ATO Interpretative Decision

ATO ID 2001/464 (Withdrawn)

Goods and Services Tax

GST and supply of a loan
FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 provider of financial supplies, making an input taxed supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it provides a loan to a client?

Decision

Yes, the entity is making an input taxed supply under section 40-5 of the GST Act when it provides a loan to a client.

Facts

The entity is a financial supply provider that provides a loan to a client. The entity charges interest on the loan. The entity also charges administration fees for the use of the loan facility.

The entity supplies this loan in the course of its enterprise, the supply is connected with Australia and the entity is registered for goods and services tax (GST).

Reasons for Decision

Section 40-5 of the GST Act provides that a financial supply is input taxed.

A financial supply is defined in subregulation 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) to include the provision, acquisition or disposal of an interest in an item that:

•
is listed in the table of subregulation 40-5.09(3) of the GST Regulations; and
•
is for consideration; and
•
is in the course or furtherance of an enterprise; and
•
is connected with Australia; and
•
the supplier is registered or required to be registered for GST; and
•
the supplier is a financial supply provider in relation to the supply of the interest.

Item 2 of the table in subregulation 40-5.09(3) of the GST Regulations (Item 2) lists 'a debt, credit arrangement or right to credit, including a letter of credit'. Under Part 2 of Schedule 7 of the GST Regulations, borrowing and lending, including establishing, maintaining and discharging loans are examples of financial supplies that are relevant to Item 2. Therefore, the supply of a loan will constitute the supply of an interest in a debt and is covered by Item 2.

In this case, the financial supply provider is supplying a loan to a client, in Australia. The consideration for this loan is the interest and administration fees that are charged by the entity. As well, the entity is providing this loan in the course of its enterprise and it is registered for GST. Therefore, as all the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied, the supply of the loan is a financial supply.

As the supply of the loan is a financial supply, the entity is making an input taxed supply under section 40-5 of the GST Act when it provides a loan to a client.

Date of decision:  22 August 2001

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

A New Tax System (Goods and Services Tax) Regulations 1999
   subregulation 40-5.09(1)
   subregulation 40-5.09(3)
   subregulation 40-5.09(3) item 2
   Schedule 7 Part 2

Keywords
Goods and services tax
Input taxed supplies
GST financial supplies
GST debt securities

Business Line:  GST

Date of publication:  17 October 2001

ISSN: 1445-2782

history
  Date: Version:
  22 August 2001 Original statement
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