Telecommunications Industry Liaison Group - issues register

Where appropriate, individual issues in this issues register include a reference to a public ruling which is related to the relevant issue. In some cases, the issue is itself labelled as a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953. Where an issue in this issue register simply sets out the way the law applies, rather than dealing substantially with a question of legal interpretation, we have added to the item the description 'non-interpretative'.

From 1 July 2010, issues labelled as a public ruling in this register will continue to be a public ruling even though section 105-60 of Schedule 1 of the Taxation Administration Act 1953 has been repealed.

A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes.

If you rely on issues in this register that are a ruling, we must apply the law to you in the way set out in the ruling. However, if we are satisfied that the ruling is incorrect and disadvantages you, we may apply the law in a way that is more favourable for you - provided we are not prevented from doing so by a time limit imposed by the law. You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

Issues in this register that have not been labelled as public rulings, constitute written guidance. If you follow our information on these issues and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, we must ask you to pay it but we will not charge you a penalty. Also, if you acted reasonably and in good faith we will not charge you interest. If correcting the mistake means we owe you money, we will pay it to you. We will also pay you any interest you are entitled to.

Summary of changes

Version: September 2008

Issue 16 has been further updated subsequent to the issue of the Addendum to Goods and Services Tax Ruling GSTR 2003/5A1 which was issued on 10 September 2008.

Version: July 2010

Issue 16 has been updated to reflect the amendments made under the Tax Laws Amendment (2009 GST Administration Measures) Act 2010 to Subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The amendments increase the range of entities entitled to act as principal for GST accounting purposes. These changes are effective from 1 July 2010.

Version: March 2013

Issue 3 has been updated subsequent to the publication on 28 November 2012 of:

Goods and Services Tax Determination GSTD 2012/7
Goods and Services Tax Determination GSTD 2012/8
Goods and Services Tax Determination GSTD 2012/9
Goods and Services Tax Determination GSTD 2012/10.

Background

This document summarises the ATO's considered position on telecommunications industry specific GST issues.

This document does not in any way limit your rights to seek and receive private rulings whether or not your factual position is as described in an issue addressed.

This document will be updated periodically as issues are resolved. Each version will be dated, with the current version in effect withdrawing the previous version. However, the ATO undertakes not to change its position on an issue in a way that will be adverse to the industry if a decision has previously been advised in writing in this document without first consulting with the industry and if necessary negotiating the time that any such change will take effect.

(a) added (u) updated (w) withdrawn

19/09/01	Issue 1 - Supply of capacity in an international telecommunication network
19/09/01	Issue 2 - GST treatment of specific telecommunication supplies (taxable supplies)
19/09/01 (u)	Issue 3 - GST treatment of specific telecommunication supplies (GST-free supplies)
19/09/01	Issue 4 - GST treatment of specific telecommunication supplies (non-taxable supplies)
19/09/01	Issue 5 - Global billing
19/09/01	Issue 6 - Invoicing for supplies
04/07/03	Issue 7 - Contra (barter) arrangements
19/09/01	Issue 8 - The Melbourne Agreement and intercarrier supplies
19/09/01	Issue 9 - Overpayment and early payment of telephone charges
19/09/01	Issue 10 - GST-free supplies
19/09/01	Issue 11 - Customer service guarantee payments
19/09/01	Issue 12 - Transitional arrangements - long held timed telephone calls
04/07/03	Issue 13 - Tax invoices for prepaid non rechargeable telephone cards
19/09/01	Issue 14 - Compensation payments (excluding settlements of insurance claims)
04/07/03	Issue 15 - Prepaid phone cards supplied at a discount to their face value
11/02/02 (u) 26/03/03 (u)	Issue 16 - Simplified accounting arrangements in relation to Division 100 vouchers
20/06/03 (w)	Issue 17 - Administrative arrangements for the phone card industry on the release of GSTR 2003/5 until further notice

Issue 1 Supply of capacity in an international telecommunication network.

For the source of ATO view, refer to:

paragraphs 98-100 of GSTR 2003/8 - Goods and services tax: supply of rights for use outside Australia - subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2)
GSTD 2012/9 - Goods and services tax: is the supply of a right to capacity in an international telecommunication network made by an Australian resident telecommunication supplier GST-free under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?

Nature of the arrangement

Telecommunication carriers arrange telecommunication networks for clients' exclusive use. These networks have various names such as international leased lines, international private circuits, indefeasible rights of use (IRU) and global networks. A network may comprise a fixed line between two or more points such as from a place in Sydney to a place in London, together with local links to the client's place of business. A network may comprise a global circuit, such as Sydney to Auckland to New York to London to Sydney. Alternatively, capacity may be made available through a satellite network rather than a fixed line.

To establish these networks, telecommunication carriers (telcos) acquire the right to access capacity in various telecommunication cables throughout the world and supply capacity to their clients. Clients will use network capacity to transmit voice and data information between sites. Generally clients are charged on a time basis for access to capacity, not on the basis of their actual usage.

Issue

To what extent is the supply of capacity GST-free?

Decisions

As the supply is a right to use capacity in an international telecommunications network, the supply may be GST-free pursuant to item 4 of the table in section 38-190(1) of the GST Act.

The supply of the right to access and/or use capacity to a non resident of Australia who is outside Australia when the supply is made is GST-free.
The supply of the right to access and/or use capacity is GST-free to the extent that the right is for use outside Australia. The extent to which the right is for use outside Australia is determined according to the following rules:

The supply of the right to access and/or use capacity in an international telecommunications network between two sites outside Australia is GST-free.
The supply of the right to access and/or use capacity in an international telecommunications network where the traffic flows in one direction only from a site outside Australia to a site within Australia is GST-free.
The supply of the right to access and/or use capacity in an international telecommunications network where the traffic flows in one direction only from a site within Australia to a site outside Australia is a taxable supply pursuant to section 9-5 of the GST Act.
The supply of the right to access and/or use capacity in an international telecommunications network between a site outside Australia and a site within Australia where there is no restriction on the direction that information may flow is partially a GST-free supply and partially a taxable supply. The proportion of the supply that is taxable is equivalent to the proportion of traffic that originates in Australia. It may be possible for this proportion to be determined using sampling or by some other justifiable methodology at an entity or industry level. Where there is no available evidence to provide a more accurate figure, the ATO will accept a default amount of 50% taxable.

