For source of ATO view, refer to paragraphs 74 to 91 of GSTR 2000/37External Link- 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.