Edited version of private ruling

Authorisation Number: 1011762265002

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Ruling

Subject: GST and credit card loyalty program

Question 1

Is the supply made by YYY to XXX (and not to XXX's customers) when it provides travel agency services to XXX's customers pursuant to a contract between them under direct points redemption whereby YYY fulfils a contractual obligation to XXX and receives consideration from XXX?

Answer

Yes. The supply is made by YYY to XXX when it provides travel agency services to XXX's customers pursuant to a contract between them under direct points redemption whereby YYY fulfils a contractual obligation to XXX and receives consideration from XXX.

Question 2

On the basis that the only supply made in the circumstances outlined in Question 1 and for consideration is to XXX, is that a supply of "arranging travel" that, depending on the nature of the service provided to customers, will be either:

1. A taxable supply in respect of arranging travel within Australia? or

2. A GST-free supply in respect of arranging travel outside Australia?

Answer

1. Yes. The supply of "arranging travel" services will be a taxable supply if it is in respect of arranging travel within Australia.

2. Yes. The supply of "arranging travel" services will be a GST-free supply if it is in respect of arranging travel outside Australia.

Question 3

Is the facilitation service supplied by YYY in redemption processing to XXX for which no additional consideration is paid a taxable supply?

Answer

No. The supply of facilitating redemption processing by YYY to XXX for which no additional consideration is paid is not a taxable supply.

Question 4

(a) If a supply is made in Question 1 under direct points redemption, is a tax invoice able to be issued by YYY (or a recipient created tax invoice (RCTI) issued by XXX to YYY), and for what amount, to:

(i) XXX; and/or

(ii) customers?

(b) For completeness, if a supply is made in Question 1 on a points plus pay basis, is a tax invoice able to be issued by YYY (or an RCTI issued by XXX to YYY), and for what portion of the consideration, to:

(i) XXX; and/or

(ii) customers?

Answer

(a) If a supply is made in Question 1 under direct points redemption, YYY is able to issue a tax invoice to XXX for the amount of funds for the redeemed points. Alternatively, XXX may issue an RCTI for this amount provided the requirements for issuing an RCTI are met.

(b) If a supply is made in Question 1 on a points plus pay basis, YYY is able to issue a tax invoice for the amount of funds for the redeemed points to XXX. Alternatively, XXX may issue an RCTI for this amount provided the requirements for issuing an RCTI are met.

Where the Customer pays an amount to YYY under the points plus pay or pay components, YYY is able to issue a tax invoice to the customer to the extent of the payment made by the customer.

Question 5

Is the supply of vouchers by YYY to XXX not a taxable supply, pursuant to Division 100 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The supply of vouchers by YYY to XXX is not a taxable supply pursuant to Division 100 of the GST Act.

Question 6

To the extent that any supply made by YYY to XXX is a taxable supply, is XXX making a creditable acquisition in respect of the supply by YYY to XXX pursuant to section 11-5 of the GST Act?

Answer

Yes. XXX is making a creditable acquisition that is partly creditable in respect of the taxable supply made by YYY to XXX pursuant to Division 11 of the GST Act.

Relevant facts and circumstances

XXX operates a credit card loyalty program whereby customers earn points for purchases. Customers can redeem points for various rewards including travel agency services provided by YYY.

XXX alone decides how many points are necessary to redeem for each award. Many of the rewards offered by XXX are provided by third party suppliers, such as YYY.

Consideration for the reward point redemption is paid by XXX to the external supplier, which provides the reward to XXX's customer, under the terms of the supplier's agreement obligation to XXX.

For YYY rewards, under XXX's agreement with YYY, XXX's customer can either redeem points for YYY vouchers, or for YYY travel agency services.

After making a selection of appropriate desired travel product - either vouchers or travel provided by third parties for whom YYY is acting as an agent - XXX's customer can select options with different methods of obtaining the services from YYY. XXX's customers can use:

· a direct points redemption or

· pay or

· points plus pay mixture

If the customer chooses cash only, there is no XXX involvement.