Issue 2 - GST treatment of specific telecommunication supplies (taxable supplies)

Non-interpretative- straight application of the law

Issue

To what extent are telecommunication services supplied by resident telecommunication carriers (telcos) taxable supplies?

Decision

The following common telecommunication services made for consideration by a resident telecommunications carrier which is registered or required to be registered and made in the course or furtherance of the telco's enterprise are taxable supplies.

Taxable telecommunication supplies

Telco supplies and charges a customer in Australia for an IDD call originating in Australia and terminating with a person overseas.
Telco supplies and charges a customer in Australia for a reverse charge IDD call, at the request of an overseas originator.
Telco supplies and charges a customer in Australia for an IDD call from Australia to an overseas visitor roaming in Australia.
Telco supplies and charges a customer in Australia for a call from Australia to an Australian resident roaming overseas.
Telco supplies and charges a customer in Australia for a right of access to a dedicated line between two points in Australia.
Telco supplies and charges a customer in Australia for call centre services provided in Australia.
Telco supplies and charges a service fee to a customer in Australia for a 'facilities managed' call centre.
Telco supplies and charges a customer in Australia for an IDD call from Australia via Telco network and satellite to a ship.

Issue 3 - GST treatment of specific telecommunication supplies (GST-free supplies)

For the source of ATO view, refer to:

GSTD 2012/7 - Goods and services tax: when are supplies of interconnection services made by an Australian resident telecommunication supplier GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?
GSTD 2012/8 - Goods and services tax: when are telecommunication supplies made under arrangements for global roaming outside Australia by an Australian resident telecommunication supplier GST-free under item 3 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?
GSTD 2012/9 - Goods and services tax: is the supply of a right to capacity in an international telecommunication network made by an Australian resident telecommunication supplier GST-free under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?
GSTD 2012/10 - Goods and services tax: when are telecommunication supplies made under arrangements for global roaming in Australia by an Australian resident telecommunication supplier GST-free under subsection 38-570(1) and subsection 38-570(3) of the A New Tax System (Goods and Services Tax) Act 1999?

On 29 June 2010, the GST law was amended to include section 38-570. Section 38-570 applies to telecommunication supplies made under arrangements for global roaming in Australia. The amendment applies from 1 July 2000. The amendment ensures that the supply by an Australian resident telecommunication supplier made to a non-resident telecommunication supplier and provided to a subscriber of the non-resident telecommunication supplier while roaming in Australia, is GST-free.

The previous wording of this issue is provided in footnotes 1, 2 and 3. The current ATO view is in GSTD 2012/7, GSTD 2012/8, GSTD 2012/9 and GSTD 2012/10.

Issue 4 - GST treatment of specific telecommunication supplies (non-taxable supplies)

Non-interpretative- straight application of the law

A New Tax System (Goods and Services Tax) Act 1999 Telecommunication Supplies Determination (No. 1) 2000, dated 17 November 2000 applies to telecommunication supplies made through an enterprise that is not carried on in Australia. This determination applies to many of the supplies listed in this issue as non taxable telecommunication supplies.

Issue

To what extent are telecommunication services supplied by overseas carriers non-taxable supplies?

Decision

The following common telecommunication services made by non resident telecommunications carriers to resident carriers or to non residents of Australia are not taxable supplies as they are not 'connected with Australia' under the general rules in 9-25 nor under the specific telecommunications rules in 85-5.

Non taxable telecommunication supplies

An overseas carrier supplies and charges a resident Telco for use of the overseas carrier's network to terminate an IDD call from Australia
An overseas carrier supplies and charges a customer overseas for an IDD call originating overseas and terminating with a person in Australia
An overseas carrier supplies and charges a customer overseas for a reverse charge IDD call, at the request of an Australian originator
An overseas carrier supplies and charges a resident Telco for use of the overseas carrier's network to deliver an IDD call reverse charged at the request of an overseas originator
Where an overseas visitor roaming in Australia makes a call to a person overseas

An overseas carrier supplies and charges a resident Telco for use of the overseas carrier's network to terminate an inbound roaming call in the overseas network.
Where a customer of a resident telco makes a call to an overseas visitor who receives the call while roaming in Australia

An overseas carrier supplies and charges the resident Telco for use of the overseas carrier's network to terminate the first leg of inbound roaming call
Where a person overseas makes a call to an overseas visitor roaming in Australia

An overseas carrier supplies and charges their overseas customer for making the international call
Where a customer of a resident telco who is roaming overseas makes a call to another person overseas

An overseas carrier supplies and charges the resident telco for use of the overseas carrier's network to initiate the outbound roaming call
Where a customer of a resident telco who is roaming overseas makes a call to a person in Australia

An overseas carrier supplies and charges the resident telco for use of the overseas carrier's network to initiate the outbound roaming call
Where a customer of a resident telco who is roaming overseas makes a call to another resident telco customer roaming overseas

An overseas carrier supplies and charges the resident telco for use of the overseas carrier's network to terminate the call in the overseas network
Where an overseas person makes a call to a customer of a resident telco who is roaming overseas -

(i) an overseas carrier supplies and charges their overseas customer for making the international call

(ii) an overseas carrier supplies and charges the resident telco for use of the overseas carrier's network to terminate the second leg of the outbound roaming call.
Where an overseas person makes a call, directed through Australia, to a person in another country

(i) the telecommunication carrier in the country where the call is received supplies and charges a resident telco for use of the overseas carrier's network to deliver the call

(ii) the telecommunication carrier in the country where the call originates supplies and charges their customer for making an international call.

