Edited version of your private ruling

Authorisation Number: 1012403075952

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Acquisition of ATM services and reduced input tax credits

Question 1

Is Entity A making a reduced credit acquisition (RCA) under item 7(f) and/or item 29(a) in the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) for the acquisition of the Services from Entity B under the ATM Agreement?

Answer

Entity A makes a mixed acquisition of services from Entity B under the ATM Agreement. Accordingly, to the extent that Entity A acquires:

- processing, settling, clearing and switching services, the acquisition is a RCA under item 7(f) in the table in subregulation 70-5.02(2) of the GST Regulations;

- cash funding and cash replenishment services, the acquisition is a RCA under item 29(a) in the table in subregulation 70-5.02(2) of the GST Regulations.

Question 2

Is Entity A entitled to claim previously unclaimed reduced input tax credits (RITCs) for the acquisition of Services from Entity B referred to in question 1, from the commencement of the arrangement until the issue of this private ruling, in the next business activity statement after the issue of this private ruling?

Answer

Whether Entity A is able to claim an amount on a current BAS is based on a number of factors. Please refer to our reason for decision below for further guidance.

Relevant facts

Entity A is registered for GST.

Entity A is the operator of retail stores (the Stores).

Entity A has installed and operates on its store premises ATM's.

Entity A's enterprise includes making input taxed financial supplies, in particular, supplies for a fee not exceeding $X of the ATM services listed in subregulation 40-5.09(4A) of the GST Regulations.

Entity A has entered into an agreement with Entity B (the ATM Agreement). A copy of the ATM Agreement has been provided as part of this ruling request.

The ATM Agreement outlines the terms by which Entity B provides services to Entity A relating to the operation of ATMs in the Stores.

The Services provided under the ATM Agreement are:

- the supply, installation, connection, operation, maintenance, and removal of an ATM and signage by Entity B in the Stores; and

- the supply of managed ATM services by Entity B to Entity A which include:

(a) regularly service the ATM;

(b) keep the ATM in good and working condition (fair wear and tear excepted);

(c) carry out any necessary repairs,

(d) perform the services set out in the ATM Agreement;

(e) assume liability for all transaction reconciliation and ATM balancing;

(f) assume liability for the management of the network to which the ATM is attached;

(g) assume liability for remote monitoring of the network;

The ATM Agreement sets out a number of things that Entity B will at its cost, provide or procure the provision of, to Entity A. This includes, amongst other things:

- Transaction Processing services

- Transaction Settlement

- Network Management and ATM Remote Monitoring

- Cash Funding

- Cash Replenishment

- Cash Insurance

- Transaction Reconciliation and ATM Balancing.

Entity A provides consideration for the Services acquired from Entity B under the ATM Agreement. This includes:

"Removal and De-installation Charge" of an ATM

"Fixed ATM Fees" being the fee paid by Entity A per month, as set out under the terms of the ATM Agreement

"Variable ATM Fees" being the fees payable by Entity A per ATM transaction, as set out under the terms of the ATM Agreement

Under the ATM Agreement, Entity B collects the Transaction Charges (being the fee charged to a patron) on behalf of Entity A and pays to Entity A these Transaction Charges.

In accordance with the ATM Agreement Entity B pays Entity A the Transaction Charges less Fixed ATM Fees and Variable ATM Fees.

Entity B has advised Entity A that it remits GST in respect of the consideration provided for Services under the ATM Agreement.

To date, Entity A has not claimed any input tax credits for the acquisition of Services from Entity B under the ATM Agreement.

Relevant legislative provisions

Division 11 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999

Paragraph 11-15(2)(a) of the A New Tax System (Goods and Services Tax) Act 1999

Division 70 of the A New Tax System (Goods and Services Tax) Act 1999

Subregulation 40-5.09(4A) of the A New Tax System (Goods and Services Tax) Regulations

Regulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations

Reasons for decision

Question 1:

Is Entity A making a RCA under item 7(f) and/or item 29(a) in the table in subregulation 70-5.02(2) of the GST Regulations for the acquisition of the Services from Entity B under the ATM Agreement?

Division 11 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the basic rules for claiming an input tax credit. Section 11-20 of the GST Act states that an entity is entitled to a full input tax credit where it makes a creditable acquisition. An entity makes a creditable acquisition where the requirements under section 11-5 of the GST Act are satisfied. For an acquisition to be a creditable acquisition, amongst other things, it must be made solely or partly for a creditable purpose.

