Edited version of private ruling

Authorisation Number: 1011580710460

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Ruling

Subject: International Money Transfer Arrangements

Questions

1. Is Entity A 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) to Entity B when Entity A procures a payment to Entity B's nominated beneficiary (member) overseas in a foreign currency?

2. Is Entity A making an input taxed financial supply to Entity B when Entity A procures the transfer of an amount in foreign currency for an Originator from an international financial institution into a member's account with Entity B?

3. Is Entity A making an acquisition supply that is an input taxed financial supply from the FX Provider when the FX Provider procures a payment to a member overseas in a foreign currency?

4. Is Entity A making an acquisition supply that is an input taxed financial supply from the FX Provider when the FX Provider converts the foreign currency and credits an inward clearing account with a sum of money in Australian dollars?

Answers

1. Entity A is making an input taxed financial supply under subsection 40-5(1) of the GST Act to Entity B when Entity A procures a payment to the member overseas in a foreign currency.

2. Entity A is making an input taxed financial supply under subsection 40-5(1) of the GST Act to Entity B when Entity A procures the transfer of an amount in foreign currency for an Originator from an international financial institution into a member's account with Entity B.

3. Entity A is making an acquisition supply that is an input taxed financial supply under subsection 40-5(1) of the GST Act from the FX Provider when the FX Provider procures a payment to a member overseas in a foreign currency, on the condition that the FX Provider is a financial supply provider under regulation 40-5.06 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

4. Entity A is making an acquisition supply that is an input taxed financial supply under subsection 40-5(1) of the GST Act from the FX Provider when the FX Provider credits the inward clearing account with a sum of money in Australian dollars, on the condition that the FX Provider is a financial supply provider under regulation 40-5.06 of the GST Regulations.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Entity A will provide Entity B with access to settlement facilities.

This international money transfer service would enable members of Entity B to instruct Entity B to send or receive international payments in major foreign currencies.

The intention is for Entity A to effectively enable Entity B to transfer a member's funds to a beneficiary overseas, as nominated by the member or for a member to receive an international payment into their account with Entity B.

In order to provide this service, Entity A has agreed to maintain accounts with the FX Provider.

The FX Provider is a member of a GST Group and registered for GST in Australia.

The terms and conditions between Entity A and the FX Provider governing the transactions are outlined in the relevant agreements. The terms and conditions between Entity A and Entity B are also outlined in an agreement.

In relation to outwards transactions the clearing account is debited when Entity A instructs the FX Provider to make a payment to a nominated beneficiary in a foreign currency for a member. The relevant Australian dollars including any fees are debited from this account, converted into the respective foreign currency and sent overseas.

In relation to inwards transactions when an entity from overseas (Originator) wishes to transfer an amount of foreign currency from an international financial institution into a member's account, that entity is provided with payment instructions to ensure the foreign currency payment is routed to the FX Provider. The FX Provider then converts the foreign currency into Australian dollars and credits the inward clearing account with an equivalent amount in Australian dollars, less the applicable fee.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subsection 9-10(1)

A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subsection 9-10(2)

A New Tax System (Goods and Services Tax) Act 1999 (GST Act), section 40-5

A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subsection 40-5(1)

A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subsection 40-5(2)

A New Tax System (Goods and Services Tax) Regulations 1999, subregulation 40-5.09(3)

A New Tax System (Goods and Services Tax) Regulations 1999, subregulation 40-5.06(1)

A New Tax System (Goods and Services Tax) Regulations 1999, subregulation 40-5.06(1)

Reasons for decision

1. Subsection 9-10(1) of the GST Act defines supply as any form of supply whatsoever.

The intended scope of subsection 9-10(1) of the GST Act is more fully illustrated in subsection 9-10(2) of the GST Act which states:

Without limiting subsection (1), supply includes any of these:

(a) a supply of goods;

(b) a supply of services;

(c) a provision of advice or information;

(d) a grant, assignment or surrender of *real property;

(e) a creation, grant, transfer, assignment or surrender of any right;

(f) a *financial supply;

(g) an entry into, or release from, an obligation:

(i) to do anything;

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

any combination of any 2 or more of the matters referred to in paragraphs (a) to (g)...

(The asterisked terms are defined under section 195-1 of the GST Act)

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 by the GST Regulations.

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

§ the provision, acquisition or disposal of the interest is for consideration, in the course or furtherance of an enterprise; and 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.

Subregulation 40-5.06(1) of the GST Regulations provides the definition of a financial supply provider and states that:

An entity, in relation to the supply of an interest that was:

immediately before the supply, the property of the entity; or

created by the entity in making the interest;

is the financial supply provider of the interest.

Item 2 in the table in subregulation 40-5.09(3) of the GST Regulations lists; an interest in or under a debt, credit arrangement or right to credit, including a letter of credit.

The definition of a 'debt' is provided in schedule 1 of Goods and Services Tax Ruling 2002/2 (GSTR 2002/2) - GST treatment of financial supplies and related supplies and acquisitions to mean:

An amount due from one entity to another or a presently existing obligation to pay an ascertainable amount at a future time.