Issue 5 - Global billing

Non-interpretative- straight application of the law

Nature of the arrangement

For the convenience of customers, resident telecommunications carriers provide a single billing service, where charges from other international carriers for all the customer's calls made from overseas are aggregated and billed to customers on a single account.

To give effect to the service, international carriers send you the monthly charges for your customer. You:

itemise these charges on one bill (including any foreign VAT/GST amounts)
settle with the overseas carriers, and
recover the charges from the customer.

This service is provided free of charge to highly valued customers who may be located in Australia or off-shore.

Issue

Is the entire amount of the bill subject to GST as the consideration for a taxable supply made by the resident telco?

Decision

The supply of a global billing service is not a taxable supply as there is no consideration for that service. If a fee is charged for providing the global billing service, this supply may be taxable. The supplies which are aggregated in the global bill retain their original character, and may include taxable supplies, GST-free supplies and non taxable supplies.

Issue 6 - Invoicing for supplies

Non-interpretative- straight application of the law

Nature of the arrangement

Telcos may prepare a single bill for all of the telecommunications services provided to customers. The various supplies itemised on the bill may be taxable, GST-free or non taxable.

Issue

Are the individual supplies shown on a single bill treated as separate supplies?

Decision

Yes. Each supply of a telecommunication service is a separate supply. For example, each individual telephone call made by a customer constitutes a separate supply by the telco to that customer. The method used to invoice does not alter this. It is therefore necessary to classify each supply as taxable or otherwise.

Issue 7 - Contra (barter) arrangements

For source of ATO view, refer to GSTR 2001/6 - Goods and services tax: non-monetary consideration

The previous wording of this issue is provided in the footnote and represented the ATO view in relation to contra (barter) arrangements up until 28 November 2001. The current ATO view is in GSTR 2001/6. 4

Issue 8 - The Melbourne Agreement and intercarrier supplies

Non-interpretative

A New Tax System (Goods and Services Tax) Act 1999 Telecommunication Supplies Determination (No. 1) 2000, dated 17 November 2000 applies to telecommunication supplies made by a non resident telecommunications provider through an enterprise that is not carried on in Australia. This Determination applies to the supplies to which issue 8 previously applied.

Issue 8 has been omitted. 5

Issue 9 - Overpayment and early payment of telephone charges

Non-interpretative

A New Tax System (Goods and Services Tax) Act 1999 (particular attribution rules for prepayments for telephone supplies) Determination (No. 1) 2001, dated 22 August 2001 applies to overpayments and early payments of telephone charges. This Determination applies to supplies to which issue 9 previously applied.

Issue 9 has been omitted. 6

Issue 10 - GST-free supplies

Non-interpretative

An Amendment to subsection 38-190(1) of the GST legislation has made this issue redundant. The amendment, effective 1 July 2000, substituted 'a supply of work physically performed on goods situated in Australia' for 'a supply directly connected with goods situated in Australia'.

Issue 10 has been omitted. 7

Issue 11 - Customer service guarantee payments

For source of ATO view, refer to:

GSTR 2001/4 - Goods and Services Tax: GST consequences of court orders and out-of-court settlements, and
Proposition 5, paragraphs 71 to 91 of GSTR 2006/9 - Goods and services tax: supplies

Nature of the arrangement

Telcos are required under the provisions of the Telecommunications (Consumer Protection and Service Standards) Act 1999, to make statutory payments to customers, both residential and commercial, for failure to make connections or repairs within an allowed period. 8

Issue

Are customer service guarantee payments consideration for a supply made by the customer?

Decision

There is no supply made by a customer who receives a customer service guarantee payment from a telco.

The ATO view of when a supply for consideration is made is provided in detail in Goods and Services Tax Ruling GSTR 2001/4, GST consequences of court orders and out-of-court settlements, issued 20 June 2001.

Issue 12 - Transitional arrangements - long held timed telephone calls

Non-interpretative- straight application of the law

Nature of the arrangement

In the transition period relating to the introduction of the Goods and Services Tax, it may be possible for a telecommunications supply to commence on 30 June 2000 and continue into 1 July 2000. In the case where this supply is a timed supply (for example, mobile phone, STD, IDD etc) it may be possible to apply GST, mid-supply, to that part of the supply which is done on 1 July 2000. The costs associated with such an application of GST relate to systems changes, or manual processing, or both and compliance with public notification and other regulatory obligations.

Issue

Is GST to be charged, mid-supply, to long-held, timed telecommunication supplies which commence on 30 June 2000 and continue into 1 July 2000.

Decision

For the effective administration of A New Tax System (Goods and Services Tax) Act 1999, GST will not be charged, mid-supply, to long-held, timed telecommunication supplies which commence on 30 June 2000 and continue into 1 July 2000.

Taxable telecommunication supplies which commence on 1 July 2000 will be subject to GST.

Issue 13 - Tax invoices for prepaid telephone cards

Non-interpretative

Nature of the arrangement

The amendments to vouchers provisions clarify that prepaid phone cards are eligible Division 100 vouchers and are not subject to GST at the time the phone cards are issued.

Telephone cards are typically sold through retail outlets. The retailer will usually provide an invoice or tax invoice when the phone card is supplied. However, the taxable supply is the supply of domestic phone calls by the telco. Accordingly the tax invoice should be issued by the telco that makes the telecommunication supplies. Due to the way in which phone cards are distributed, the telco may not have sufficient reasonable way of knowing the details of the recipient of the telecommunication supplies in order to issue them with a tax invoice. Further, in many instances the price of the telecommunication supplies (each individual phone call, for example) will be less than $82.50(GST inclusive) and so the telco would not have a legal obligation to issue a tax invoice.

Issue

What are the tax invoice requirements where phone calls are made with a pre-paid telephone card that is considered to be a FVV for GST purposes?