As a general rule, section 11-15 of the GST Act establishes that an entity acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise. However, paragraph 11-15(2)(a) of the GST Act provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

Under section 40-5 of the GST Act, a financial supply (having the meaning given by the GST Regulations) is input taxed and no GST is payable on the supply. Pursuant to paragraph 11-15(2)(a) of the GST Act an acquisition that relates to making an input taxed supply is not made for a creditable purpose and thus, there is no entitlement to an input tax credit for anything acquired to make that supply.

Subregulation 40-5.09(4A) of the GST Regulations provides that a supply by an entity for a fee of not more than $X is a financial supply if it is a supply of one or more of the following ATM services:

(a) a withdrawal from an account;

(b) a deposit into an account;

(c) an electronic transfer from an account;

(d) advice on the balance of an account.

In this case Entity A has advised that they provide one or more of the above services for a fee of not more than $X to ATM patrons in respect of ATMs located in its' Stores. Therefore Entity A makes a financial supply to patrons and pursuant to subsection 40-5(1) of the GST Act, these supplies are input taxed.

Accordingly when Entity A makes an acquisition from Entity B under the ATM Agreement relating to the supply of ATM services to patrons, it is denied any input tax credit for these acquisitions.

However, certain acquisitions that relate to making financial supplies may entitle you to reduced input tax credits (RITCs). Section 70-5 of the GST Act refers to these acquisitions and states:

(1) The regulations may provide that acquisitions of a specified kind that relate to making *financial supplies can give rise to an entitlement to a reduced input tax credit. These are reduced credit acquisitions.

(2) ……

Regulation 70-5.02 of the GST Regulations refers to acquisitions that attract RITCs and states:

(1) For subsection 70-5(1) of the Act, an acquisition mentioned in subregulation (2) that relates to making financial supplies gives rise to an entitlement to a reduced input tax credit.

(2) The following acquisitions (within the meaning of subsection 70-5(1) of the Act) are reduced credit acquisitions.

Entity A submits that the Services under the ATM Agreement do not amount to individual supplies. Rather Entity A considers that there is a single overall supply of services provided by Entity B to Entity A, which provides for the processing, settling, clearing and switching in relation to ATM transactions.

It is further submitted that Entity A is entitled to a RITC on the entire consideration provided (for the Services acquired from Entity B) under the ATM Agreement, under item 7(f) in the table in subregulation 70-5.02(2) of the GST Regulations (Item 7(f)). In support of this submission Entity A considers that the Services provided by Entity B are analogous to those provided by Dixieland Cabs to FairCharge in example 33 in Goods and Services Tax Ruling GSTR 2004/1 Goods and services tax: reduced credit acquisitions (GSTR 2004/1).

Mixed acquisition or composite acquisition

Where the acquisition is mixed, only those parts listed in the table in regulation 70-5.02 of the GST Regulations will be eligible as a RCA. Where the service is a composite acquisition, there will only be a RCA if the dominant part is listed as a RCA.

To determine whether the acquisition of the services under the ATM Agreement is a mixed or composite acquisition, the Commissioners views as set out in Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) provide assistance. In particular paragraphs 232 and 233 of GSTR 2002/2 state:

232. A mixed acquisition contains separately identifiable parts where one or more of the parts is a reduced credit acquisition and one or more of the parts is not a reduced credit acquisition. In a mixed acquisition, no part is dominant, and each part has a separate identity.

233. On the other hand, a composite acquisition is an acquisition of one dominant part and includes other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the acquisition. Where an acquisition is a composite acquisition, then it is essentially the acquisition of a single thing, and will be either wholly a reduced credit acquisition or wholly not a reduced credit acquisition.

Further, in determining whether you are acquiring a mixed or composite acquisition, paragraph 234 of GSTR 2002/2 states that: 

234. In working out whether you are acquiring a mixed or composite acquisition, the key question is whether the acquisition has parts that should be regarded as being separately identifiable, or whether it is essentially an acquisition of one dominant part with other parts being integral, ancillary or incidental to that dominant part. This is discussed in paragraphs 235 to 256.

It is the Commissioners view as set out in GSTR 2002/2 that no single factor by itself will provide the sole test as to whether a part of an acquisition is integral, ancillary or incidental to the dominant part of the acquisition. In this regard, the Commissioner in paragraph 250 of GSTR 2002/2 provides some guidance. Paragraph 250 of GSTR 2002/2 states:

250. No single factor by itself will provide the sole test as to whether a part of an acquisition is integral, ancillary or incidental to the dominant part of the acquisition. Having regard to all the circumstances, indicators that a part may be integral, ancillary or incidental include where:

· it represents a marginal proportion of the total value of the package compared to the dominant part;

· it is necessary or contributes to acquisition as a whole, but cannot be identified as the dominant part of the acquisition;

· it contributes to the proper performance of the contract to acquire the dominant part; or

· an acquirer would reasonably conclude that it does not constitute for customers an aim in itself, but is a means of better enjoying the dominant thing acquired.

