ATO Interpretative Decision

ATO ID 2005/194

Goods and Services Tax

• With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Issue

Is the entity, a property investor, making an input taxed financial supply of a credit arrangement under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it gives the purchaser time to pay for a property under an instalment contract?

Decision

Yes, the entity is making an input taxed financial supply of a credit arrangement under subsection 40-5(1) of the GST Act when it gives the purchaser time to pay for a property under an instalment contract.

Facts

The entity is a property investor. The entity is selling residential premises that it owns.

The entity and the purchaser enter into an instalment contract, by which the entity provides the purchaser with a credit arrangement to enable the purchaser to purchase the residential premises.

Under the terms of the contract, the purchaser agrees to pay monthly instalments and interest over an extended period of time. The purchaser has a right to occupy the residential premises from the date on which the contract is signed (possession date) until the date on which the purchaser is required to pay the final instalment (settlement date). Title to the property does not pass to the purchaser until the settlement date.

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

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 a financial supply has the meaning given in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

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

(a)

the provision, acquisition or disposal of that interest is:

•

for consideration

•

in the course or furtherance of an enterprise, and

•

connected with Australia, and

(b)

the supplier:

•

is registered or required to be registered for GST, and

•

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

Item 2 in the table in GST Regulations subregulation 40-5.09(3) (Item 2) lists a debt, credit arrangement or right to credit, including a letter of credit. The glossary in Schedule 1 of Goods and Services Tax Ruling GSTR 2002/2 defines a credit arrangement as 'an arrangement under which an entity lends money on terms that include deferred repayment, or under which payment of a debt owed by one entity to another is deferred or time is allowed to pay'.

The entity provides time to pay, by way of an instalment contract, to the purchaser of the residential premises. This supply is the provision of an interest in a credit arrangement and is covered by Item 2. The consideration received for the supply of an interest in a credit arrangement is the monthly interest payments paid by the purchaser under the terms of the contract.

In addition, the provision of this interest is made in the course of the entity's enterprise and it is connected with Australia. Therefore, all of the requirements of GST Regulations paragraph 40-5.09(1)(a) are satisfied.

The entity is registered for GST. As the entity created the interest in the credit arrangement, it is the financial supply provider in relation to the supply of the credit arrangement (GST Regulations subregulation 40-5.06(1)). Therefore, the requirements in GST Regulations paragraph 40-5.09(1)(b) are satisfied.

As all the requirements of GST Regulations subregulation 40-5.09(1) are satisfied, the supply of the credit arrangement is a financial supply. The entity is making an input taxed financial supply of a credit arrangement under subsection 40-5(1) of the GST Act.

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

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2002/2

Keywords
Goods and services tax
GST financial supplies
GST debt, loan and credit
GST sale of residential premises
GST residential premises

Siebel/TDMS Reference Number:  3149164

Business Line:  Indirect Tax

Date of publication:  8 July 2005

ISSN: 1445-2782