Decision

The Commissioner will treat the receipt provided by the retailer for the purchase of a phone card as a tax invoice for the telephone calls that are made using that phone card. This decision applies only to pre-paid phone cards that are considered to be FVVs for GST purposes. The person using the phone card may need to substantiate that all telecommunication supplies:

were taxable supplies to them (for example, not GST-free international mobile roaming supplies); and
were all creditable acquisitions

if they want to claim input tax credits based on 1/11th of the price of the phone card shown on any invoice or tax invoice covered by the determination. 9

Issue 14 - Compensation payments (excluding settlements of insurance claims)

For source of ATO view, refer to general principles and in particular paragraph 22 of GSTR 2001/4 - Goods and Services Tax: GST consequences of court orders and out-of-court settlements

The ATO view on this issue has changed. This issue has been updated to reflect the current ATO view. For a fuller explanation, refer to Goods and Services Tax Ruling GSTR 2001/4, GST consequences of court orders and out-of-court settlements. GSTR 2001/4 was issued on 20 June 2001, with a date of effect of 1 July 2000. The footnote containing the previous version of issue 14 is at the end of this issue.

Nature of the arrangement

Property belonging to telecommunications companies (telcos) may be damaged, either wilfully or accidentally by individuals and other entities. For example, a public phone booth may be vandalised, or during earthworks, underground cables may be severed. As a result of the damages, telcos may suffer financial loss, including the cost of repairs and lost revenue from service disruption. Telcos may seek compensation from those who caused the damage (defendant).

A settlement between the telco and the defendant may be negotiated or otherwise agreed to. This could occur for example by the defendant paying an amount demanded by or negotiated with the telco. Alternatively, as a result of litigation, a Court may award damages in favour of the telco.

Issue

Is a payment received by a telco as compensation for damages to its property consideration for a taxable supply made by the telco to the defendant?

Decision

No.

With a dispute over a damages claim, the subject of the dispute does not constitute a supply made by the telco. Whether an out of court settlement is reached or payment is made under a court order, the compensation or other consideration that a telco receives as a result of the recovery action it has undertaken is not consideration for a supply.

One of the criteria for a taxable supply is that you make the supply for consideration. For there to be a supply for consideration, three fundamental criteria must be met:

there must be a supply
there must be a payment, and
there must be a sufficient nexus between the supply and the payment for it to be a supply for consideration.

Claims arising out of property damage do not relate to a supply. When a dispute arises over property damage, the telco will often assert its right to an appropriate remedy, most commonly a claim for damages. The property damage, being the substance of the dispute, cannot in itself be characterised as a supply made by the telco. This is because the damage in itself does not constitute a supply under section 9-10 of the GST Act.

Court orders
A defendant extinguishing a judgement debt by making the required payment does not constitute a supply by the telco for GST purposes.

Out of court settlements
The payment by a defendant of an agreed sum does not constitute a supply by the telco for GST purposes.

Supplies related to telco discontinuing recovery action ('settlement supplies')
Subsection 9-10(2) of the GST Act provides that supply includes:

a creation, grant, transfer, assignment or surrender of any right;
an entry into, or release from, an obligation:

(i) to do anything; or
(ii) to refrain from an act; or
(iii) to tolerate an act or situation.

One or more new supplies may crystallise on a settlement. The terms of a settlement finalising a dispute generally provide that, subject to those terms being complied with, no further legal action will occur. For example, the telco releases a defendant from all existing and future claims in relation to the dispute. These supplies created as conditions of settlement may be characterised as:

(i) surrendering a right to pursue further legal action (para 9-10(2)(e))
(ii) entering into an obligation to refrain from further legal action(para 9-10(2)(g)) or

(iii) releasing another party from further obligations in relation to the dispute (para 9-10(2)(g)).

Whether such supplies are taxable would depend on the requirements of section 9-5 being met in relation to that supply.

Where the only supply in relation to an out-of-court settlement of a damages claim is a settlement supply, the payment under the settlement is in respect of the claim and does not have a sufficient nexus with the settlement supply. 10

Issue 15 - Prepaid phone cards supplied at a discount to their face value.

For source of ATO view, refer to paragraphs 89 to 90 of
GSTR 2003/5 - Goods and Services Tax: Vouchers

The vouchers provisions clarify that a supplier who makes telecommunication supplies on redemption of a type of phone card which is considered to be a Division 100 voucher for GST purposes is required to remit GST based on the stated monetary value of that phone card if the card is supplied for more than nil consideration. The monetary value may be stated on the card or in documents accompanying the card.

If a phone card is supplied for nil consideration then there is no taxable supply.

The previous wording of this issue is provided in the footnote and represented the ATO view in relation to some types of phone cards up until 11 May 2005. 11

Issue 16 - Arrangements to simplify accounting for GST in relation to Division 100 vouchers

For source of ATO view, refer to paragraphs 74 to 91 of GSTR 2000/37- Goods and services tax: agency relationships and the application of the law

On 10 September 2008 we issued an addendum to Goods and Services Tax Ruling GSTR 2003/5 Goods and Services Tax: Vouchers.

This addendum amends GSTR 2003/5 to reflect the legislative changes introduced by the Tax Laws Amendment (2006 Measures No. 1) Act 2006 (TLA (No.1) Act 2006). That legislation amended the A New Tax System (Goods and Services Tax) Act 1999 (GST Act):

to ensure that prepaid phone cards or facilities are treated as vouchers for the purposes of Division 100 of that Act;
to clarify that goods and services tax (GST) should be calculated on the stated monetary value of the voucher; and
to simplify accounting for GST on commissions and similar payments on a supply of a voucher through a distribution chain.

You can rely on the changes made to the Ruling by the addendum for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953 (TAA) from 10 September 2008.

When GSTR 2003/5 was issued on 28 May 2003 it was recognised that some taxpayers would need time to adapt their systems to reflect the ATO views expressed in the Ruling. To this end the ATO issued Media release 2003/50 "ATO releases final ruling on vouchers" which stated that "The Tax Office has advised businesses they will have three months from today [28 May 2003] to put in place any necessary system changes but will look at special cases on their merits".

