Freight & Trade Alliance (FTA) has led the advocacy to support members in obtaining access to COVID-19 Federal Government financial relief measures as summarised below:
- in an immediate response to the Government's announcement, FTA wrote to the Senator the Hon Michaelia Cash, Minister for Employment, Skills, Small and Family Business on 23 March 2020 highlighting that many freight forwarder / customs brokerages make large payments of Duty, GST, Import Processing Charges and freight disbursements on behalf of importers. These significant disbursements distort true operating performance and may take many small and medium businesses over the $50 million turnover threshold outlined for the Cash Flow Boost. Our correspondence highlighted that these businesses play an essential role in the international supply chain and require the intended benefit to assist in achieving business continuity – refer HERE;
- formal correspondence to the Commissioner of Taxation on 20 April 2020 requesting a determination under subparagraph 5(1)(d)(ii) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 to qualify freight forwarders and licensed customs brokerages for the cash flow boost – refer HERE; and
- engagement with the Australian Taxation Office (ATO) on 23 April 2020 in terms of JobKeeper eligibility. FTA pointed to the dramatic increase in airfreight costs in recent months affecting turnover when comparing against historical periods in the previous year. The inflated cost of airfreight at this time has been recognised by the federal government with the International Freight Assistance Mechanism (IFAM) supporting high-value Australian agricultural and fisheries producers accessing overseas markets – refer HERE.
Furthermore, FTA met with ATO executives on 24 April 2020 and in subsequent correspondence made the following requests:- confirm that disbursement fees are unlikely to form part of turnover where a principal-agent relationship exists (between an importer and freight forwarder / customs brokerage); and
- advise what changes (if any) are required to correct any previously reported turnovers that were inclusive of disbursements for the purposes of Cash Flow Boost and JobKeeper eligibility.
In response, we today received formal correspondence from Mr John Ford, the Deputy Commissioner, ATO – refer HERE.
OUTCOMES
ACTING AS AGENT - FOR EXAMPLE DISBURSEMENTS OF DUTY, GST AND IMPORT PROCESSING CHARGES
GOOD NEWS - as a general principle, if the freight forwarder / customs brokerage is acting as agent and the principal (importer) has the liability, then these charges will not be ordinary income of the freight forwarder / customs brokerage (and the payment will not be deductible). The reimbursement by the importer is also not consideration for a supply made by the freight forwarder / customs brokerage. These amounts are not included in the freight forwarder / customs brokerage's annual turnover or GST turnover.
The most likely example of these costs will be Duty, GST and Import Processing Charges where the customs broker is interacting with the Government in the capacity as the agent of the importer. These will be costs that are not marked up by the customs brokerage and do not constitute the cost of a service provided by the customs brokerage.
OTHER CHARGES FOR SUPPLIES MADE BY THE FREIGHT FORWARDER / CUSTOMS BROKERAGE
For all other amounts that are charged, these would be included in the calculation of the freight forwarder / customs brokerage's ordinary income on the basis that they are derived in the ordinary course of the operations of the freight forwarder / customs brokerage's business, even if the amounts are reimbursements on which no mark-up is charged. These amounts would similarly be consideration for a supply made by the freight forwarder. These amounts are therefore included in the freight forwarder / customs brokerage's annual turnover and GST turnover.
Depending on the relationship with the customer, examples of these costs may be international freight or other third party charges. Many forwarders may now be legally deemed the supplier of the freight and not a mere agent passing on the costs of a third party carrier. As a starting point, forwarders should review their contractual arrangements (both with customers and suppliers), examine which costs they mark up when charging customers and review for which services they issue their own transport documents, such as a bill of lading.
NEXT STEPS
In summary, if the cost is incurred and passed on as an "agent" it is not deemed as a supply made by the freight forwarder / customs brokerage. Alternatively, if the freight forwarder / customs brokerage incurs a cost and passes on that cost, or marks it up, as part of themselves making a supply, it will be included in turnover.
While we suggest that members share this detail with financial / legal advisors, we are also pleased to advise that the ATO has provided further contact details to assist where a freight forwarder / customs brokerage is uncertain because their particular factual or contractual arrangements whether the amounts charged should be treated as ordinary income – in these circumstances please contact the ATO at CashBoostTeam@ato.gov.au. |
|