ATO Interpretative Decision
ATO ID 2007/31
Goods and Services Tax
GST and barter scheme/trade exchanges: making a taxable supply of trade creditsFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the entity, a barter scheme/trade exchange manager, making a taxable supply of trade credits under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it credits an exiting member's trade account, upon the receipt of a cash payment from the exiting member, to bring the debit balance in the trade account to nil?
Decision
No, the entity is not making a taxable supply under section 9-5 of the GST Act when it credits an exiting member's trade account, upon the receipt of a cash payment from the exiting member, to bring the debit balance in the trade account to nil.
Facts
The entity is the manager of a barter scheme/trade exchange. The manager is the entity through which the barter scheme/trade exchange (the exchange) provides services to its members.
A member (the exiting member) of the exchange ceases trading and leaves a debit balance in its trading account.
Under the rules of the exchange, which are legally binding between the members and the exchange, a debit balance on a member's trade account is a liability by the member to the exchange. An exiting member has 30 days to sell goods and services to other members to reduce its trade account debit balance.
At the expiration of the 30 day period, the exiting member must pay to the exchange a cash amount that is equivalent to the value, expressed in trade dollars, of the remaining debit balance in the trade account. The exiting member pays this amount.
The manager receives the cash payment on behalf of the exchange. The manager credits the member's trade account, reducing the debit balance to nil.
Reasons for Decision
Section 9-5 of the GST Act sets out the requirements that must be met for an entity to make a taxable supply. The first requirement is that there must be a supply for consideration (paragraph 9-5(a) of the GST Act).
Therefore, it is necessary to determine whether the entity makes a supply when it credits an exiting member's trade account with trade dollars upon the receipt of a cash payment from the member.
Under the rules of the exchange, when an exiting member fails to trade out of its debit position in its trade account, the member has a cash debt to the exchange equivalent to the debit balance in trade dollars.
When the exiting member makes a payment to the entity, its debt is extinguished. The extinguishment of a debt through its payment does not constitute a supply for GST purposes.
The crediting of the trade dollars by the entity to the exiting member's trade account, to reduce the balance to zero, is merely part of the recognition that the member's debt is extinguished. As such it is not a supply of trade credits by the entity to the exiting member.
There is a distinction between the transaction described above and a sale of trade credits as discussed in Goods and Services Tax Ruling GSTR 2003/14, beginning at paragraph 74. The transaction envisaged in that ruling is one whereby a member of good standing sells its credits for a sum of money. The crediting of the trade dollars to the buying member's account allows that member to use those units to obtain value. However, in the current circumstances, the crediting of the trade account does not provide the exiting member with anything.
As the requirement that there must be a supply for consideration (paragraph 9-5(a) of the GST Act) is not met, the entity is not making a taxable supply under section 9-5 of the GST Act.
Date of decision: 12 December 2006
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
paragraph 9-5(a)
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2003/14
Keywords
Barter & countertrade
Goods and services tax
GST financial supplies
GST supply
ISSN: 1445-2782