An addendum to Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law, issued on 23 March 2003. The addendum made it clear that Subdivision 153-B does not apply to simplify the accounting for GST in relation to non-taxable supplies made through an agent. Some suppliers, including some telecommunication suppliers, had understood that Subdivision 153-B applied to non-taxable supplies as well as to taxable supplies, and had treated their supply of phone cards through their agents as arrangements to which Subdivision 153-B applied. When GSTR 2003/5 issued on 28 May 2003 it became apparent that some phone cards were not vouchers as determined in that Ruling. However, Media release 2003/50 gave businesses three months to make system changes so that they could

continue to treat their phone cards as vouchers for the purposes of Division 100; and
continue to treat their supply of phone cards through their agents as an arrangement to which Subdivision 153-B applied

until the end of the three month period.

Additionally, the ATO's Media release 2003/52 "GST law and agency relationships" which issued on 30 May 2003 gave "Affected taxpayers … until the end of August to make changes before they have to comply" with the addendum to GSTR 2000/37.

Prior to the expiration of the three months mentioned in either Media release, Issue 17 "Administrative arrangements for the phone card industry on the release of GSTR 2003/5 until further notice" was put onto the Telecommunications Industry Partnership Issues Register. That continued the administrative arrangements initiated by the vouchers' Media release 2003/50 "until further notice". Issue 17 was worded sufficiently broadly that its administrative arrangements applied to the changes brought about by both GSTR 2003/5 and the addendum to GSTR 2000/37. This permitted suppliers to continue to treat their supply of phone cards as a supply of vouchers and their supply through their agents as supplies to which Subdivision 153-B applied to simplify their accounting for GST.

These administrative arrangements became unnecessary from 6 April 2006 following the Royal Assent to TLA (No.1) Act 2006. That Act included a transitional measure for telecommunication suppliers and their agents. The transitional rule at item 21 of Schedule 4 to TLA (No.1) Act 2006 ensures that if an arrangement entered into (under Subdivision 153-B) by suppliers and distributors of prepaid phone cards or facilities is operative on the date of Royal Assent (6 April 2006), then to the extent that the arrangement applies to supplies of prepaid phone cards or facilities after the date of Royal Assent, the arrangement will be taken to have effect under Subdivision 153-B as if those supplies of prepaid phone cards or facilities were taxable supplies. The transitional rule applies if the arrangement between the parties satisfies the following requirements under sub-item 21(1):

a supplier of telecommunication supplies entered into an arrangement under section 153-50 before 6 April 2006
the arrangement applies wholly or partly to prepaid phone cards or facilities; and
section 153-55 does not apply to the supply of those prepaid phone cards or facilities merely because:

a. the supply is not a taxable supply; or

b. the supply is not a taxable supply and another party to the arrangement is not an agent of the telecommunication supplier.

If subparagraph 21(1)(c)(ii) applies, then paragraph 21(2)(b) applies so that the arrangement is taken to have effect under Subdivision 153-B as if the other party to the arrangement is supplying prepaid phone cards or facilities as the agent of the supplier of telecommunication supplies.

The effect of item 21 applying is that for the purposes of Subdivision 153-B, section 153-55 applies as if the supplies of prepaid phone cards or facilities made under the arrangement are taxable supplies. In particular this means that paragraph 153-55(3)(b) applies so that the agent's (or another entity's) supply to the principal (of services for a commission or similar payment) is not a taxable supply. This does not affect the nature of the supply of the prepaid phone card or facility itself which is not a taxable supply in accordance with Division 100.

Furthermore, following the enactment of TLA (No.1) Act 2006, if an entity's services (whether or not supplied as an agent) are provided under an arrangement made after 6 April 2006 to which section 100-18 applies, then the supplies of services for which a commission or similar payment relates are treated as if they are not taxable supplies. Section 100-18 is discussed in paragraphs 157 to 158E of GSTR 2003/5.

Example: supply of a prepaid phone card or facility under an agency arrangement

Supplier Ltd (Supplier) is a company that supplies prepaid phone cards or facilities and other types of vouchers. On 1 July 2002 Supplier entered into a written agreement with Agent Co. Pty Ltd (Agent) under which Agent was to supply Supplier's products to end users. The agreement is an arrangement that satisfies the requirements of section 153-50. Agent began supplying prepaid phone cards or facilities and other vouchers to end users from 1 July 2002.

Under the legislation before the amendments made by TLA (No. 1) Act 2006 Supplier's prepaid phone cards or facilities were not face value vouchers (FVVs) as that term is used in GSTR 2003/5. Under the amended legislation these products are taken to be FVVs from 1 July 2000. Because they are FVVs their supply is not a taxable supply, and section 153-55 does not apply to simplify the accounting for GST in relation to the supply of those prepaid phone cards or facilities.

However the conditions of sub-item 21(1) are satisfied so that in relation to supplies of prepaid phone cards or facilities made on or after 6 April 2006, sub-item 21(2) applies. This means that Supplier and Agent can simplify the accounting for GST in relation to the supply of the prepaid phone cards or facilities made on or after 6 April 2006.

Item 21 does not have effect in relation to prepaid phone cards or facilities supplied between the time Supplier and Agent entered into their arrangement on 1 July 2002 and up until 6 April 2006. In line with the ATO Media releases 2003/50 and 2003/52 and Issue 17 of the Telecommunications Industry Partnership Issues Register, Supplier continued its treatment of its prepaid phone cards or facilities in that period as vouchers to which Division 100 applied. Further, it continued its treatment of its supply of these products through its distributors as supplies to which Subdivision 153-B applied to simplify its accounting for GST on commissions or similar payments. 12 14

The Tax Laws Amendment (2009 GST Administration Measures) Act 2010 amended Subdivision 153-B of the GST Act to increase the range of entities entitled to act as principal for GST accounting purposes. These changes are effective from 1 July 2010.

