ATO Interpretative Decision

ATO ID 2013/24

Goods and Services Tax

GST and increasing adjustments for unredeemed vouchers

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Issue

Does the entity have an increasing adjustment under section 100-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where it writes back to current income the unredeemed stated monetary value of expired gift vouchers, which could otherwise have been redeemed for GST-free supplies?

Decision

Yes, the entity has an increasing adjustment under section 100-15 of the GST Act where it writes back to current income the unredeemed stated monetary value of expired gift vouchers which could otherwise have been redeemed for GST-free supplies.

Facts

A GST registered entity sells gift vouchers (the voucher) to its customers and the consideration for the supply of the voucher does not exceed the stated monetary value of the voucher.

The voucher satisfies the definition of a voucher under subsection 100-25(1) of the GST Act.

The voucher can be redeemed for supplies of a range of goods and services provided by the entity that could be taxable or GST-free.

On redemption of the voucher, the holder of the voucher is entitled to supplies up to the stated monetary value of the voucher.

The voucher has an expiry date. At that time, any unredeemed portion of the stated monetary value of the voucher will be forfeited to the entity.

In accordance with the relevant accounting standards, the entity periodically writes back to current income the reserves for the redemption of the unredeemed stated monetary value of expired vouchers.

The entity has historical records to show the extent to which vouchers were redeemed for GST-free supplies in a certain period.

Reasons for Decision

Under section 100-15 of the GST Act, an entity will have an increasing adjustment when the conditions set out in that section are met.

The Commissioner's view on the application of section 100-15 of the GST Act is set out at paragraph 121 of Goods and Services Tax Ruling GSTR 2003/5. It states that the provision applies where:

(a)
a voucher was supplied for consideration;
(b)
the voucher was a Face Value Voucher (FVV);
(c)
the voucher has not been fully redeemed; and
(d)
the supplier of the voucher writes back, for accounting purposes, to current income any reserves for the redemption of the voucher.

In the present case, it is clear that the requirements in (a), (c) and (d) are satisfied. The issue remains whether the voucher is a FVV.

For the voucher to be a FVV, it must satisfy the definition of voucher in section 100-25 of the GST Act and meet the further requirements in section 100-5.

As the voucher is one that satisfies the definition of voucher in section 100-25 of the GST Act, it will be a FVV if it meets the requirements in section 100-5.

Paragraph 56 of GSTR 2003/5 sets out the requirements of section 100-5 as follows:

(i)
the supply of the voucher would otherwise be a taxable supply;
(ii)
the holder is entitled to supplies up to the monetary value of the voucher;
(iii)
the monetary value is stated on or incorporated in the voucher; and
(iv)
the voucher provides a reasonable choice and flexibility of supplies.

As the relevant voucher meets the requirements set out in ii, iii, and iv above, it is necessary to consider whether the supply of the voucher would otherwise be a taxable supply for determining if the voucher is a FVV.

Relevantly, the supply of the voucher by the entity will be a taxable supply under section 9-5 of the GST Act unless it is GST-free or input taxed. The input tax aspect is irrelevant in the current case.

Subsection 9-30(1) of the GST Act provides that a supply is GST-free if:

(a)
it is GST-free under Division 38 or under a provision of another Act; or
(b)
it is a supply of a right to receive a supply that would be GST-free under paragraph (a).

The supply of the voucher is not GST-free under Division 38 of the GST Act or a provision of another Act.

It is considered that the voucher is a supply of a right to receive supplies in the future. In the present case, the voucher supplied by the entity entitles the holder to receive supplies of goods and services that could be taxable or GST-free. That is, the supply of the voucher is a supply of a right to receive supplies, the GST status of which is unknown. As such, paragraph 9-30(1)(b) of the GST Act is not satisfied and subsequently the supply of the voucher will otherwise be a taxable supply.

Since the supply of the voucher is otherwise a taxable supply, it is a FVV for the purposes of Division 100 of the GST Act as all other requirements in section 100-5 are met.

Accordingly, the supply of the vouchers is subject to the special rules in Division 100 of the GST Act, including the rules in section 100-15. As the requirements of this provision are met, the entity will have an increasing adjustment where it writes back to current income the reserve for the redemption of the unredeemed stated monetary value of the expired vouchers. The amount of the increasing adjustment is 1/11 of the unredeemed stated monetary value of the expired vouchers.

This remains so even where historical data shows that some of these unredeemed vouchers could have been redeemed for GST-free supplies had they been redeemed for supplies. That is, once a voucher is a FVV and subject to the special rules in Division 100 of the GST Act, the existence and amount of the increasing adjustment for the purposes of section 100-15 of the GST Act does not have regard to whether the FVV could have been redeemed for GST-free supplies to any extent.

Date of decision:  1 May 2013

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   subsection 9-30(1)
   paragraph 9-30(1)(b)
   Division 38
   Division 100
   section 100-5
   section 100-15
   section 100-25
   subsection 100-25(1)

Related Public Rulings (including Determinations)
GSTR 2003/5

Keywords
goods and services tax
GST special rules
vouchers
redemption of vouchers
increasing adjustment

Siebel/TDMS Reference Number:  1-4LMPMRB

Business Line:  Indirect Tax

Date of publication:  1 May 2013

ISSN: 1445-2782