ATO Interpretative Decision

ATO ID 2001/684

Goods and Services Tax

• This ATO ID contains references to provisions of the A New Tax System (Goods and Services Tax) Regulations 1999, which have been replaced by the A New Tax System (Goods and Services Tax) Regulations 2019. This ATO ID continues to apply in relation to the remade Regulations.

  A comparison table which provides the replacement provisions in the A New Tax System (Goods and Services Tax) Regulations 2019 for regulations which are referenced in this ATO ID is available.

  With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a supplier of goods, making a financial supply that is input taxed under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it extends a customer's credit and receives interest?

Decision

Yes, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it extends a customer's credit and receives interest.

Facts

The entity is a supplier of goods in Australia and is registered for goods and services tax (GST).

When a customer is unable to obtain finance to purchase goods, the entity, as part of its enterprise, will provide credit beyond its usual 30 day trading terms. The customer pays an agreed amount of interest in addition to the monthly repayments for this period of extended credit. This interest component is not penalty interest for late payment.

Reasons for Decision

Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act provides that a financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if:

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the provision, acquisition or disposal is:

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for consideration; and

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in the course or furtherance of an enterprise; and

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connected with Australia; and

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the supplier is:

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registered or required to be registered for GST; and

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

Firstly, it is necessary to determine whether the entity is providing, acquiring or disposing of an interest in or under an item mentioned in subregulation 40-5.09(3) or (4) of the GST Regulations.

Item 2 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 2) lists 'a debt, credit arrangement or right to credit, including a letter of credit'. Under Part 2 of Schedule 7 of the GST Regulations, borrowing and lending, including establishing, maintaining and discharging loans are examples of financial supplies that are relevant to Item 2.

The entity is providing credit to a customer. This provision of an interest in a credit arrangement is covered by Item 2. The interest received from the customer represents consideration for the provision of this interest in the credit arrangement.

In addition, the provision of this interest is made in the course or furtherance of an enterprise, it is connected with Australia and the supplier, the entity, is registered for GST. Therefore, it is only necessary to determine if the supplier is a 'financial supply provider' in relation to the supply of the interest.

A financial supply provider is defined under subregulation 40-5.06(1) of the GST Regulations as an entity in relation to the supply of an interest that was:

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immediately before the supply, the property of the entity; or

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created by the entity in making the supply.

As the interest in the credit arrangement was created by the entity in making the supply, the entity is a financial supply provider in relation to that interest.

Therefore, as all of the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied, the provision of an interest in the credit arrangement by the entity is a financial supply.

As such, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it extends a customer's credit and receives interest.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   subsection 40-5(1)
   subsection 40-5(2)

Keywords
Goods & services tax
Input taxed supplies
GST financial supplies

Siebel/TDMS Reference Number:  CW239695

Business Line:  Indirect Tax

Date of publication:  30 November 2001

ISSN: 1445-2782