The amendments allow representatives of the principal who are not common law agents (for example, paying agents, commission agents and other transaction facilitators) to access the simplified accounting rules. That is, taxable supplies and acquisitions made by the principal to or from a third party will be taken, for GST purposes, to be made by the intermediary to or from the third party.

Issue 17 - Administrative arrangements for the phone card industry on the release of GSTR 2003/5 until further notice

Non-interpretative

Item 17 has been omitted. 13

Previous views

1. The earlier version of Issue 3 stated:

Issue 3 - GST treatment of specific telecommunication supplies (GST-free supplies)

The advice in this chapter was originally prepared before the GST law was amended to include subsection 38-190(3). The ATO will be reviewing the application of 38-190(3) to these supplies with industry representatives over the next few months.

Issue

To what extent are telecommunication services supplied by resident telecommunications carriers (telcos) GST-free?

Decision

The following common telecommunication services made by a resident telecommunications carrier are GST-free supplies.

GST- free telecommunication supplies

Telco supplies and charges an overseas carrier for use of Telco's network to terminate an IDD call to Australia
Telco supplies and charges an overseas carrier for use of Telco's network to deliver an IDD call reverse charged at the request of an Australian originator
Where an overseas visitor roaming in Australia makes a call to another person in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to deliver the call
Where an overseas visitor roaming in Australia makes a call to a person overseas

Telco supplies and charges an overseas carrier for use of Telco's network to deliver the call
Where a Telco customer makes a call to an overseas visitor who receives the call while roaming in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to deliver the second leg of the call
Where a person overseas makes a call to an overseas visitor roaming in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to deliver the call
Where a Telco customer roaming overseas makes a call to a person in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to terminate the call
Where an overseas person makes a call to a Telco customer roaming overseas

Telco supplies and charges an overseas carrier for use of Telco's network to terminate the first leg of the call
Telco supplies and charges a non resident of Australia for call centre services provided in Australia
Telco supplies and charges a service fee to a non resident of Australia for a 'facilities managed' call centre
Where an overseas person makes a call, directed through Australia, to a person in another country

Telco supplies and charges the telecommunication carrier of the country where the call originates for:

(i) use of Telco's network to deliver the call, and

(ii) the costs of the telecommunication carrier in the country where the call is received
Where a call is made from a ship outside Australia to an overseas country via Inmarsat (satellite) and the Telco network in Australia

Telco supplies and charges the shipping operator, via the Accounting Authority, for use of Telco's network in transmitting the call.
Where an overseas resident makes a call to a ship (outside Australia) via Inmarsat (satellite) and the Telco network in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to transmit the call

2. Issue 3 was amended, effective January 2007. Prior to that amendment issue 3 stated:

Issue 3 - GST treatment of specific telecommunication supplies (GST-free supplies)

In considering whether international services, including telecommunication services are GST-free, consideration must be given to the exclusion in subsection 38-190(3) of the GST law. The application of subsection 38-190(3) is comprehensively explained in GSTR 2005/6. GSTR 2005/6 has prospective application to international telecommunication services. The telecommunications industry may rely on the previous version of issue 3 of this log until 31 December 2006. The previous version is retained in the footnote 1.

Issue

To what extent are telecommunication services supplied by resident telecommunications carriers (telcos) GST-free?

Decision

The following common telecommunication services made by a resident telecommunications carrier are GST-free supplies.

GST- free telecommunication supplies

Telco supplies and charges an overseas carrier for use of Telco's network to terminate an IDD call to Australia
Telco supplies and charges an overseas carrier for use of Telco's network to deliver an IDD call reverse charged at the request of an Australian originator
Where a person overseas makes a call to an overseas visitor roaming in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to deliver the call
Where a Telco customer roaming overseas makes a call to a person in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to terminate the call
Where an overseas person makes a call to a Telco customer roaming overseas

Telco supplies and charges an overseas carrier for use of Telco's network to terminate the first leg of the call
Where an overseas person makes a call, directed through Australia, to a person in another country

Telco supplies and charges the telecommunication carrier of the country where the call originates for:

(i) use of Telco's network to deliver the call, and

(ii) the costs of the telecommunication carrier in the country where the call is received
Where a call is made from a ship outside Australia to an overseas country via Inmarsat (satellite) and the Telco network in Australia -

Telco supplies and charges the shipping operator, via the Accounting Authority, for use of Telco's network in transmitting the call.
Where an overseas resident makes a call to a ship (outside Australia) via Inmarsat (satellite) and the Telco network in Australia

Telco supplies and charges an overseas carrier for use of Telco's network to transmit the call

3. Issue 3 is amended, effective 28 November 2012. Issue 3 previously stated:

Issue 3 - GST treatment of specific telecommunication supplies (GST-free supplies)

On 21 December 2006, the Minister for Revenue and Assistant Treasurer announced that 'the government will amend the GST law to ensure that certain international telecommunications services supplied by Australian telecommunications providers, including global roaming supplies, will continue to be GST-free…the amendments will apply from 1 July 2000'.

As it is the government's intention that the supplies previously listed in issue 3 remain GST-free, the telecommunications industry may continue to rely on the earlier version of Issue 3 that is retained in footnote 1 until the amendment to give effect to the government's announcement is made.

This advice will be updated if the legislative amendment does not proceed (for example, because states' and territories' approval is not obtained). In particular, (in the absence of an amendment) the application of subsection 38-190(3) which is explained in Goods and Services Tax Ruling GSTR 2005/6 has relevance to some of the supplies listed. 2

4. Issue 7 previously stated:

The ATO has released its preliminary views on how GST applies to non monetary consideration - draft ruling GSTR 2001/D5, issued 29 June 2001. This issue may be subject to modification upon finalisation of that public ruling.

Nature of the arrangement

Contra arrangements involve the exchange of goods or services without monetary consideration or only a net amount of monetary consideration after the value of the supplies received has been offset against the value of the supplies made. For example:

the supply of telecommunication services in exchange for advertising services, or
supply of access to your infrastructure in exchange for access to another telco's infrastructure.

