Edited version of private ruling

Authorisation Number: 1011606753641

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Ruling

Subject: GST and time-share

Question 1

Are the acquisitions/supplies of timeshare schemes, by you as a reseller, financial supplies for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/Answers

Yes

Question 2

Are your resales of time-share schemes to non-residents also financial supplies under the GST Act?

Advice/Answers

Yes

Question 3

Are you entitled to input tax credits for management fees?

Advice/Answers

No

Relevant facts and circumstances

You are registered for goods and services tax (GST).

Your main business is to buy and sell timeshare memberships for timeshare schemes ("Timeshare Interests") which are managed investment schemes (MIS) under the Corporations Act 2001 ("the Schemes").

You buy Timeshare Interests from the Schemes for the purpose of onselling them to existing members and non-members with a view to making a profit.

The only form of consideration you pay and receive for buying and selling Timeshare Interests is monetary.

You pay maintenance fees to the Schemes for any memberships in your name at the end of each quarter.

You pay transfer fees to the Schemes twice. The first is when you acquire the Timeshare Interest from the original owner and the second is when you sell it to the final customer.

Most of the sales you make are to people within Australia. However occasionally you sell Timeshare Interests to non-residents.

You pay all wages and office costs through another corporate entity ('the Management Company'). You simply pay a monthly management fee to that Management Company.

You occasionally sell things other than Timeshare Interests. If you have points on a membership which is about to expire before you can sell it, you book accommodation and then on-sell it.

Most of the holidays you sell are overseas accommodation. This activity represents a small proportion of your business (less than 1% by turnover).

Australian accommodation obtained in the above way is usually donated to charity or given away free.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Sections 40-5

7-1(2)

11-5

11-15

189-5

A New Tax System (Goods and Services Tax) Regulations

40-5.03

40-5.04

40-5.05

40-5.06

40-5.09

Reasons for Decisions

Question 1

Section 40-5 of the GST Act provides that financial supplies are input taxed and that these supplies have the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Item 10 in the table in sub-regulation 40-5.09(3) of the GST Regulations includes an interest in or under a security. Security is defined in paragraph 92(1)(c) of the Corporations Act to include an interest in a MIS and this includes a time-sharing scheme as defined in section 9 of the Corporations Act.

Therefore, your sales of Timeshare Interests in the Schemes are financial supplies and are input taxed for GST purposes.

Under sub-regulation 40-5.09 of the GST Regulations, 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 is:

· for consideration,

· in the course of furtherance of an enterprise,

· connected with Australia, and

· the supplier is:

· registered or required to be registered for GST , and

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

The provision, acquisition and disposal of a financial interest

The allotment, creation, grant or issue of an interest is regarded as a provision of an interest [regulation 40-5.03].

The disposal of an interest includes assignment, transfer and surrender of the interest [regulation 40-5.04].

An acquisition in relation to the provision or disposal of an interest includes acceptance and receipt of the interest [regulation 40-5.05].

The purchase and resale of the time-share membership [an interest mentioned in Item 10 in the table in sub-regulation 40-5.09(3)] are the provision, acquisition and disposal of a financial interest as explained in paragraph 24 of GSTR 2002/2:

In this Ruling, we have used the term 'financial interest' where the thing supplied, or the thing acquired, is mentioned as being a financial supply in the GST regulations. The term 'financial interest' is used to describe a supply that may be a financial supply because it is mentioned in an item in the table in subregulation 40-5.09(3) and is capable of satisfying the tests in subregulation 40-5.09(1). The provision, acquisition or disposal of a financial interest is a financial supply once it satisfies those requirements.

An interest mentioned in sub-regulation (3) or (4)

As discussed above, the Timeshare Interest is a form of security listed in Item 10 of the table in sub-regulation 40-5.09(3) of the GST Regulations. Therefore, your supply of the interest is a financial supply where the requirements under sub-regulation 40-5.09 are met.

The requirement under sub-regulation 40-5.09

Consideration:

you acquire/resale the interest for a monetary amount. You have advised that there is no barter for Timeshare Interests and that all consideration is cash;

In the course or furtherance of an enterprise:

The acquisition and on-supply of Timeshare Interests is the main enterprise in which you are engaged. This is an enterprise for GST purposes. The transactions are made in the furtherance of this enterprise.

Connected with Australia

Subsection 9-25(5) of the GST provides that a supply of anything other than goods or real property is connected with Australia if:

· the thing is done in Australia

· the supplier makes the supply through an enterprise that the supplier carries on in Australia, or

· all of the following apply:

· neither paragraph (a) nor (b) applies in respect of the thing

· the thing is aright or option to acquire something another thing

· the supply of the other thing would be connected with Australia.

Goods and Services Tax Ruling 2002/2 explains and clarifies what is and what is not, a financial supply under Division 40 of the GST Act and Part 3-1 of the GST Regulations.

Paragraph 61 of GSTR 2002/2 explains that:

Where the supply is the provision, acquisition or disposal of a financial interest, the connection with Australia turns on whether the interest is provided, acquired, or disposed of in Australia. Whether an interest is provided, acquired or disposed of in Australia will depend on how, the provision, acquisition or disposal is effected. For example, if the interest is created, issued or transferred by the execution of a written contract, the creation, issue or transfer of that interest is done in Australia if that contract is made in Australia.

