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  • Issue 10 Gift vouchers

    10.1 Is it correct that the reimbursement by the franchisor represents a financial supply?

    Under an arrangement a retailer permits franchisees to operate stores under the same name. Under the franchise agreement, where gift vouchers are issued to customers by the franchisor, those customers can redeem the gift vouchers at stores operated by franchisees. There is an arrangement whereby the franchisor then reimburses the franchisee for the face value of the gift vouchers presented by customers.

    Example:

    Franchisee A sells a gift voucher to a client. A then gives the proceeds of the sale of the voucher to the franchisor. The client redeems the voucher for goods from franchisee B. Franchisee B claims back the value of the voucher redeemed via the franchisor.

    End of example

    This question and answer is currently under review.

    10.2 Supply of a Face Value Voucher (FVVs) through a number of entities

    I sell FVVs to various retail outlets. Under an agreement, the FVVs can be redeemed in any participating store. Retail Outlet 1 on-sells the FVVs to its customers. The FVV entitles the customer, on its redemption, to supplies up to the monetary value stated on the FVVs. A FVV is redeemed for supplies from Retail Outlet 2. I then pay Retail Outlet 2 for the face value of the FVV presented by its customer. Retail Outlet 2 pays me a fee for my services supplied to it.

    I sell FVVs to various retail outlets. Under an agreement, the FVVs can be redeemed in any participating store. Retail Outlet 1 on-sells the FVVs to its customers. The FVV entitles the customer, on its redemption, to supplies up to the monetary value stated on the FVVs. A FVV is redeemed for supplies from Retail Outlet 2. I then pay Retail Outlet 2 for the face value of the FVV presented by its customer. Retail Outlet 2 pays me a fee for my services supplied to it.

    1. What are the GST implications of my sales of the FVVs to the retail outlets and the subsequent sales to their customers?

    The sales of FVVs are not taxable supplies under subsection 100-5(1).

    2. When the FVV is redeemed for supplies by Retail Outlet 2, does Retail Outlet 2 make a taxable supply when it makes supplies to the customer?

    Yes. GST will be payable on those supplies if those supplies would be taxable under section 9-5.

    3. Is my payment made to Retail Outlet 2 for the face value of the FVV, which was presented by its customer, subject to GST?

    No. The payment is neither consideration for the supply made on the redemption of the FVV nor is it consideration for a supply by Retail Outlet 2 to you.

    4. Is the fee received by me from Retail Outlet 2 for my services subject to GST?

    Yes. The fee is consideration for your services to Retail Outlet 2, which is a taxable supply, if the requirements under section 9-5 are met.

    Explanation:

    A FVV may be supplied between a number of entities before it comes into the possession of the holder who uses it to obtain supplies. Each supply of a FVV between intermediate entities is a supply to which section 100-5 applies. That is, section 100-5 does apply to every supply of a FVV.

    Division 100 provides that, except where subsection 100-5(2) applies, the supply of a FVV for consideration is not a taxable supply, and there is no GST payable at this point. The point at which a GST liability may arise is on redemption of a FVV. The supplies on redemption of a FVV will be taxable if the requirements in section 9-5 are met.

    Your payment to Retail Outlet 2, who accepted the FVV as consideration for the supplies made on its redemption, is considered to be akin to the payment a credit card issuer would make to Retail Outlet 2. The payment to Retail Outlet 2 is not consideration for the supplies made on redemption of the FVV by Retail Outlet 2 to the customer. The payment is not consideration for a supply Retail Outlet 2 made to you. The payment is not a separate supply. The payment is held to be made as part of your performance of the contractual obligations under the agreement between yourself and Retail Outlet 2. Therefore no GST is payable and no input tax credit is available in relation to this payment.

    The fee paid by Retail Outlet 2 to you represents remuneration for the services you supplied to Retail Outlet 2. The supply of your services to Retail Outlet 2 is a taxable supply, if the requirements of section 9-5 are met.