Issue

How are these arrangements treated for GST purposes?

Decision

Both parties are making supplies for consideration, being the total value of the monetary consideration, if any and the GST inclusive market value of any non monetary consideration. Tax invoices must set out the price for a supply, which includes the GST inclusive market value of any non monetary consideration.

5. Issue 8 previously stated:

Subject

The Melbourne Agreement and intercarrier supplies

Nature of the arrangement

Intercarrier supplies made by overseas carriers to resident telcos are not connected with Australia under the general rule in section 9-25, but would be connected with Australia under the specific rule for telecommunication supplies in Division 85. In the event that such a supply were a taxable supply, a resident telco would be entitled to full input tax credits.

Issue

How does division 85 impact on the principles of The final acts of the World Administrative Telegraph and Telephone Conference (the Melbourne Agreement) relating to the imposition of taxes on inter-carrier settlements?

Decision

The collection of GST on telecommunication services supplied by overseas carriers to resident telcos for which the recipient would be entitled to a full input tax credit is not administratively feasible for the purposes of paragraph 85-5(2)(b) of the GST Act. As a result, these supplies are not connected with Australia pursuant to section 85-5, nor section 9-25, and are therefore not taxable supplies.

Accordingly, division 85 does not impact on the principles of the Melbourne Agreement.

6. Issue 9 previously stated:

Subject

Overpayment and early payment of telephone charges

Nature of the arrangement

Some customers make periodic payments (for example, monthly) as a means of budgeting for their next telephone bill. Overpayments of varying sizes, some deliberate (for example, government agencies accounting on a cash basis), others accidental also occur. Overpayments and early payments are either refunded at the customer's request or applied to the outstanding balance on the customer's account.

Issues

Are overpayments and voluntary payments received when there is no identifiable supply subject to GST in the period when the prepayment is received?

Will the Commissioner make a determination under the special attribution rules in subsection 29-25(1) such that telcos can account for GST on taxable supplies in the tax period when a bill is issued to the customer, consistent with treatment for attribution of taxable supplies where there is no early payment?

Decision

The Commissioner has determined under subsection 29-25(1) that the tax period to which the GST on this class of supplies should be attributed is the tax period in which a bill is issued to the customer.

This only applies where such billing is either earlier than or part of the normal billing cycle.

There is no GST liability at the time of the early payment, nor when the value of calls that the customer makes during the billing cycle, but before the bill is generated, are such that the credit could have been applied as consideration.

7. Issue 10 previously stated:

Subject

GST-free supplies

Nature of the arrangement

Specifically excluded from the GST-free provisions for supplies to non residents and supplies used or enjoyed outside Australia are supplies that are 'directly connected with goods situated in Australia when the thing supplied is done, or with real property situated in Australia'.

Issue

Does the phrase 'other than a supply directly connected with goods situated in Australia' extend to the use of telecommunications infrastructure that is required to be used to deliver the service?

Decision

No. The provision of a telecommunication service is not 'directly connected with' the infrastructure that is used to make the supply.

A supply that is directly connected with goods would be a service of repairs or maintenance of those goods.

8. The following note has been omitted:
The forthcoming public ruling on settlements may provide further guidance on whether there is a supply in such circumstances.

9. Issue 13 previously stated:

Issue 13 - Tax invoices for prepaid non rechargeable telephone cards

Nature of the arrangement

Telephone cards are typically sold through retail outlets. In some instances a phone card is a FVV for GST purposes and the supply of the phone card is not a taxable supply. For the purposes of the rest of this issue chapter, the phone cards under discussion are those which are FVVs for GST purposes as outlined in GSTR 2003/5.

The retailer will usually provide an invoice or tax invoice when the phone card is supplied. However, the taxable supply is the supply of domestic phone calls by the telco. Accordingly the tax invoice should be issued by the telco that makes the telecommunication supplies. Due to the way in which phone cards are distributed, the telco has no reasonable way of knowing the details of the recipient of the telecommunication supplies in order to issue them with a tax invoice. Further, in many instances the price of the telecommunication supplies (each individual phone call, for example) will be less than $82.50(GST inclusive) and so the telco would not have a legal obligation to issue a tax invoice.

Issue

What are the tax invoice requirements where phone calls are made with a pre-paid telephone card that is considered to be a FVV for GST purposes (for example, phone cards used for fixed pay phones)?

Decision

The Commissioner will treat the receipt provided by the retailer for the purchase of a phone card as a tax invoice for the telephone calls that are made using that phone card. This decision applies only to pre-paid phone cards that are considered to be FVVs for GST purposes. The Commissioner will issue a formal determination under section 29-70 of the A New Tax System (Goods and Services Tax) Act 1999.

The person using the phone card may need to substantiate that all telecommunication supplies:

were taxable supplies to them (for example, not GST-free international mobile roaming supplies); and
were all creditable acquisitions;

if they want to claim input tax credits based on 1/11th of the price of the phone card shown on any invoice or tax invoice covered by the determination.

10. Issue 14 previously stated:

Subject

Compensation payments (excluding settlements of insurance claims)

Nature of the arrangement

Property belonging to telecommunications companies (telco's) may be damaged, either wilfully or accidentally by individuals and other entities. For example, a public phone booth may be vandalised, or during earthworks, underground cables may be severed. As a result of the damages, telco's may suffer financial loss, including the cost of repairs and lost revenue from service disruption. Telco's may seek compensation from those who caused the damage (recipients).

It is assumed that a settlement between the telco and the recipient is negotiated or otherwise agreed to. This could occur for example by the recipient paying an amount demanded by the telco, or by the recipient offering to pay a lesser amount and the telco accepting that offer. Further that in reaching an agreement, there is an express or implied understanding that the telco's claims have been fully or partly satisfied and to this extent that the recipient is released from further obligation.

Alternatively, as a result of litigation, a Court may award damages in favour of the telco.

Issue

Is a payment received by a telco as compensation for damages to its property consideration for a taxable supply made by the telco to the recipient?

