ATO Interpretative Decision

ATO ID 2007/146 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn, as it is no longer necessary. The ATO view expressed in this ATO ID is a straight application of the law and does not contain an interpretative decision. Guidance on the view contained in this ATO ID can be found in GSTR 2002/2 GST treatment of financial supplies and related supplies and acquisitions.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a goods and service tax (GST) registered entity, which is not an authorised deposit-taking institution (ADI), making an input taxed financial supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it cashes a client's cheque and charges a fee for doing so?

Decision

Yes, the entity is making an input taxed financial supply under subsection 40-5(1) of the GST Act when it cashes a client's cheque and charges a fee for doing so.

Facts

The entity is registered for GST, but is not an ADI. The entity provides cheque cashing facilities to members of the public for a fee. The cheque cashing facility involves immediate cashing of a cheque made out to a client by a third party.

The calculation of the fee may be based on a fixed amount per cheque, a percentage of the face value of the cheque, or a combination of both. When a client presents a cheque for a certain value, the fee charged may be paid separately by the client or the entity may deduct it from the face value of the cheque.

Reasons for Decision

A cheque is a document that complies with the definition set out in section 10 of the Cheques Act 1986, as follows:

1.

A cheque is an unconditional order in writing that:

(a)

is addressed by a person to another person, being a financial institution; and

(b)

is signed by the person giving it; and

(c)

requires the financial institution to pay on demand a sum certain in money.

2.

An instrument that does not comply with subsection (1), or that orders any act to be done in addition to the payment of money, is not a cheque.

A cheque is a negotiable instrument that is used or intended for use or circulation as money. Subsection 39(1) of the Cheques Act states that every cheque may be transferred by negotiation until it is discharged.

A cheque is also a bill of exchange, as defined in subsection 8(1) of the Bills of Exchange Act 1909:

A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer.

As a negotiable instrument or bill of exchange, a cheque falls within the definition of 'money' in section 195-1 of the GST Act. Under this definition, money includes:

(a)

currency (whether of Australia or of any other country); and

(b)

promissory notes and bills of exchange; and

(c)

any negotiable instrument used or circulated, or intended for use or circulation, as currency (whether of Australia or of any other country); and

(d)

postal notes and money orders.

In cashing a cheque for a client, the entity is providing money, in exchange for money in another form (that is, the cheque) provided by the client, together with the fee to be paid by the client.

Subsection 9-10(4) of the GST Act states:

However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money.

As each party to the transaction is supplying money to the other, and each supply of money is provided as consideration for the other supply of money, each supply is a 'supply' for GST purposes.

Subdivision 40-A of the A New Tax System (Goods and Services Tax) Regulations 1999 (the GST Regulations) is about financial supplies, made by financial supply providers. Central to the operation of this subdivision is the concept of 'an interest', which is defined in regulation 40-5.02 of the GST Regulations as 'anything that is recognised at law or in equity as property in any form'. Regulation 40-5.06 of the GST Regulations provides that an entity that acquires such an interest is also the financial supply provider of the interest.

Subregulation 40-5.09(1) of the GST Regulations states that the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) is a financial supply if:

(a)

the provision, acquisition or disposal is:

(i)

for consideration; and

(ii)

in the course or furtherance of an enterprise; and

(iii)

connected with Australia; and

(b)

the supplier is:

(i)

registered or required to be registered; and

(ii)

a financial supply provider in relation to the supply of the interest.

Subregulation 40-5.09(3) of the GST Regulations lists those interests, the provision, acquisition or disposal of which may be financial supplies. While 'money' is not separately listed here, cash falls under item 9 in the table in subregulation 40-5.09(3) of the GST Regulations (which includes Australian currency).

Item 10 in the table in subregulation 40-5.09(3) of the GST Regulations is about interests in securities. A non-exhaustive list of examples of item 10 interests is set out in Part 8 of Schedule 7 of the GST Regulations. This list includes promissory notes and bills of exchange. It follows that a cheque is a security for the purposes of item 10 in the table in subregulation 40-5.09(3).

The provision of the cash and the acquisition of the interest in the security by the registered entity are financial supplies, as the requirements set out in both subregulations 40-5.09(1) and 40-5.09(3) of the GST Regulations are satisfied. How the fee is calculated and charged does not alter this characterisation.

Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   subsection 9-10(4)
   subsection 40-5 (1)
   section 195-1

Keywords
Cheques
GST Financial Supplies
GST Money
Input taxed supplies

Siebel/TDMS Reference Number:  5638214

Business Line:  Indirect Tax

Date of publication:  13 July 2007

ISSN: 1445-2782