    Example:

    A retailer enters into an arrangement with a third party to redeem the third party's FVVs. Under the terms of the arrangement, the third party pays the retailer a net amount of 95% of the face value of each FVV the retailer redeems, retaining 5% as commission.

    There is GST payable on the taxable supplies made by the retailer to the customer on redemption of the FVV based on the full face value of the FVV.

    The payment by the third party (equal to the face value of the FVV) is not consideration for the supplies made to the customer, nor is it consideration for a separate supply from the retailer to the third party. The payment is not a separate supply from the third party to the retailer.

    The commission (5%) received by the third party is consideration for all things supplied by the third party to the retailer. This is a taxable supply if the requirements of section 9-5 are met.

    End of example

    10.3 Is a letter capable of being a voucher?

    My store sells stationary goods. We also supply vouchers to customers which take the form of a letter. The letter states that on its presentation its holder is entitled to supplies of various stationary goods up to the monetary value stated on it. The terms and conditions of use are on the back of the letter.

    Are the letters vouchers within the meaning of section 100-25?

    Yes. The letter is a voucher to which section 100-25 applies.

    Explanation:

    For the purpose of section 100-25 a 'voucher' is:

    'any voucher, token, stamp, coupon or similar articles the redemption of which in accordance with its terms, entitles the holder to receive supplies in accordance with its items. However, a postage stamp is not a voucher.'

    The GST Act does not further define the terms 'token', 'stamp', 'coupon' and 'voucher'. These terms take their ordinary meaning subject to satisfaction of the requirements in section 100-25 that the article must upon its redemption entitle the holder to receive supplies in accordance with its terms. In determining whether an article is similar to a voucher, token, stamp or coupon its characteristics, function and purpose should be taken into consideration.

    The vouchers contemplated by section 100-25 are those that have a single function or purpose to receive supplies on redemption. That is, the right or entitlement to receive supplies, must cease to exist on exercise of that right or entitlement by virtue of the redemption of the voucher or when the voucher expires. On cessation of the right, the voucher, or any part of the voucher, performs no other function nor does any other function continue to exist.

    10.4 Is an electronic voucher capable of being a voucher?

    Is a voucher which is issued and/or redeemed electronically, one to which section 100-25 may apply?

    Yes. A voucher that is the electronic equivalent of the physical form of a 'voucher' satisfies the meaning of voucher in section 100-25. An example of this may be a visual graphic representation of the voucher on a computer screen. However, it is then necessary to consider if the electronic voucher satisfies the other criteria of sections 100-25 and 100-5 to determine if it is afforded the GST status of and treatment for a face value voucher.

    Explanation:

    A voucher that is issued and/ or redeemed electronically is not excluded from the meaning of voucher in section 100-25. A voucher that is the electronic equivalent of the physical form of a 'voucher' satisfies the meaning of voucher in section 100-25.

    Electronic vouchers may be printed out and, like paper vouchers, presented to a supplier in exchange for goods or services. Alternatively, they may be redeemed on-line by providing the voucher details.

    Such a voucher is capable of being electronically redeemed for supplies by presenting to the redeeming supplier the relevant unique information from the electronic voucher. Electronic redemption does not preclude the voucher from being a section 100-25 voucher. The provision of the unique information from the voucher enables the supplies to be made, and is equivalent to presenting the voucher to the supplier. In such a case the electronic voucher is integral to the supplies made on its redemption.

    Example:

    Ezy-gift sells various retailer branded gift vouchers through the Internet. The vouchers are only redeemable on-line. Holders of the vouchers go to the retailer's website and go through the usual process of placing an order. They are required to provide the voucher claim code and expiry date to identify the voucher as the means of payment. The use of the claim code enables the voucher's redemption which entitles the holder to immediate supplies. The voucher is redeemed for the purposes of the meaning of voucher in section 100-25.

    End of example

    10.5 Monetary value stated on a Face Value Voucher (FVV)

    Is a plastic card with the monetary value embedded in a bar code or magnetic strip a FVV if it meets all the other requirements to be a FVV?