However, if XXX's customers choose direct points redemption or the points portion plus pay, XXX's customers will redeem points from XXX. Through the arrangement between XXX and YYY, travel agency services will be provided by YYY to XXX's customers. XXX's customers cannot redeem points from YYY, as points can only be redeemed directly from XXX.

YYY benefits from the arrangement with XXX, in that it derives revenue from XXX in respect of the vouchers obtained or redemptions effected by or for XXX's customers. The vouchers or redemptions are used to satisfy or partially satisfy YYY for the travel agency services provided to customers in accordance with the terms of the customer's agreement with YYY.

When customers choose to use points plus pay or pay components for YYY travel agency services, the customer provides consideration acceptable to YYY direct to YYY to the extent of any component that is not direct points redemption.

Contractual Arrangements

There are three key contracts under the arrangements as follows:

(a) Contract 1: XXX and a Customer

Customers accrue and redeem points pursuant to a contract between XXX and customer. Customers can contractually only redeem points from XXX, not from YYY, as title to points can only be held by customers. YYY never takes title to points and can in no way use, redeem or do anything whatsoever with the points.

Accordingly, if a customer chooses a YYY reward, the customer redeems points with XXX, and XXX pays YYY for the travel agency services procured from YYY and provided to customers.

Pursuant to this contract, XXX, at its sole discretion, can change the value of the points and can choose which redemption awards it provides to customers. As such XXX chooses whether or not rewards such as YYY rewards will be provided to its customers. That is, if XXX chooses not to offer particular rewards such as YYY travel agency services there will be no supply made by YYY in respect of points redemptions.

This contract provides that where a supplier refuses to provide a customer with a particular reward, the customer will contact XXX to assist in the resolution of any such dispute.

(b) Contract 2: XXX and YYY

This is the contract pursuant to which XXX has added YYY as a redemption Partner. It is only because of this contract that YYY can provide services in respect of direct points redemptions to XXX's customers.

The contract involves an agreement between XXX and YYY, for YYY to provide XXX's customers with a choice of travel agency services. If XXX's customers choose to redeem their points from XXX for YYY services, XXX is liable to pay consideration to YYY for YYY fulfilling its contractual obligations to XXX.

In return for consideration payable by XXX to the Partner for direct points redemptions and the direct points redemption component of points plus pay, the Partner will discharge its contractual obligation to XXX to provide travel agency services to customers.

This contract states that YYY will offer travel agency services to customers. Consideration will be payable by the customer in the case of pay component of points plus pay. In the case of direct points redemptions and the direct points redemption component of points plus pay, no consideration will be payable by the customer to YYY for travel agency services.

The consideration payable under this contract is negotiated between YYY and XXX.

YYY has a contractual obligation to XXX is that it will provide a facility whereby XXX's customers will be able to redeem their points accrued with XXX and be provided with travel agency services.

Whilst consideration is payable by XXX to YYY for redemptions, there is no consideration payable by XXX in respect of providing the redemption processing facility.

This contract also provides for the relevant terms and conditions of the YYY Gift Voucher as follows:

· The gift card is partially redeemable and it is up to the card holder to use the full value of the card within the validity period. Any unused balance will not be refunded or credited when the card expires.

· Where the cost of purchase exceeds the available card balance, the card holder will be required to make up the difference between the purchase price and the gift card balance.

· The card expires twelve months from the date of issue.

· Cannot be reloaded or topped up.

This contract states that the redemption of gift vouchers will constitute consideration for a supply of travel agency services between YYY and customer, as the gift vouchers are acquired by XXX and then supplied by XXX to its customers.

This contract states that the gift vouchers must be individually stamped with the correct denominations.

This contract provides that YYY will redeem Gift Vouchers for the bearer in accordance with the terms and conditions of the Gift Voucher.

(c) Contract 3: YYY and the customer

YYY provides travel agency services to customers. No consideration is payable by customers to YYY for the provision of travel agency services to the extent of points redemption, nor do customers ever know how much consideration is paid by XXX to YYY in respect of the provision of such services.

