and is therefore a supply of real property
that is connected with Australia.

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Example 39A - Supply of rights or options to things connected with
Australia

• 225B. Cuisineworld is a non-resident entity in the United Kingdom (UK) that specialises in supplying cooking
classes at renowned restaurants around the world, along with accommodation and bus tours. Cuisineworld
has no business operations outside of the UK. Cuisineworld acquires the Australian holiday cooking package
on a GST inclusive basis from Oz Travel, a resident tour wholesaler in Sydney.[64A] The Australian holiday
cooking packages are on-sold by Cuisineworld to tourists as rights or options to acquire cooking classes and
accommodation at selected five star hotels and to take bus tours in Australia.
• 225C. The supply by Cuisineworld of rights or options to acquire accommodation in Australia, is a contractual
right that is exercisable over or in relation to land in Australia. It is therefore a supply of real property that is
connected with Australia under subsection 9-25(4).
• 225D. The supply by Cuisineworld of rights or options to acquire cooking classes (training services) and bus
tours (services) is the supply of things other than goods or real property. It is therefore necessary to consider
subsection 9-25(5). Neither paragraph 9-25(5)(a) nor (b) is applicable as the supply of the rights is done in
the UK and Cuisineworld does not carry on an enterprise in Australia. As the rights or options are to acquire
cooking classes and bus tours in Australia and those services would be connected with Australia under either
paragraphs 9-25(5)(a) or (b), the supply of the rights or options to acquire those services is connected with
Australia under paragraph 9-25(5)(c).

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Deposits – s 99 -5
Giving a deposit as security does not constitute consideration            
(1)  A deposit held as security for the performance of an obligation is
not treated as consideration for a supply,
unless the deposit:
(a)  is forfeited because of a failure to perform the obligation; or
(b)  is applied as all or part of the consideration for a supply.
(2)  This section has effect despite section 9-15 (which is about
consideration).

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Commissioner of Taxation v Reliance Carpet
Co Pty Limited [2008] HCA 22
• The option agreement stipulated that upon receipt by Reliance Carpet of a written notice
exercising the option, together with a payment of $297,500 representing the deposit,
Reliance Carpet were bound to sell and the purchaser bound to purchase the property on the
terms annexed to the option agreement.
• The deposit was paid on 5 February 2002 and a contract was executed and exchanged.
• Pursuant to the sale contract the balance of the purchase price was to be paid on settlement.
• On 27 February 2002 Reliance Carpet’s solicitors released the deposit to it.
• The purchaser ultimately failed to complete the contract by the scheduled settlement date
and did not remedy the default.
• Contract was rescinded, which resulted in the forfeiture of the deposit to Reliance Carpet.
• Court held that Reliance Carpet Co Pty Ltd (the taxpayer) was liable to account for GST for
supplies made by it in connection with the retention of a forfeited deposit.

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Commissioner of Taxation v Reliance Carpet
Co Pty Limited [2008] HCA 22
The GST Act contains rules dealing with the attribution (or timing) of
GST.
• For an accruals taxpayer, these rules provide that the taxpayer will
have a GST liability in the tax period (typically a month or quarter) in
which:
a. it first received any consideration for the supply; or
b. if before it receives any consideration, an invoice is issued for the supply.

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Commissioner of Taxation v Reliance Carpet
Co Pty Limited [2008] HCA 22
For an accruals taxpayer, where a taxpayer receives a part payment for
a supply, the taxpayer is liable for the entire GST amount on that supply
in that tax period.
In other words the GST liability is not confined to 1/11th of the amount actually
received, but 1/11th of the total consideration payable for the supply.

But:
• Division 99 - deposits.
• a deposit will not be treated as consideration for a supply
• unless it is ...

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Commissioner of Taxation v Reliance Carpet
Co Pty Limited [2008] HCA 22
• The approach that has been adopted by the House of Lords in the context
of European VAT.
• Requires regard to be had to:
• “The ‘essential features of the transaction’ to see whether it is
• ‘several distinct principal services’ or
• a single service and
• that what from an economic point of view is in reality a single service should not be ‘artificially
split’.
• It seems that an overall view should be taken and over-zealous dissecting and analysis of
particular clauses should be avoided.“
• Consistent with the above approach was the approach of the Federal Court: ‘When
the applicant entered into the contract for sale with the purchaser it entered into a
contract for the supply of real property; nothing more and nothing less.