    Yes. If all the information evidencing the holder's entitlement to supplies up to that monetary value is on the plastic card, it can be a voucher to which section 100-5 applies.

    Explanation:

    The requirement that the monetary value must be 'stated on the voucher' simply means that the amount must be explicitly set out on the FVV.

    A voucher which exists partly in a physical form or partly in machine readable form can satisfy this requirement. As long as the monetary value stated on the voucher can be evidenced through the assistance of mechanical or electronic means, the amount is stated on the voucher and it can be a FVV. A monetary value embedded in the bar code or magnetic strip on the voucher will be accepted as a monetary value stated on the voucher.

    Example:

    Aussie Hardware issues plastic vouchers, which entitle the customer to receive supplies from the store. The voucher states the name of the store on its front and the customer is entitled to supplies up to the monetary value stored on the magnetic strip on the reverse side. The magnetic strip requires a card reader to read the stored monetary value of $100. The monetary value is stated on the voucher

    End of example

    10.6 Supply of FVVs and Subdivision 153-B agency arrangements

    Under a Subdivision 153-B agency arrangement, the principal supplies a FVV to its agent. The agent sells the FVV to its customer. The agent receives a commission for its supply of services to the principal. The FVV is redeemed for supplies from the principal. What are the GST implications on the following transactions?

    The supply of the FVV by the principal to its agent.

    Under Subdivision 153-B the agent is treated as a separate supplier. The supply of the FVV is not a taxable supply under section 100-5. There is no GST, and no entitlement to an input tax credit on the supply of the FVV.

    The supply of the FVV by the agent to its customer.

    Under Subdivision 153-B the agent makes a supply of a FVV to its customer. The supply of the FVV is not a taxable supply under section 100-5(1). There is no GST, and no entitlement to an input tax credit on the supply of the FVV.

    The supply of services by the agent to the principal.

    The supply of services by the agent to the principal is a taxable supply where the requirements of section 9-5 are met. The commission received by the agent is consideration for the supply of its services to the principal. The agent will be required to remit GST on the commission received. The principal will be entitled to an input tax credit for the creditable acquisition of the agent services.

    The supplies made by the principal to the customer on redemption of the FVV.

    The supplies made by the principal to the customer is a taxable supply, if the requirements of section 9-5 are met.

    Explanation:

    Subdivision 153-B enables a principal and agent to enter into an arrangement where the agent is treated as a principal for GST purposes. Subdivision 153-B arrangements can be made in relation to any type of supply, whether it is taxable, GST-free or input taxed. Section 153-55 allows for the agent's payment to the principal to be reduced by the amount the principal pays, or is liable to pay, to the agent for the supply of agency services. The effect is that the agent's supply of services to the principal is not a taxable supply. However, whilst the subdivision may apply to any type of supply the operative effect contained in section 153-55 only applies to taxable supplies.

    Where a supplier of a FVV has a Subdivision 153-B arrangement the supplies of a FVV from the principal to a customer through the agent will be treated as two separate supplies. That is, a supply from the principal to the agent, and another supply from the agent to the third party. The supply of a FVV is not a taxable supply under section 100-5. Therefore, the calculation in section 153-55 does not apply. The principal and agent must account for the commission the principal pays, or is liable to pay, to the agent as consideration for a separate supply of the agent's services. This supply is taxable if the requirements of section 9-5 are met.

    Example:

    A supply of FVV under a Subdivision 153-B arrangement

    Country Homeware enters into a Subdivision 153-B arrangement with its agent WonderDesign. Country Homeware supplies a $110 FVV to WonderDesign. WonderDesign sells the FVV to a customer for $110. Under the agency agreement WonderDesign receives an $11 commission from Country Homeware for its supply of agency services.

