ATO Interpretative Decision
ATO ID 2008/116
Goods and Services Tax
GST and credit card surcharge for payment of an Australian tax, fee or chargeFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is an additional amount charged by an entity for the payment by credit card of Australian taxes, fees and charges, consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Decision
No. The additional amount charged by the entity for the payment of the Australian taxes, fees and charges by credit card is not consideration for a taxable supply.
Facts
The entity is an Australian government agency within the meaning of section 195-1 of the GST Act.
The entity imposes an Australian tax, fee or charge within the meaning of section 195-1 of the GST Act.
The Australian tax, fee or charge is excluded from the GST by a determination of the Treasurer.
The entity imposes an additional amount for the payment of the Australian tax, fee or charge by credit card.
Reasons for Decision
The question of whether an entity makes a taxable supply for GST purposes depends on whether the requirements of section 9-5 of the GST Act are satisfied. One of these requirements is that the entity makes the supply for consideration.
Section 45-5 of the GST Act provides that the special rules set out in Chapter 4 of the GST Act override the basic rules set out in Chapter 2 of the GST Act, but only to the extent of any inconsistency.
Subsection 81-5(1) of the GST Act is one of the special rules set out in Chapter 4 and provides that the payment of any Australian tax, fee or charge, or the discharging of the liability to make such a payment, is the provision of consideration for a supply made by the entity to which the tax, fee or charge is payable.
Subsection 81-5(2) of the GST Act provides however, that the payment of any Australian tax, fee or charge that is specified, by legislative instrument, by the Treasurer, or the discharging of a liability to make such a payment, is not the provision of consideration.
Goods and Services Tax Ruling GSTR 2003/12 'Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment' states the following in relation to payments by credit card:
- 30.
- When a payment is made by credit card in person, consideration is provided and received when the recipient of the supply signs the docket to authorise the transaction. When a payment is made remotely (for example, by telephone or through the Internet), the consideration is provided and received when the cardholder gives the card number and other required details.
- 31.
- Under the usual arrangement for credit cards, once the cardholder signs the credit card voucher or provides the card number and other details, the liability to pay the supplier is unconditionally discharged.
The payment of a liability by credit card is therefore a method of discharging the liability. In circumstances where the discharge of a liability to make a payment in respect of a relevant tax, fee or charge is made by way of payment by credit card, the payment of any additional fee is also for the discharge of that liability.
A credit card surcharge is a fee which merchants are permitted to charge credit cardholders for credit card transactions (see Standard No.2 Merchant Pricing for Credit Card Purchases which was determined by the Reserve Bank of Australia pursuant to section 18 of the Payment Systems (Regulation) Act 1998 and came into force on 1 January 2003).
The Tax Office view on the treatment of the credit card surcharge is set out in Issue 15.1 of the Financial services - questions and answers (available on the Tax Office website). Issue 15.1 provides that the credit card surcharge is considered to form part of the price for a merchant's supply of goods or services to a cardholder. It is a component of the consideration in respect of the supply.
We consider that an additional fee charged by an Australian government agency for the payment by credit card of an Australian tax, fee or charge, is in the nature of a credit card surcharge.
It follows that the additional amount payable for the payment by credit card of an Australian tax, fee or charge is not consideration for a separate supply but forms part of the consideration for the underlying supply made by the entity to the credit cardholder.
As subsection 81-5(2) of the GST Act provides that both the payment of any Australian taxes, fees or charges and the discharging of the liability to make such a payment is not the provision of consideration for GST purposes, the payment of the additional fee is not the provision of consideration for a supply by the entity to which the payment is made. The requirements of section 9-5 of the GST Act are therefore not satisfied because the supply made by the entity is not for consideration.
This view is consistent with the general principle that for United Kingdom VAT purposes, the taxable amount for a supply of goods or services includes all payments which the supplier requires the customer to make as a condition for receiving the supply. If, for example, a supplier of goods or services requires a customer to pay an additional charge above the price of the actual goods or services, for payment by debit or credit card, that charge is further consideration for the purchase of those goods or services and VAT is payable on that amount in accordance with the VAT treatment of the goods or services (see HM Revenue & Customs Business Brief BB18/06: 30 October 2006 and Business Brief BB17/1998-1: 7 August 1998).
This view is also consistent with the decision in the United Kingdom case Re Charge Card Services [1988] 3 WLR 764, where it was held that payment by credit card is an absolute discharge of the buyer's liability to the merchant.
Accordingly, the additional amount charged by an entity for the payment of Australian taxes, fees and charges by credit card is not consideration for a taxable supply under section 9-5 of the GST Act.
Date of decision: 25 August 2008
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
s 9-5
s 45-5
subsection 81-5(1)
subsection 81-5(2)
s 195-1
s 18
Case References:
Re Charge Card Services
[1988] 3 WLR 764
[1988] 3 All ER 702
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2003/12
Other References:
Financial services - questions and answers Issue 15.1
Standard No. 2 Merchant Pricing for Credit Card Purchases determined by the Reserve Bank of Australia.
Keywords
Goods and services tax
GST consideration
GST special rules
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 25 August 2008 | Original statement |
| 17 December 2014 | Archived |