ATO Interpretative Decision

ATO ID 2001/685 (Withdrawn)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 business operator, 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 acquires an overdraft facility from a financial institution and pays interest on that overdraft?

Decision

Yes, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it acquires an overdraft facility from a financial institution and pays interest on that overdraft.

Facts

The entity is a business operator in Australia. The entity has an overdraft facility with a financial institution. The entity pays interest to the financial institution for this overdraft facility.

The entity is registered for goods and services tax (GST).

The financial institution is an Australian ADI (authorised deposit-taking institution). The financial institution is carrying on an enterprise of providing banking services in Australia and is registered for GST.

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:

•

the provision, acquisition or disposal is:

-

for consideration;

-

in the course or furtherance of an enterprise;

-

connected with Australia; and

•

the supplier is:

-

registered or required to be registered for GST; and

-

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 1 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 1) lists:

'An account made available by an Australian ADI (authorised deposit taking institution) in the course of:

(a)

its banking business within the meaning of the Banking Act 1959; or

(b)

its State banking business'

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'.

Schedule 7 of the GST Regulations provides examples of financial supplies for the purposes of Item 1 and Item 2. Under Part 1 of Schedule 7 to the GST Regulations, the operation of authorised overdraft facilities is an example of a financial supply for the purpose of Item 1.

Under Part 2 of Schedule 7 to the GST Regulations, borrowing and lending, including establishing, maintaining and discharging loans are examples of financial supplies for the purpose of Item 2.

The entity has an overdraft facility with a financial institution who is an Australian ADI (authorised deposit-taking institution). When the entity is provided with credit through an overdraft facility, there is the creation of an interest in a credit arrangement. This acquisition of an interest in a credit arrangement would be covered by Items 1 and 2. The interest paid by the entity would be consideration for the acquisition of an interest in the credit arrangement.

In addition, the acquisition of this interest is made in the course or furtherance of an enterprise, it is connected with Australia and the supplier 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:

•

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

•

created by the entity in making the supply.

As the interest in the credit arrangement was the property of the financial institution immediately before the supply, the financial institution 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 acquisition 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 acquires an overdraft facility from a financial institution and pays interest on the overdraft.

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

Other References:
Banking & Finance, Questions and Answers, FAQs on Bank Accounts, Number 24

Keywords
Goods & services tax
Input taxed supplies
GST financial supplies
Accounts

Business Line:  GST

Date of publication:  30 November 2001

ISSN: 1445-2782