ATO Interpretative Decision

ATO ID 2003/1012 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn, as it is no longer necessary. The ATO view expressed in 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 pawnbroker, 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 sells second-hand goods back to the customer from whom the goods were originally purchased under a buy-back arrangement?

Decision

No, the entity is not making an input taxed financial supply under subsection 40-5(1) of the GST Act when it sells second-hand goods back to the customer from whom the goods were originally purchased under a buy-back arrangement.

The entity is making a taxable supply under section 9-5 of the GST Act.

Facts

The entity is a pawnbroker. The entity enters into a buy-back arrangement with a customer.

Under the buy-back arrangement, the entity purchases second-hand goods from a customer and the customer is entitled to buy back the goods for an agreed price during the course of an agreed period.

Under the terms of the arrangement, the entity must hold the second-hand goods for the agreed period to allow the customer to buy back the goods. The entity has taken ownership of the goods and is not holding the goods as security for payment of a debt or the discharge of an obligation.

Where the customer does not buy back the goods within the agreed period, the entity is entitled to sell the goods.

The entity is registered for goods and services tax (GST). The supply of the goods satisfies the other positive limbs of section 9-5 of the GST Act.

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).

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

(a)

the provision, acquisition or disposal is:

•

for consideration,

•

in the course or furtherance of an enterprise, and

•

connected with Australia.

(b)

The supplier is:

•

registered or required to be registered for GST, and

•

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

Items 2 and 3 in the table in subregulation 40-5.09(3) of the GST Regulations provide that an interest in or under:

•

a debt, credit arrangement or right to credit, including a letter of credit, and

•

a charge or mortgage over real or personal property

is a financial interest.

The entity is purchasing second-hand goods under a buy-back arrangement. Under the terms of a buy-back arrangement, the entity purchases the second-hand goods from the customer and holds the goods for an agreed period. In contrast to a loan, in a buy-back arrangement, the entity takes ownership of the goods and does not hold the goods as security for the payment of a debt or the discharge of an obligation.

Therefore, the buy-back arrangement is an arrangement of sale rather than a credit arrangement or an arrangement of a charge or mortgage over real or personal property. The supply under a buy-back arrangement is not covered by item 2 or item 3 in the table in subregulation 40-5.09(3) of the GST Regulations.

As such, the entity is not making an input taxed financial supply under subsection 40-5(1) of the GST Act, when it sells second-hand goods back to the customer from whom the goods were originally purchased under a buy-back arrangement.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under any other provision in Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. The entity is making a taxable supply under section 9-5 of the GST Act.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 11-20
   Division 38
   Division 40
   subsection 40-5(1)
   subsection 40-5(2)
   Division 66

Keywords
Goods and services tax
GST second-hand goods
GST supplies and acquisitions
Creditable acquisition
GST supply
Taxable supply
Input taxed supplies
GST financial supplies

Siebel/TDMS Reference Number:  1256698

Business Line:  Indirect Tax

Date of publication:  14 November 2003

ISSN: 1445-2782