In your circumstances:

· if the transfer request is accepted, the owner of the Timeshare Interest will be included in the Schemes register, and

· the purchase and resale of the interest is effected by the execution of the transfer documents either to you or from you to the new participant. The execution of the transfer document is done in Australia where the Schemes are operating.

Therefore, the provision, acquisition or disposal is connected with Australia.

The supplier

Is registered or required to be registered for GST

You are registered for GST.

A financial provider in relation to the supply of the interest

Pursuant to sub-regulation 40-5.06 of the GST Regulations, an entity is the financial supply provider of an interest if:

· the interest was :the entity's property immediately before the supply,

· the entity created the interest when making the supply, or

· the entity acquires the interest supplied.

For the purpose of the GST Act and GST Regulations, a supply includes a financial supply and a financial supply includes the acquisition of a financial interest.

The acquirer of a financial interest both acquires and supplies a financial interest, that is, it makes a supply of acquisition (or the acquisition-supply). It follows that the provision, acquisition or disposal of a financial interest is treated the same for GST purposes.

It is the view of the Tax Office in paragraphs 111 and 112 of GSTR 2002/2 that the acquirer is also a financial supply provider. The intention is that neither the supplier nor the acquirer of a financial supply should be able to claim input tax credits in relation to the supply or acquisition of the financial supply. Paragraph 31 of GSTR 2002/2 provides that the acquisition of a financial interest from an unregistered supplier may be financial supply if the acquirer is registered.

In your circumstances, you are the financial supply provider in both the purchase and the resale of the Timeshare Interest because either immediately before the supply, the interest in is your property or you are the acquirer of the interest from the current participant of the schemes.

All of the requirements under sub-regulation 40-5.09 are met. Therefore, you are making a financial supply on the provision, acquisition and disposal of the Timeshare Interest which is input taxed regardless whether of you acquire the interest in the time-share scheme from the unregistered sellers.

Question 2

You have stated that the majority of your customers are Australian residents but you do sell to non-residents but they would represent less than 1% of your sales. The process and documents are exactly the same for your overseas customers as for local customers and the transfer documents are all processed by the clubs through their Australian head office.

The GST implications on the supply-acquisition of an interest in time-share scheme to/from Australian residents is discussed in question (1) above. The only question that needs to be addressed is whether the supply-acquisition to non-residents is connected with Australia.

You have provided that the process and documents are exactly the same for your overseas customers as for local customers and the transfer documents are all processed by the clubs through their Australian head office.

The transfer applications for the Interest in the time-share scheme are made by applicants located outside Australia. Irrespective of the location of the applicants the process and documents are the same for the overseas applicants and the local applicants.

The supply-acquisitions of the Interest in the time share scheme to non-residents is connected with Australia. It is therefore a financial supply and is input taxed.

Question 3

Under subsection 7-1(2) of the GST Act, entitlement to input tax credits arises on creditable acquisition.

Section 11-5 of the GST Act defines the meaning of creditable acquisition. The definition contains four conditions for an acquisition to be creditable. One of the conditions is that the acquisition must be solely or partly for a creditable purpose.

The term creditable purpose is defined in section 11-15 of the GST Act. The definition specifically excludes acquisitions that relate to making supplies that would be input taxed [paragraph 11-15(2)(a) of the GST Act].

As previously established, your acquisitions of Timeshare Interests are financial supplies which are input taxed.

Paragraph 11-15(4)(b) of the GST Act provides an exception to the rule in paragraph 11-15(2)(a). This paragraph provides that you are entitled to an ITC arising from your acquisition even though you acquire the thing to make an input tax supply if you do not exceed the 'financial acquisitions threshold'.

The term 'financial acquisitions threshold' is defined in section 189-5 of the GST Act. You exceed the threshold if either or both of the following would apply:

· the amount of all the input tax credits to which you would be entitled for those acquisitions would exceed $50,000 or other amount specified in the regulations;

· the amount of the input tax credit referred to in paragraph (a) would be more than 10% of the total amount of the input tax credits to which to would be entitled for all your acquisitions.

The time frame for the calculation of the threshold is 12 months ending from the end of the month that you undertaking the review or the next 11 months including the month that you undertaking the review.

The above indicates that you would exceed the threshold as the amount of your input tax credits as the financial acquisitions you have made during the 12 month period were made solely for a creditable purpose) are more than 10% of the total amount of your input tax credits as 99% of the entitlement (if paragraph 11-15(2)(a) does not apply) relate to the supply-acquisition of financial supplies.

The Management Company

The management company to which you pay a fee is a separate legal entity [s 184 of the GST Act].

Section 11-20 states that you are entitled to the input tax credit for any creditable acquisition that you make.

You have advised that the Management Company is the entity which actually pays wages to your employees and incurs your office costs in making acquisitions such as office supplies and advertising. You simply reimburse them by payment of a management fee.

As the only entity which is entitled to claim ITCs for creditable acquisitions is that which actually made them, you are not entitled to any ITCs for acquisitions made by the Management Company.

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