ATO Interpretative Decision

ATO ID 2003/50 (Withdrawn)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• This ATO ID is withdrawn, as it is no longer necessary.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. Guidance on the view contained in this ATO ID can be found in GSTR 2002/2 GST treatment of financial supplies and related supplies and acquisitions.
  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, for a separate fee, it allows a customer to inspect the record of sale of pawned goods that were being held as security for a loan provided by the entity to the customer?

Decision

No, the entity is not making an input taxed financial supply under subsection 40-5(1) of the GST Act when, for a separate fee, it allows a customer to inspect the record of sale of pawned goods that were being held as security for a loan provided by the entity to the customer.

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

Facts

The entity is a pawnbroker. The entity allows a customer to inspect the record of sale of pawned goods. These pawned goods were being held as security for a loan provided by the entity to its customer. The provision of the loan is an input taxed financial supply under subsection 40-5(1) of the GST Act. The entity charges the customer a fee for the inspection of the records separate from the consideration for the loan.

The entity is registered for goods and services tax (GST) and the supply 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 defines a financial supply as having the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Subregulation 40-5.08(1) provides that a supply is a financial supply if the supply is mentioned as:

•

a financial supply in regulation 40-5.09 of the GST Regulations, or

•

an incidental financial supply in regulation 40-5.10 of the GST Regulations.

Under regulation 40-5.09 of the GST Regulations, the first requirement for a financial supply is that the supply must be the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or (4) of the GST Regulations. The entity is allowing a customer to inspect the record of sale of pawned goods. This supply is not listed in either subregulation 40-5.09(3) or (4) of the GST Regulations. Therefore, the entity's supply is not a financial supply under regulation 40-5.09 of the GST Regulations.

Regulation 40-5.10 of the GST Regulations provides that something:

•

supplied by the same supplier to the same recipient as the original financial supply; and

•

supplied directly in connection with a financial supply;

is an incidental financial supply if it is:

a)

incidental to the financial supply,

b)

supplied at or about the same time, as the financial supply but not for separate consideration, and

c)

the usual practice of the entity to supply the thing (or similar things) and the financial supply together in the ordinary course of the entity's enterprise.

The entity's original financial supply is the supply of the loan secured by pawned goods. The inspection of the record of sale of pawned goods is by the same customer that the entity supplied with the loan.

Paragraphs 126-132 of Goods and Services Tax Ruling GSTR 2002/2 discuss when something is 'directly in connection with' a financial supply. For a supply to be 'directly in connection with' a financial supply, the supply must have a direct relationship with the financial supply. A supply has a direct relationship with a financial supply where the supply:

•

is readily identifiable as having occurred because of the financial supply, and

•

would not occur if there were not a financial supply.

The inspection of the record of sale of pawned goods has occurred because the entity supplied a loan to the customer that was secured by pawned goods. The supply would not have occurred if the entity had not made the financial supply of the loan. Therefore, there is a direct relationship between the inspection and the financial supply of the loan. As such, the entity's supply is 'directly in connection with' a financial supply.

As the entity's supply is to the same customer and is directly in connection with the entity's financial supply, it will be an incidental financial supply where the requirements in paragraphs (a) to (c) of regulation 40-5.10 of the GST Regulations are satisfied.

Paragraph 40-5.10(b) of the GST Regulations requires that the financial supply and the incidental financial supply must be supplied at or about the same time, but not for separate consideration. The entity's supply is at or about the same time as the supply of the loan. However, the services are supplied for a separate fee from the consideration for the loan. Therefore, the requirement in paragraph 40-5.10(b) is not met and the entity is not making an incidental financial supply under regulation 40-5.10 of the GST Regulations.

As the entity is not making a financial supply under regulation 40-5.09 of the GST Regulations nor an incidental financial supply under regulation 40-5.10 of the GST Regulations, the entity is not making an input taxed financial supply under subsection 40-5(1) of the GST Act.

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 not GST-free under Division 38 of the GST Act or input taxed under Division 40 of the GST Act. Therefore the entity is making a taxable supply under section 9-5 of the GST Act when, for a separate fee, it allows a customer to inspect the record of sale of pawned goods that were being held as security for a loan provided by the entity to the customer.

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

Related Public Rulings (including Determinations)
GSTR 2002/2

Keywords
Goods and services tax
GST supplies and acquisitions
Taxable supply
Input taxed supplies
GST financial supplies
Incidental financial supplies

Siebel/TDMS Reference Number:  1266736; 1-KP3TNMD

Business Line:  Indirect Tax

Date of publication:  15 March 2003

ISSN: 1445-2782