In this case the ATM Agreement provides that "Services" are:

- the supply, installation, connection, operation, maintenance, and removal of an ATM and signage by Entity B in the Stores, and

- the supply of managed ATM services by Entity B to Entity A.

The ATM Agreement contemplates what is being supplied in a number of relevant clauses. These clauses provide further description of the Services which are provided by Entity B to Entity A.

As consideration for the supply of Services, the agreed Fixed ATM Fees and Variable ATM Fees along with other relevant charges are set out in the ATM Agreement. These also provide a further description of the components that make up the Services.

Based on meaning of Services and the description of the components given to the Services, we do not agree that the acquisition by Entity A from Entity B is a single supply of services. Rather, consistent with paragraph 232 of GSTR 2002/2 we consider the acquisition is a mixed acquisition.

In our view, the acquisition of Services in the category of 'supply, install and manage ATMs' are of a different kind and serves a different and independent purpose compared to the other service category being the provision of 'managed ATM services'. The services that fall under the category of 'supply, install and manage' are acquisitions by Entity A to obtain the device (being the ATM's), have it installed, removed, repositioned and connected. Whereas the services associated with 'managed ATM services' are for activities in operating the ATMs.

The ATM Agreement sets out the charges that apply for the supply of the device (the ATM) under the heading 'Fixed ATM Fees'. Further the Agreement identifies the fees that apply for ATM installation, relocation, removal and other services as relevant.

The 'managed ATM services' include a number of things set out in the ATM Agreement which are supplied by Entity B such as transactional processing services, transaction settlement, cash funding, cash replenishment and other related activities. These services are listed in the ATM Agreement under the heading 'Variable ATM Fees per Cash Withdrawal Transaction' and 'Variable ATM Fees per Balance Enquiry Transaction'. In particular the Variable ATM Fees provide that a fee is charged as consideration for the following services:

- Replenishment fee per transaction

- Scheduling fee per transaction

- Float (Cost of cash) fee per transaction

- Consumables fee per transaction

- Maintenance fee per transaction and

- Switch fee per transaction.

In order for each of the services listed to be subsumed into a single supply of ATM services, those services must not have an aim in themselves. Instead they must serve as a means of enjoying the more dominant supply of the services. This is not the case here because the services listed under the relevant categories serve an independent purpose.

Therefore what remains to be determined is whether each category of acquisition of Services, falls within the scope of item 7 of the table in subregulation 70-5.02(2) of GST Regulations (Item 7) and/or item 29 of the table in subregulation 70-5.02(2) of GST Regulations (Item 29).

Item 7 reduced credit acquisition

Item 7 provides that processing, settling, clearing and switching transaction of one or more of the transactions in items 7(a) to 7(j) are reduced credit acquisitions. Specifically item 7(f) deals with processing, settling, clearing and switching transaction of ATMs.

GSTR 2004/1 provides the Commissioners view regarding whether an acquisition is a RCA under item 7. In particular paragraph 258 and 259 states:

258. Item 7 deals with the acquisition of specialised services that facilitate the transfer of funds within a particular payment system. The acquirer of such services is usually an entity that offers payment services to its customers. The means by which a relevant service is performed has no effect on whether the acquisition is a reduced credit acquisition under item 7.

259. However, the acquisition of the means by which processing, settling, clearing or switching occurs is not a reduced credit acquisition under item 7. For example, the purchase of a software licence (and related support services) that provides a credit union the means to process direct entry transactions is beyond the scope of item 7.

In relation to processing paragraph 261 to 263 state:

261. In this context, the expression processing means a systematic series of actions directed to some end. Item 7 contemplates acquisitions that involve a systematic series of actions that assist the efficient movement of transactions listed in items 7(a) to 7(j) within a payment system.

Example 33 - processing services

262. FareCharge pays Dixieland Cabs a fee for sorting, collating and batching Farecharge charge-card vouchers that are collected from taxi companies that participate in the Dixieland network. The taxi companies receive the vouchers as payment for taxi services. Farecharge requires Dixieland to provide these services so that its clearing and settlement functions can operate efficiently.

263. In this instance, Farecharge has made an acquisition of a service of processing of charge card transactions, which is a reduced credit acquisition under item 7.