The contractual arrangement between Entity A and Entity B is for Entity A to provide Entity B with a money transfer service for a fee. At the time a member makes a payment to Entity A and wishes to have that money transferred overseas, Entity A has a presently existing obligation to Entity B to pay a beneficiary overseas, as nominated by the member of Entity B. This presently existing obligation meets the definition of a debt under item 2 of subregulation 40-5.09(3) of the GST Regulations.

The debt is created in the course of Entity A's enterprise, in Australia and for a fee. Furthermore, Entity A is registered for GST and an application of subregulation 40-5.06(1) of the GST Regulations determines that Entity A is a financial supply provider having created an interest in a debt by making the supply of a money transfer service.

As the requirements under subregulation 40-5.09(1) of the GST Regulations are satisfied, Entity A's supply of the money transfer service to Entity B is a financial supply and is input taxed under section 40-5 of the GST Act.

The supply of this money transfer service is not a GST free supply under Division 38 of the GST Act.

2. Entity A has a presently existing obligation to make available funds received from the Originator

to Entity B, so that Entity B can provide these funds to a member. Accordingly, Entity A is

supplying an interest in a debt to Entity B (item 2 in Regulation 40-5.09(3)), as it has a

presently existing obligation to pay the amounts received from the FX Provider in the FX Receipts

account to Entity B for the benefit of the member. The relevant supply between Entity A and

Entity B is a financial supply that is input taxed.

3. In circumstances where there are outgoing funds to an overseas beneficiary, Entity A's

system will issue individual messages for each outgoing foreign currency payment. These

messages request the FX Provider to debit Entity A's account held with the FX Provider and remit

the foreign currency amount to the ultimate beneficiary on the next available date. These specific

obligations are described in detail in the relevant agreements.

Under the terms of the relevant agreements the FX Provider will act as a financial supply provider in converting Australian currency into foreign currency for Entity A. The FX Provider in converting the Australian currency makes an interest under item 9 of Regulation 40-5.09(3) of the GST Regulations. That is, under the terms of the agreement between Entity A and the FX Provider, the FX Provider has an obligation under the relevant agreements to convert funds provided by Entity A from Australian dollars into a foreign currency and to remit those funds in accordance with Entity A's instructions.

Item 9 in the table in subregulation 40-5.09(3) of the GST Regulations lists;

Australian currency, the currency of a foreign country or an agreement to buy or sell currency of either kind.

It is also consistent with the examples of a financial supply listed at item 9 in Part 7 of Schedule 7 of the GST Regulations, where the 'conversion of foreign currency into Australian currency' is given as an example of a financial supply under item 9 of Regulation 40-5.09(3).

Provided that the FX Provider meets the requirements of a financial supply provider in subregulation 40-5.06 of the GST Regulations it will make a supply of an interest under item 9 of subregulation 40-5.09(3) of the GST Regulations.

Entity A in acquiring this interest will make a corresponding acquisition supply of the same interest to the FX Provider. This acquisition supply will constitute a financial interest under item 9 of subregulation 40-5.09(3) of the GST Regulations.

Furthermore, Entity A will also meet the other requirements under subregulation 40-5.09(3) of the GST Regulations as outlined in our response to question 1.

Therefore, Entity A will also be making a financial supply that is input taxed.

4. In circumstances where funds are received from overseas you submit that the FX Provider has an obligation to convert the foreign currency funds received from the Originator into Australian dollars and to credit an equivalent amount (less applicable fees) to clearing account. These obligations are specified under the relevant agreements.

Under the terms of the relevant agreements the FX Provider will act as a financial supply provider in converting foreign currency into Australian currency for Entity A. The FX Provider in converting the foreign currency to Australian currency makes an interest under item 9 of Regulation 40-5.09(3) of the GST Regulations. That is, under the terms of the agreement between Entity A and the FX Provider, the FX Provider has an obligation under the relevant agreements to convert funds provided for Entity A from foreign currency to Australian dollars and credit the clearing account

Item 9 in the table in subregulation 40-5.09(3) of the GST Regulations lists;

Australian currency, the currency of a foreign country or an agreement to buy or sell currency of either kind.

It is also consistent with the examples of a financial supply listed at item 9 in Part 7 of Schedule 7 to the GST Regulations, where the 'conversion of foreign currency into Australian currency' is given as an example of a financial supply under item 9 of Regulation 40-5.09(3).

Provided the FX Provider meets the requirements of a financial supply provider listed above, the FX Provider will make a supply of an interest under item 9 of subregulation 40-5.09(3) of the GST Regulations.

Entity A in acquiring this interest will make a corresponding acquisition supply of the same interest to the FX Provider. Entity A will then satisfy the requirements under subregulation 40-5.09(3) of the GST Regulations as outlined in our response to question 1.

Therefore, Entity A will also be making a financial supply that is input taxed.

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