Consideration is only payable by customers to YYY in respect of the pay element of points plus pay, or for pay only. This pay component could be fully or partially satisfied by the customer paying with cash, via credit card etc, or surrendering a YYY voucher received from XXX through a separate redemption of points. In the case of a voucher redemption, there is no further consideration payable by XXX given XXX has already acquired the voucher.

At the time of making a booking, customers are required to consider and sign the YYY standard booking terms and conditions, pursuant to which they acknowledge and agree that YYY acts as an agent in the provision of travel agency services only and that the agreement for the supply of travel agency services is between the customer and the third party travel service providers (as principals).

The Redemption Process

When customers choose to redeem points from XXX for YYY travel agency services, or a component of those services, the customer redeems points with XXX (pursuant to contract 1), and YYY fulfils its contractual obligation to XXX (pursuant to contract 2), in return for consideration payable by XXX to YYY, in providing travel agency services to the customer (pursuant to contract 3).

Relevantly, pursuant to contract 2, the customer has the following options in terms of acquiring travel agency services:

· Direct points redemption, where payment is made by XXX to YYY as consideration for YYY performing its contractual obligation to XXX (pursuant to contract 2);

· Points plus pay, where payment for the points element is made by XXX as consideration for YYY performing its agreement obligation to XXX (pursuant to contract 2), and payment for the pay element where the consideration will be made by the customer (pursuant to contract 3);

· Payment only, where consideration is provided by the customer to YYY (under contract 3).

Additional facts

You have advised that the acquisition from YYY will be partly for a creditable purpose.

You have advised that XXX relies on the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No.1) 2000 for the issuance of recipient created tax invoices.

XXX's GST turnover exceeds $20 million per annum. XXX also relies on Goods and Services Tax Ruling GSTR 2000/10 for the issuance of recipient created tax invoices.

Reasons for decision

Question 1

Section 9-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply is any form of supply whatsoever.

We agree with your submission that the arrangement between XXX, its customers and YYY is essentially a supply involving a tripartite arrangement whereby a supply is made to one entity but provided to another entity.

In support of your arguments that there is a tripartite arrangement existing between XXX, YYY and the customers, you draw an analogy with propositions 11 and 13 and the examples that illustrate these propositions in paragraphs 118-122 and 130-176 of Goods and Services Tax Ruling GSTR 2006/9: Supplies (GSTR 2006/9).

Outlined below are the relevant propositions and a pertinent example from GSTR 2006/9.

Proposition 11 The agreement is the logical starting point when working out the entity making the supply and the recipient of that supply.

Proposition 13 When A has an agreement with B for B to provide a supply to C, there is a supply made by B to A (contractual flow) that B provides to C (actual flow).

Grandma's flowers

118 A enters into a contract with B for B to provide goods to C. A is an individual, B is a florist, the goods are flowers, and C is A's grandmother:

121. If you take a contractual approach in analysing the arrangement in Grandma's flowers, then the only contractual relationship is between A and B. Under this contract B makes a supply of flowers to A and consideration is paid by A to B. That supply is provided by B to C.

Using the above propositions and the terminology from the example in paragraphs 118 and 121 of GSTR 2006/9, you are of the view that A (XXX) has an agreement with B (YYY) to provide (as opposed to make) a supply to C (customers of XXX). In the case of direct points redemptions for travel agency services, the only supply involved is a supply made by B (YYY) to A (XXX), namely, the travel agency services for which consideration is payable by A that is relevant. Accordingly, in substance and in principle, YYY makes a supply of travel agency services to XXX for which XXX pays a sum of money as outlined in contract 2 between XXX and YYY. YYY then provides these travel agency services to XXX's customers. We agree with this analysis in principle.

In the case of points plus pay redemptions, you submit that there are two relevant supplies made by YYY. Firstly, in respect of the "points" element, there is a supply by YYY to XXX for consideration payable by XXX as set out above. Secondly, in respect of the "pay" element, there is a supply by YYY to the customer in return for consideration payable by the customer to YYY. We are also in agreement with this analysis.

Question 2

Section 9-5 of the GST Act states that:

You make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia; and

(d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Asterisked terms are defined under section 195-1 of the GST Act.