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Commissioner of Taxation v Reliance Carpet
Co Pty Limited [2008] HCA 22
• Held by High Court that the forfeited deposit was consideration for, or
in connection with, a supply that was made by the taxpayer, and the
taxpayer had made a taxable supply.
• In doing so the court found that, on forfeiture, the deposit was consideration
for a supply which was the making of the contract.

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Deposits – Division 99
• The term 'deposit' is not defined in the GST Act.
• However, judicial decisions have indicated that the term 'deposit' has
a particular meaning in a commercial context.

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Deposits – Division 99
In Federal Commissioner of Taxation v. Reliance Carpet Co Pty Ltd [2008]
HCA 22; (2008) 2008 ATC 20-028; (2008) 68 ATR 158 (Reliance Carpet)
the High Court noted at paragraphs 22 to 27 of the decision that the
term 'deposit' had several aspects. These aspects include that a deposit:
• could be counted towards the payment of the purchase price;
• be brought into account in assessment of damages;
• be a token provided by the purchaser as 'an earnest to bind the
bargain';
• and provide a form of security for performance by the purchaser.

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Div 99 - Whether a payment is a security
deposit–Characteristics ATO will look for:
• Is it held as a security for the performance of an obligation of the
payer?
• Is the contract, conduct and intent of the parties to the contract
consistent with the payment being a security deposit? –Is it intended
to act as an earnest to ensure the contract is completed?
• Is it at risk of forfeiture upon failure to perform the obligation?
• Is it a reasonable amount?

See - GSTR 2006/2

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Deposits – Division 99 - GSTR 2006/2

• An amount ceases to be a security deposit when that amount is

applied as consideration, or forfeited, regardless of whether it is held
by the supplier or a third party at that time.
• However, there are occasions where a deposit may be released without it
being considered to be applied.
• The accounting treatment may be evidence that a deposit has been
either forfeited or applied as consideration for a supply.
• For example, a deposit that is recognised as revenue because it is no longer
refundable is indicative of a deposit that is no longer held as security because
it has been applied as consideration for a supply.

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Deposits – Division 99 - GSTR 2006/2
• 40. A pre-contract deposit may be paid by a potential recipient to
demonstrate the potential recipient's keen interest in entering into a
purchase contract or hire arrangement. Because there is no contract
the 'pre-contract deposit' is held on trust for a specified purpose but
remains the beneficial property of the potential recipient.
• 41. A so called 'deposit' may also be paid by a potential recipient
under an agreement, prior to entering into a purchase contract or hire
agreement, in return for rights of pre-emption, or for a covenant.
• 42. In the circumstances described in paragraphs 40 and 41, even
though these payments are often called deposits, the Commissioner
does not regard them as security deposits for the purposes of Division
99. Neither payment has the characteristics of a security deposit as
outlined in this Ruling. 30
Deposits – Division 99 - GSTR 2006/2

43. The pre-contract deposit referred to in paragraph 40 is not a

security deposit because it remains the property of the potential
recipient. At the time of payment:
• it is not paid for a supply that is to occur between the parties.
• It is not subject to forfeiture, and
• It does not secure any contractual obligations between the parties,
because, at the time of payment, none are in existence.

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Multiple Choice Question

Hajar wants to buy real property. She approaches the real estate agent who suggests she pays $10
000 as a good faith gesture, before contacting the owner. Choose the most correct statement.
Select one:
• A. Hajar's deposit is a security deposit for the purposes of Division 99 of the Goods and Services Tax
Act of 1999.
• B. Hajar's deposit is not a security deposit for the purposes of Division 99 of the Goods and Services
Tax Act of 1999.
• C. Hajar's deposit is not treated as consideration as a result of the operation of Division 99 of the
Goods and Services Tax Act of 1999.
• D. Hajar's deposit is treated as consideration as a result of the operation of Division 99 of the Goods
and Services Tax Act of 1999.
• E. Both B and D.