Further, in respect of switching paragraph 273 of GSTR 2004/1 states:

Switching

273. For the purposes of item 7, the expression switching takes its meaning from the context of a payment system and refers to the routing of payment transactions to a participant in an open loop payment system via a facility. While a facility in this context includes the manual routing of transactions, it is more likely to involve the performance of this task through automated means. Switching, in this context, also includes incidences where authorisations are sought before a transaction is approved and the authorisation request is switched to the relevant participant in a payment system.

In this case, we do not agree with Entity A's submission that the entire acquisition of Services from Entity B is a RCA under item 7(f).

Based on our conclusions above, we consider that Entity A makes a mixed acquisition of Services from Entity B. Therefore each part (i.e. category) of the mixed acquisition must be considered to determine whether Entity A makes a RCA under item 7(f).

Accordingly, it is our view that the part of the acquisition that falls within the category of 'supply, install and manage ATMs' is not within the scope of item 7. That is, this category of services is not acquired by Entity A to facilitate the transfer of funds within a particular payment system as discussed in paragraph 258 of GSTR 2004/1. Rather this acquisition is made by Entity A to obtain, install, remove or relocate the ATM's. Therefore it will not be a RCA.

However, we do consider that the part of the 'managed ATM services' which is an acquisition of processing, clearing, settling and switching falls within item 7(f). That is, consistent with paragraphs 261 and 273 of GSTR 2004/1, Entity A makes a RCA under item 7 to the extent that the acquisition is transaction processing, settling, clearing and switching in relation to ATM transactions.

On this basis, to the extent the acquisition of services by Entity A from Entity B falls within the scope of item 7(f), Entity A will be entitled to a RITC.

Item 29 reduced credit acquisition

Item 29 of the GST Regulations under 'trustee and custodial services', deals with services provided by trustees, custodians and single responsible entities. In particular item 29(a) includes the following as a RCA:

Paragraph 687 and 688 provide discussion in relation to item 29(a) and state:

687. Cash means money in a tangible form, banknotes and coin, but excludes cash equivalents such as cheques, orders, etc. The transfer of cash referred to in item 29(a) is the transfer of cash in the physical sense. Where there is an element of safe custody in an acquisition of the transfer of cash by a trustee or custodial services provider, the acquisition of that element will not be a reduced credit acquisition. This is because safe custody is specifically excluded from being a reduced credit acquisition under item 29.

688. An acquisition of a secure cash transport service is an acquisition of a custodial service under item 29 even though such an acquisition would not normally be provided by a trustee or a custodian. The words without purchase, sale or transfer of assets are included to restrict the acquisition of such secure transport services to those cases where the service is provided for a fee, rather than where the cash is actually purchased by the secure cash transport service.

In this case part of the acquisition of Services from Entity B includes 'cash funding' and 'cash replenishment' for the ATMs. The ATMs are located at business premises that are other than that used by an ADI. That is, the ATMs are located in Stores operated by Entity A.

Therefore it is our view that to the extent that the acquisition is cash funding and cash replenishment it falls within item 29(a). Accordingly Entity A makes a RCA to this extent and will be entitled to a RITC.

Apportionment of Consideration

As a consequence of the conclusion reached in relation to the Services under the ATM Agreement, we are of the view that the consideration for the acquisition of Services must be apportioned. To this end, the Commissioner's view in Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) would be of assistance.

Accordingly, only the consideration that is apportioned to the:

- processing, clearing, settling and switching services, and

- cash funding and cash replenishment services, using any reasonable method outlined in GSTR 2001/8, will qualify as the value of the RCA under item 7(f) and/or item 29(a).

Question 2:

Is Entity A entitled to claim previously unclaimed RITCs for the acquisition of Services from Entity B referred to in question 1, from the commencement of the arrangement until the issue of this private ruling, in the next business activity statement after the issue of this private ruling?

The following information in relation to claiming an indirect tax refund is set out on our website at www.ato.gov.au

How can you claim an indirect tax refund or credit or notify us of your entitlement?

If you have an entitlement to an outstanding indirect tax refund or GST credit for a purchase, you can claim it by doing one of the following:

· lodging your original activity statement for the tax period to which the refund or credit relates - if you have not already done so

· revising your activity statement for the tax period to which the refund or credit relates

· taking the refund or credit into account in your next activity statement - although, in the case of a refund (or a credit that you partially claimed in an earlier activity statement) this is subject to any time limit or correction limit outlined in 'Correcting GST Mistakes' (NAT 4700) that may apply.

Based on the above, determining whether Entity A can claim the relevant refund or credit in its next activity statement will be subject to the correction and time limits outlined in our publication Correcting GST Mistakes (NAT 4700).

In this case the ruling request by Entity A does not provide the information necessary for the Commissioner to provide a private ruling, however for your information a copy of the publication Correcting GST Mistakes has been included as part of our response.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).