• 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

    1. Telco supplies and charges an overseas carrier for use of Telco's network to terminate an IDD call to Australia
    2. 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
    3. 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
    4. 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
    5. 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
    6. 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
    7. 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
    8. 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
    9. Telco supplies and charges a non resident of Australia for call centre services provided in Australia
    10. Telco supplies and charges a service fee to a non resident of Australia for a 'facilities managed' call centre
    11. 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
    12. 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.
    13. 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

    1. Telco supplies and charges an overseas carrier for use of Telco's network to terminate an IDD call to Australia
    2. 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
    3. 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
    4. 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
    5. 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
    6. 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
    7. 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.
    8. 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:

    1. a creation, grant, transfer, assignment or surrender of any right
    2. 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 2000/37AExternal Link (which is an addendum to Goods and Services Tax Ruling GSTR 2000/37External Link) 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.

    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: 12 Apr 2013QC 16376