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Deposits – Division 99 - GSTR 2006/2
70. In Reid Motors Ltd v. Wood and Another
Mr Wood and another purchaser agreed to purchase cars from Reid Motors. At the time,
New Zealand finance regulations required a purchaser to pay a deposit of at least 50% if the
balance was to be financed under a hire purchase arrangement. Both purchasers paid at
least this amount but subsequently repudiated their agreements to purchase the cars. Reid
Motors rescinded the contract and treated the deposits as forfeited.
The court found that the deposits were not reasonable and not subject to forfeiture. Coates
J made the following observation:

In the normal course of business, a deposit as security for completion of the transaction
is usually in the vicinity of 10 percent of the total price. It would be most unusual for a
deposit to be as high as 50 percent of the contract price, let alone to exceed that figure.

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Deposits – Division 99 - GSTR 2006/2
• 77. ... It is the Commissioner's view that for a deposit that exceeds
10% in a purchase contract to be accepted as a security deposit to
which Division 99 applies, suppliers must be able to show that they
are at a higher risk of significant losses in the event of default. In 
Coates v. Sarich  and  Hoobin, Re; Perpetual Executors and Trustees
Association of Australia Ltd v. Hoobin, the major risks turned upon the
length of time of the contract and the loss in value of the asset faced
by the supplier in the event of mismanagement of an associated
enterprise, neglect, breach of law and other allied factors.

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Composite supplies

• A composite supply is a supply that appears to have many parts but its essentially a
supply of one thing.

• The Tax Office considers that it contains a

(1) “dominant part” and
(2) includes something that is “integral, ancillary or incidental” to that part: GSTR
2001/8, para 17

• A mixed supply is essentially a supply of a mixture of taxable and non-taxable

supplies.

• Distinguishing between a mixed supply and a composite supply is a question of fact,

which should be done with a “common sense approach”: GSTR 2001/8, para 20.
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Composite supplies – para 28.60 McLaren
See
• British Airways Plc v Customs and Excise Commissioners (1990) 5 BVC
97; [1990] STC 643.
• Was in-flight catering a separate supply to the flight?

•  ATS Pacific Pty Ltd v FCT [2014] FCAFC 33. 

• Supplying rights to accommodation to the non-resident tourists (which were
subject to GST), but also supplying booking services for that accommodation
(which would be GST-free)

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Composite supplies
•  ATS Pacific Pty Ltd v FCT [2014] FCAFC 33. 
The Full Court concluded that there was only one supply – namely, the
supply of the promise by the taxpayer to the non-resident tourists that
there would be accommodation and other non-accommodation
components (such as car hire or meals). If the supply of this promise
embodied a supply of “arranging services”, it was “part and parcel of the
promised package for which there is a single indivisible consideration”.
The further supply (if any) was to be regarded as ancillary and incidental
to the main supply. This effectively amounted to a composite supply.
The High Court refused leave to appeal against the decision.

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Mixed Supply
Contains taxable and non-taxable parts.
• See Sea Containers Services Ltd v Customs and Excise Commissioners
 [2000] BVC 60.
• Day train excursions were provided with “elaborate fine wining and dining”
• Heavy emphasis - advertising.
• Transport or transport and catering?
• Was the element significant in its own right or was it merely ancillary to the
provision of transport?
• Ancillary: providing support to the primary activities.

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Mixed Supply
Sea Containers Services Ltd v Customs and Excise Commissioners [2000]
BVC 60.
• It was decided that the proper approach was to see whether the
catering element was significant in its own right or whether it was
merely ancillary to the provision of transport.
Keene J said:
• The evidence shows that it [the catering] constituted a very important
element in its own right in what was being provided by the appellant.
Its significance in these transactions went well beyond the point where
it could be seen merely as a way of better enjoying the transport
39
Mixed Supply
Sea Containers Services Ltd v Customs and Excise Commissioners [2000]
BVC 60.
• element. … it constituted for customers an aim in itself. Not, of
course, the sole aim but, given its prominence in the marketing
literature, clearly a separate aim from the travel element. The
emphasis upon this aspect of the facilities provided is very striking.
The fine meals and wines were a vital part of what the customer was
paying for, whether by way of a separate or an all-inclusive price (at
67)

40