Given the fact that the travel agency services supplied by YYY is in respect of it arranging travel inside Australia, the supply is therefore connected with Australia for the purposes of paragraph 9-25(5)(a) of the GST Act as the thing (travel agency service) is done in Australia. As all the other requirements of section 9-5 of the GST Act are satisfied, YYY is making a taxable supply when it arranges travel inside Australia in the case of direct points redemption for such services.

Section 38-355 of the GST Act concerns supplies of transport and related matters, and provides a list of supplies under the third column of the table to that section which are regarded as GST-free. Items 1, 2, 3 and 4 of that table relate respectively to:

· transport of passengers to, from or outside Australia;

· transport of passengers on domestic legs of international flights;

· domestic air travel of non-residents; and

· transport of passengers on domestic legs of international sea voyages.

Item 7 in the table in section 38-355 of the GST Act relates to "arranging transport etc." and provides that supplies of arranging transport covered by Item 1, 2, 3 or 4 are GST-free.

In the case when YYY supplies travel agency services in respect of arranging travel outside Australia upon direct points redemption by XXX's customers, our view is that the arranging of travel outside Australia by YYY is a GST-free supply which falls under item 7 in the table in section 38-355 of the GST Act. This is consistent with our view set out in ATO publication GST and international transport of passengers (NAT 3459).

Question 3

One of the requirements for a taxable supply under section 9-5 of the GST Act is that you make a supply for consideration. To determine if this condition applies to the provision of facilitation services by YYY to XXX, we need to decide if it constitutes a separate supply for the purposes of section 9-10 of the GST.

In this instance, contract 2 provides in part that in return for consideration payable by XXX to the Partner (YYY in this case) for direct points redemptions and the direct points redemption component of points plus pay, the Partner will discharge its contractual obligation to XXX to provide travel agency services to customers.

Contract 2 also states that YYY will be providing a facility, whereby customers will be able to redeem their points accrued with XXX, and be provided with travel agency services.

In order for the entry into an obligation to be a separate supply, it is our view that the obligation must have economic value and an independent identity that is separate from the underlying transaction. The true nature of the transaction will characterise whether the provision of some rights and obligations are conditions of the contract or supplies within the meaning prescribed in section 9-10 of the GST Act. (cf paragraphs 58 and 59 of Goods and Services Tax Ruling GSTR 2004/9 Goods and services tax: GST consequences of the assumption of vendor liabilities by the purchaser of an enterprise).

Taking the relevant parts of contract 2 in context, there is no doubt that the obligation to provide facilitation service by YYY in relation to the points redemption has no independent identity that is separate from the underlying supply of travel agency services to XXX as clearly the provision of facilitation services is ancillary to the supply of travel agency services. Therefore, the facilitation of redemption processing by YYY to XXX does not constitute a separate supply for the purposes of section 9-10 of the GST Act. The question of whether the provision of the facilitation constitutes a taxable supply does not arise.

Question 4

Paragraph 29-70(1)(a) of the GST Act provides that a tax invoice for a taxable supply must be issued by the supplier, unless it is a recipient created tax invoice (in which case it must be issued by the recipient).

You have advised that XXX relies on the A New Tax System (Goods and Services Tax) Act 1999 Classes of Recipient Created Tax Invoice Determination (No.1) 2000 for the issuance of recipient created tax invoices as provided for under the relevant contract. You have advised that XXX also relies on GSTR 2000/10 for the issuance of the RCTIs.

Given the contractual arrangements set out above, YYY is therefore able to issue tax invoices in respect of the taxable supplies made to XXX when supplies are made at direct points redemption and points plus pay arrangement to XXX. YYY is also able to issue tax invoice in respect of the Pay component of points plus pay to the customer.

Alternatively, XXX can rely on the above determination to issue RCTIs in respect of the direct points redemption and the Direct points redemption component of point plus pay to issue RCTIs in respect of the supplies received from YYY provided the relevant requirements for issuing an RCTI are met.

Question 5

Goods and Services Tax Ruling GSTR 2003/5 Goods and services tax: Vouchers (GSTR 2003/5) states that to be a voucher to which Division 100 of the GST Act applies, an article must satisfy the meaning of voucher in section 100-25 of the GST Act as well as additional requirements in section 100-5 of the GST Act.