    The effect of the Subdivision 153-B arrangement is that there is a supply of the FVV by Country Homeware to WonderDesign, and a supply of the FVV from WonderDesign to the customer. The supply of a FVV from Country Homeware to Wonder Design and from Wonder Design to the customer, is not a taxable supply under subsection 100-5(1). The supply of agency services by WonderDesign to Country Homeware is a taxable supply. The consideration for the services is $11. WonderDesign is required to remit GST of $1(1/11 x $11). Country Homeware is entitled to an input tax credit of $1 on the acquisition of the agent's services.

    The FVV is later redeemed for supplies from Country Homeware up to the monetary value stated on the FVV. The supply of $110 worth of goods by Country Homeware is a taxable supply. Country Homeware is required to remit $10 (1/11 x $110) of GST. The customer is entitled to an input tax credit of $10 on the acquisition of goods, if the requirements of Division 11 are met.

    Example:

    A supply of non-FVV under a Subdivision 153-B arrangement

    Country Homeware enters into a Subdivision 153-B arrangement with its agent GreatDesign. Country Homeware supplies a non-FVV to GreatDesign for $110. GreatDesign sells the non-FVV to a customer for $110. Under the agency agreement GreatDesign receives an $11 commission from Country Homeware for its supply of services.

    The effect of the Subdivision 153-B arrangement is that there is a supply of the non-FVV by Country Homeware to GreatDesign, and a supply of the FVV from GreatDesign to the customer. The supply of a non-FVV is a taxable supply, if the requirements of section 9-5 are met. The customer may be entitled to $10 input tax credit on the acquisition of the voucher, if the requirements of Division 11 are met. The effect of the calculation in section 15355 is that the amount payable by GreatDesign to Country Homeware for the taxable supply of the non-FVV is taken to be reduced by the amount Country Homeware is liable to pay GreatDesign for the supply of their services .ie $99 ($110 - $11). GreatDesign's supply of services is not considered to be a taxable supply. Country Homeware is required to remit $9 GST. GreatDesign is entitled to $9 input tax credit.

    The non-FVV is later redeemed for goods from Country Homeware. The supply of $110 worth of goods by Country Homeware is a taxable supply. However, under paragraph 9-15(3)(a) there is no GST payable on the supply on redemption of the non-FVV if there is no consideration provided for the supply.

    End of example

    10.7 Vouchers donated or given away for no consideration

    A retailer gives away a voucher which is not a face value voucher for the purposes of GST. Are there any GST consequences for the supply and redemption of the voucher?

    Where no consideration has been provided for the supply of the voucher, a taxable supply has not been made and GST is not payable. When the voucher is redeemed there is no GST payable for the supply on redemption if no additional consideration is provided. A GST liability may arise if the supply on redemption is a taxable supply and additional consideration is provided for that supply.

    Explanation:

    One of the requirements for a supply to be taxable under section 9-5 is that it is made for consideration. If there is no consideration for the supply of a voucher Division 100 does not apply; the basic rules of Chapter 2 apply. The consideration for the supply of goods and services on redemption of the voucher is limited by paragraph 9-15(3)(a) to any additional consideration provided for those supplies.

    Section 100-25 of the GST Act provides the meaning of voucher for Division 100 purposes. Section 100-5 of the GST Act states that in certain circumstances the supply of a voucher is not a taxable supply. A supply to which section 100-5 applies would otherwise be a taxable supply. Therefore, section 100-5 only applies when the supply of the voucher would be taxable under the basic rules. For section 100-5 to apply there must be consideration for the supply of the voucher. For example, section 100-5 will not apply to a voucher which has been:

    • donated by an entity to a charity; or
    • truly given away, as an unsolicited gift or unsolicited promotional item (non-charity).

    A voucher that satisfies the requirements of both sections 100-25 and 100-5 is referred to as a face value voucher (FVV).

    Example:

    Arthur receives in his mailbox advertising matter along with a voucher that entitles him to goods up to the face value of the voucher at Paws, a local pet store. The amount of $10 is clearly displayed on the voucher. Later in the week, Arthur shops at Paws and the voucher is redeemed for a new doghouse, priced at $54.

