ATO Interpretative Decision

ATO ID 2001/448 (Withdrawn)

Goods and Services Tax

• This ATO ID is a straight application of the law and does not contain an interpretative decision.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a supplier of securities, making an input taxed supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells shares?

Decision

Yes, the entity is making an input taxed supply under subsection 40-5(1) of the GST Act when it sells shares.

Facts

The entity is a supplier of securities. The entity sells shares. The shares were the property of the entity immediately before the supply.

The entity is registered for goods and services tax (GST). The supply is for consideration. The supply is connected with Australia and is in the course or furtherance of the enterprise that the entity is carrying on.

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 'financial supply' has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Regulation 40-5.08 of the GST Regulations provides, a supply is a financial supply if it is mentioned as a financial supply in regulation 40-5.09 of the GST Regulations.

Subregulation 40-5.09(1) of the GST Regulations describes the circumstances under which the provision, acquisition, or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply. The circumstances are that 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 registered or required to be registered; and

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

Therefore, 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. Regulation 40-5.02 of the GST Regulations defines an 'interest' as anything that is recognised at law or in equity as property in any form'.

As such, the interest has to be mentioned in subregulations 40-5.09(3) or (4) of the GST Regulations. Item 10 of subregulation 40-5.09(3) of the GST Regulations lists 'securities, including.....'.

Securities is defined in the Dictionary to the GST Regulations as having the meaning given by subsection 92(1) of the Corporations Act 2001. Subsection 92(1) of the Corporations Act includes shares, in the definition of securities.

Subregulation 40-5.09(1) of the GST Regulations also requires that there must be a provision, acquisition or disposal of the interest in the shares. Regulation 40-5.04 of the GST Regulations states that the disposal of an interest includes assignment, cancellation, redemption, transfer and surrender of the interest. As the entity is making a transfer of the shares, they are making a disposal of the interest in the securities.

The first four requirements in subregulation 40-5.09(1) of the GST Regulations are satisfied as the supply is for consideration, it is in the course and furtherance of an enterprise, it is connected with Australia and the supplier is registered for GST. Therefore, it is necessary to determine if the supplier is a 'financial supply provider' in relation to the supply of the interest. 'Financial supply provider' is defined in regulation 40-5.06 of the GST Regulations:

'An entity, in relation to the supply of an interest that was:

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

created by the entity in making the supply;

is the financial supply provider of the interest'.

Therefore, as the interest was the property of the entity immediately before the supply, the entity is a financial supply provider in relation to the supply of the interest. Accordingly, subparagraph 40-5.09(1) (b)(ii) of the GST Regulations is satisfied. Consequently, the supply satisfies subregulation 40-5.09(1) of the GST Regulations.

The transfer of the interest in the securities, by the entity to a third party fulfils all of the requirements of regulation 40-5.09 of the GST Regulations and is a financial supply. Therefore, the entity is making an input taxed supply under subsection 40-5(1) of the GST Act when it sells shares.

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
GST debt securities

Business Line:  GST

Date of publication:  11 October 2001

ISSN: 1445-2782