ATO Interpretative Decision

ATO ID 2002/474 (Withdrawn)

Goods and Services Tax

• From 15 July 2004, the supply of membership in a barter scheme is not treated as an input taxed financial supply (see subregulation 40-5.09(5) of the A New Tax System (Goods and Services Tax) Regulations 1999.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entity, a company that operates a barter scheme, 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 supplies a prospective member with an interest in the barter scheme, which entitles that member to receive services from the entity that are integral to the scheme?

Decision

Yes, the entity is 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 supplies a prospective member with an interest in the barter scheme, which entitles that member to receive services from the entity that are integral to the scheme.

Facts

The entity is a company that operates a barter scheme. The entity is known as a 'barter exchange'. The scheme allows members to buy and sell goods and services from each other in exchange for 'trading credits'. The trading credits are debited and credited to the accounts of the members, depending on whether the member has supplied goods or services or acquired goods or services.

The role of the entity is to facilitate trade transactions between the members of the barter scheme, and to keep records of those transactions in the members' trading accounts.

The entity does not carry out these duties itself. Rather, it engages the services of a separate management company that manages and administers the barter scheme on the entity's behalf, as set out in the management agreement and the rules of the barter scheme.

In order to become a member of the barter scheme, participants pay an initial joining fee and are issued with one redeemable preference share in the entity (a company). Membership of the scheme entitles participants to receive ongoing services from the entity in relation to the scheme. Participants pay ongoing fees and charges to the entity for the supply of these services. Those fees and charges include:

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ongoing membership fees;

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transaction fees;

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monthly administration fees;

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replacement membership card fees;

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application fees to increase account limits; and

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monthly charges for overdrawn accounts.

Neither the entity nor the management company are a party to the sale or purchase transactions conducted between the members. Their role is to facilitate and record such transactions.

The entity and the management company are both registered for goods and services tax (GST), and the supplies by the entity are connected with Australia.

Reasons for Decision

Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. The term 'financial supply' is defined in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

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

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the interest is listed in subregulation 40-5.09(3) or (4) of the GST Regulations; and

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is for consideration;

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is in the course or furtherance of an enterprise;

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is connected with Australia;

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(paragraph 40-5.09(1)(a) of the GST Regulations); and

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the supplier:

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is registered or required to be registered for GST; and

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

(paragraph 40-5.09(1)(b) of the GST Regulations).

First, it is necessary to determine whether there is a supply by the entity to the members, of an interest in or under an item mentioned in subregulation 40-5.09(3) or (4) of the GST Regulations.

Paragraph (c) of Item 10 in the table in subregulation 40-5.09(3) of the GST Regulations lists securities, including a scheme described in paragraph (e), (i), (k), or (m) of the definition of 'managed investment scheme' in section 9 of the Corporations Act 2001.

Paragraph 9(k) of the Corporations Act 2001 refers to 'a barter scheme under which each participant may obtain goods and services from another participant for consideration that is wholly or substantially in kind rather than in cash'.

The entity is supplying prospective members with an interest in the barter scheme, which entitles those members to buy and sell goods and services to other members of the scheme, in exchange for 'trading credits' as opposed to cash. This is a barter scheme within paragraph 9(k) of the Corporations Act 2001. Therefore, the entity is supplying an interest in a security under Item 10 in subregulation 40-5.09(3) of the GST Regulations.

Membership of the scheme entitles participants to receive ongoing services from the entity in relation to the scheme. Paragraph 17 of GSTR 2001/8 states:

'If you make a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part, then the supply is composite. You treat a composite supply as a supply of a single thing.'

It is considered that the supply of these ongoing services by the entity is integral to the core supply of the interest in the barter scheme. Therefore, the supply of the entitlement to receive these other ongoing services is part of a composite supply, the dominant part being the supply of an interest in the barter scheme. This composite supply is treated as a single supply of an interest in the barter scheme, which is the supply of an interest in or under a security under Item 10 in subregulation 40-5.09(3) of the GST Regulations.

The first 4 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.

However, it needs to be determined if the entity is a 'financial supply provider' in relation to the supply of the interest (as per the final requirement in subregulation 40-5.09(1) of the GST Regulations. Under subregulation 40-5.06(1) of the GST Regulations, the financial supply provider of an interest is the entity that:

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had property in the interest immediately before it was supplied; or

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created the interest in making the supply.

As the entity created the interest in the barter scheme when it issued the preference share to its prospective member, it is the financial supply provider of the interest as per the definition in paragraph 40-5.06(1)(b) of the GST Regulations. Accordingly, the final requirement in paragraph 40-5.09(1) of the GST Regulations is also satisfied.

The supply of the interest in or under the barter scheme is a financial supply because it satisfies all of the requirements in subregulation 40-5.09(1) of the GST Regulations. Therefore, the entity is making an input taxed supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act (GST Act), when it supplies a prospective member with an interest in the barter scheme, which entitles that member to receive services from the entity that are integral to the scheme.

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

Related Public Rulings (including Determinations)
GSTR 2001/8

Related ATO Interpretative Decisions
ATO ID 2002/475

Keywords
Goods & services tax
Input taxed supplies
GST financial supplies
Barter & countertrade

Business Line:  GST

Date of publication:  26 April 2002

ISSN: 1445-2782