Decision

Yes.

When a telco receives a compensation payment (or other consideration) as a result of the recovery action it has undertaken, the amount received constitutes consideration for a supply made by the telco to the recipient.

Subsection 9-10(2) provides that supply includes:

a creation, grant, transfer, assignment or surrender of any right
an entry into, or release from, an obligation:

c. to do anything, or

d. to refrain from an act, or

e. to tolerate an act or situation.

Specifically, the telco is surrendering common law rights to pursue damages and is entering into an obligation to refrain from pursuing recovery action. This is a supply for GST purposes.

The trigger for the supply will be the time when the rights are surrendered or obligations are entered into. This is likely to coincide with the receipt of payment, as it is doubtful that the telco would surrender any rights or enter any obligations prior to payment even if the other party indicates an acceptance of liability.

Having established that there is a supply, the elements required to create a taxable supply are likely to be satisfied. In particular, a payment made in compliance with a court order constitutes consideration for GST purposes.

The Explanatory Memorandum states that

'payments, acts or forbearance constituting compensation or damages will be ... treated as consideration irrespective of whether they are received in compliance with an order of a court, tribunal or other body [new paragraph 9-15(2)(a)] or whether they are received from settlement out of court, tribunal or other body [new paragraph 9-15(2)(b)].

Consideration for the supply may also be non monetary. For example, the recipient may agree to undertake or arrange the necessary repairs.

11. Issue 15 previously stated:

This issue is now substantially addressed by GSTR 2003/5 issued on 28 May 2003. The previous wording of this issue is provided in the footnote and represented the ATO view in relation to some types of phone cards up until 27 May 2003.

There are some administrative arrangements to be negotiated with the phone card 'industry' in relation to phone cards which are not considered FVVs for GST purposes. Once the negotiated arrangements are in place they will be detailed in this issues register and may have some impact on this issue chapter.

In summary, GSTR 2003/5 indicates that a supplier who supplies telecommunication supplies on redemption of a type of phone card which is considered to be a FVV for GST purposes will be required to remit GST based on the full face value of that phone card if the card is supplied for more than nil consideration.

If a phone card is supplied for nil consideration then there is no taxable supply.

12. Issue 16 previously stated:

The ATO view on this issue has changed. For the current ATO view refer to GSTR 2000/37A (which is an addendum to Goods and Services Tax Ruling GSTR 2000/37) issued on 26 March 2003.

Please note that the Media Release Nat 03/52 "GST law and agency relationships" issued on 30 May 2003 states that affected taxpayers will have until the end of August 2003 to make changes to their arrangements and recording systems before they have to comply.

Of relevance, paragraphs 74 and 74A of GSTR 2000/37 now state:

'74. Section 153-50 provides that entities may enter into an arrangement under which an agent is treated as a separate supplier and/or acquirer. That is the agent is treated as a principal in its own right. Further, nothing in this section prohibits supplies that are not taxable supplies and acquisitions that are not creditable acquisitions from being included in such an arrangement. This includes supplies and acquisitions that are GST-free, input taxed or subject to the determination of the Treasurer under Division 81.

74A. Even though supplies that are not taxable supplies may be included in a Subdivision 153-B arrangement, section 153-55, which is about the effect of these arrangements on supplies, only applies to the taxable supplies covered by the arrangement. Similarly, section 153-60, which is about the effect of these arrangements on acquisitions, only applies to the creditable acquisitions covered by the arrangement. For supplies other than taxable supplies and acquisitions other than creditable acquisitions, the parties account for them as being from principal to principal for GST purposes. As section 153-55 and 155-60 do not apply in this circumstance, the parties need to account for those supplies and/or acquisitions in the arrangement separately from the supply of agency services. These consequences are explained in the Ruling at paragraphs 83A to 83M for supplies and paragraphs 91A to 91L for acquisitions.'

13. Issue 17 previously stated:

Nature of the arrangement

The phone card 'industry' is defined for the purposes of this issue chapter as those parties involved in the distribution of phone cards (for example, Telco's, distribution wholesalers, newsagents, general and specialist retailers etc) and those parties involved in providing telecommunication supplies as the phone cards are used by final consumers.

In order to comply with the ATO view in GSTR 2003/5, most members of the phone card industry will need to make adjustments to their systems and processes. In addition, there will be a number of phone card products which have been released into the distribution chain prior to the release of GSTR 2003/5 but which have not yet been fully used and transitional arrangements will need to be introduced to handle these products.

The media release that accompanied GSTR 2003/5 indicated that the ATO is providing businesses, including the phone card industry, with three months to put system changes in place.

A link to the Media Release Nat 03/50 "Tax Office releases final ruling on vouchers" is provided.

14. Issue 16 previously stated:

Effective from 6 April 2006, the new section 100-18 of the GST Act allows suppliers of Division 100 vouchers and their distributors to voluntarily enter into an arrangement to simplify the accounting for GST on commissions and similar payments on a supply of a voucher through a distribution chain.

The arrangement will apply so that where a supplier of a voucher enters into an arrangement with a distributor of the voucher, the supply of commission services by the distributor is not treated as a taxable supply. That is, any commission or similar payment made or payable to the distributor will be treated as if it is not for a taxable supply. The effect is that the distributor will not have to remit GST on its supply of commission services and the supplier of the voucher cannot claim the corresponding input tax credits. This amendment applies from 6 April 2006.

A transitional rule is also available which ensures that suppliers and distributors of Division 100 vouchers who entered into an agreement under subdivision 153-B before 6 April 2006 can continue to use that arrangement, subject to certain requirements, for supplies of Division 100 vouchers made on or after 6 April 2006. Subdivision 153-B arrangements were not actually available in relation to these supplies and hence the agreements entered before 6 April 2006 would be ineffective without this transitional rule. 12

Last Modified: Friday, 12 April 2013

Our commitment to you

We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations.

If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.

Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.

If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.

Copyright

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products)