    The voucher Arthur receives is not a FVV as section 100-5 only applies where the supply of the voucher would be taxable under the basic rules. One of the requirements of a taxable supply is that it be made for consideration. Neither Arthur, nor anyone else, has given any consideration for the supply of the voucher. Therefore, under the basic rules of Chapter 2, no GST is payable on the supply of the voucher.

    Arthur provided additional consideration of $44 for the supply of the doghouse on the redemption of the voucher. As the voucher is not a FVV, paragraph 9-15(3)(a) does apply to limit the consideration for the supply of the doghouse to the additional $44. GST of $4 (1/11th x $44) is payable on the supply of the doghouse

    End of example

    10.8 Vouchers supplied with something else

    I made a supply of a voucher with the purchase of a refrigerator. The voucher has a monetary value stated on it and can be exchanged in store for any goods or services up to that value. What are the GST implications on the supply and redemption of this voucher?

    The voucher satisfies the requirements of both sections 100-25 and 100-5, and can be referred to as a face value voucher (FVV). The supply of the FVV is not a taxable supply under section 100-5. You are making a mixed supply, as the supply of the refrigerator is taxable and the supply of the FVV is not taxable. The consideration for this mixed supply should be apportioned between the supply of the FVV and the taxable supply of the refrigerator. GST is payable by you on the taxable supply of the Refrigerator. Later, when the FVV is redeemed for supplies, GST is payable by you if those supplies are taxable.

    Explanation:

    Sometimes FVVs are provided as part of a supply with something else. If the FVV is a separately identifiable part of the supply, the consideration for the supply should be apportioned between the parts. Any apportionment should be done on a reasonable basis. The Goods and Services Tax Ruling GSTR 2001/8 provides guidance on apportioning the consideration for a supply that includes taxable and non-taxable parts.

    The fact that a FVV, supplied as part of a package for one amount of consideration, is described as being 'free' does not mean that consideration cannot be apportioned to the supply of the FVV. For example, in a deal in which a 'free' voucher is supplied on condition that something else is purchased, the purchase price is consideration for all of the things supplied, including the 'free' voucher and consideration is to be apportioned to the supply of the FVV.

    The amount of the consideration to be apportioned to the supply of a FVV is its face value. This is because the consideration for the supplies to be made on redemption of the FVV is the face value of the voucher.

    If part of a supply is a voucher to which section 100-5 does not apply and it is taxable, and if part of the supply is not taxable (because it is GST-free or input taxed or otherwise not taxable), apportionment of the consideration to the different parts of the supply is necessary for the proper operation of the GST Act.

    A reasonable method of apportioning the consideration should be adopted. The apportionment must be supportable by the facts in the particular circumstances.

    Example:

    As part of a promotion for Weatherall whitegoods, a retailer provides a FVV with each sale. The FVVs can be exchanged in that store for supplies up to the face value stated on it. The retailer makes a sale of a Weatherall refrigerator with a $220 FVV for a price of $1067.

    The GST payable on the sale of a refrigerator with a $220 FVV for a price of $1067 is based on consideration for the refrigerator being $847 ($1067- $220). The GST payable on the sale of the refrigerator is $77 (1/11 x $847).

    When the FVV is redeemed for supplies from the retailer, there is $20 (1/11 x $220) GST payable by the retailer based on the face value of the FVV.

    However, if the voucher provided with the refrigerator is for a specified item, for example a toaster, the voucher is not a FVV. The GST payable on the sale of the refrigerator and this voucher is $97 (1/11 x $1067). As the supply of this voucher is taxable (section 100-5 does not apply to the supply of this type of voucher), there is no need to apportion consideration to it.

    Unless additional consideration is provided on redemption of this voucher for the toaster, there will be no GST payable on the supply of the toaster (paragraph 9-15(3)(a)).

    End of example
      Last modified: 22 May 2014QC 28063