For a voucher to fall within section 100-25 of the GST Act, it must:

· have a single function or purpose;

· the presentation of the voucher must be integral to supplies on redemption; and

· upon redemption, the voucher must entitle the holder to receive supplies. (cf paragraph 26 of GSTR 2003/5)

Paragraph 28 of GSTR 2003/5 then explains that a single function voucher ceases to be a voucher once fully redeemed for supplies or when it expires. Examples of single function vouchers include: a retailer branded gift voucher or a voucher with a unique number which can be used only to obtain supplies.

Paragraph 31 of GSTR 2003/5 provides that a multi function voucher is not a voucher for the purposes of section 100-25 of the GST Act. It includes a voucher that enables the holder to top up, reload, or recharge the voucher with a value.

Paragraph 33 of GSTR 2003/5 states that the words '…the redemption of which… entitles the holder to receive…' in section 100-25, indicates that the act of presentation of the voucher, or any part of the voucher, for supplies is an integral requirement before an article can be considered to be a voucher for the purposes of section 100-25.

Paragraph 38 of GSTR 2003/5 elaborates that "[t]he meaning of voucher in section 100-25 includes the requirement that the article entitle the holder to receive supplies upon its redemption. The article must be capable of being redeemed…"

Section 100-5 of the GST Act provides that the supply of a voucher that falls within the definition of section 100-25 is not a taxable supply subject to additional requirements set out in section 100-5 are met. These requirements are:

· the supply of a voucher must otherwise be a taxable supply;

· the holder of the voucher is entitled;

· upon redemption the voucher must entitle the holder to receive a reasonable choice and flexibility of supplies;

· the monetary value must be stated on the voucher; and

· on redemption of the voucher the holder is entitled to supplies up to its face value.

A gift voucher is defined in contract 2.

Given the fact that the YYY gift vouchers have met all the requirements of sections 100-5 and 100-25 of the GST Act as per the terms and conditions set out above, its supply by YYY to XXX is not a taxable supply for the purposes of section 100-5 of the GST Act.

Question 6

Division 11 of the GST Act deals with the entitlement to input tax credits. Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or liable to provide, *consideration for the supply; and

(d) you are *registered or *required to be registered.

Asterisked terms are defined under section 195-1 of the GST Act.

The meaning of creditable purpose is defined in section 11-15 of the GST Act.

Relevantly, subsections 11-15(1) and (2) of the GST Act state:

1. you acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

2. However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic purpose.

Furthermore, section 11-30 of the GST Act concerns acquisitions that are partly creditable and states:

1. An acquisition that you make is partly creditable if it is a creditable acquisition to which one or both of the following apply:

(a) you make the acquisition only partly for a *creditable purpose;

(b) you provide, or are liable to provide, only part of the *consideration for the acquisition.

(a) you acquire anything solely or partly for a creditable purpose

You have advised us that the acquisition from YYY will be partly for a creditable purpose. Accordingly, an analysis of paragraph (a) of section 11-5 of the GST Act is not required.

(b) the supply of the thing to you is a taxable supply

In question 1, we have determined that there is a supply made by YYY to XXX when it provides travel agency services to XXX's customers pursuant to a contract between them under the direct points redemption whereby the YYY fulfils a contractual obligation to XXX and receives consideration from XXX.

In question 2, we have determined that the supply of "arranging travel" services by YYY is a taxable supply if it is in respect of arranging travel within Australia. The supply of "arranging travel" services is a GST-free supply if it is in respect of arranging travel outside Australia.

(c) you provide, or are liable to provide, consideration for the supply

The relevant consideration for the acquisition of travel agency services is referred to in contract 2 between XXX and YYY. Hence, paragraph 11-5(c) of the GST Act is satisfied.

(d) you are registered or required to be registered

XXX is registered for GST.

Based on the above reasoning, the requirements of section 11-5 of the GST Act are satisfied. Consequently, XXX will make a creditable acquisition that is partly creditable in respect of the taxable supply of travel agency services in connection with arranging travel within Australia made by YYY.

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