Edited version of your private ruling

Authorisation Number: 1012446153673

Ruling

Subject: GST and ABN registration

Question

Do you require an ABN and GST registration?

Answer

No.

Relevant facts and circumstances

You invest in contracts for difference trading on foreign exchanges predominantly X exchanges.

The trading volume and dollar value satisfy business activity tests and exceed the $75,000 GST registration threshold. You do not wish for this ruling to consider whether your activities amount to carrying on of a business/enterprise.

You are not carrying on any other enterprise. You also trade in foreign shares but this is a passive activity.

You are an 'investor' in contracts for difference and not a 'licensed provider'. You deal with providers that are non-residents for income tax purposes and are based overseas. You do not deal with the offices, branches or agents of the non-resident provides in Australia. The providers are non-residents who are not in Australia in relation to the supplies made by you.

You enter into the contracts for difference through your broker who is located overseas. You travel overseas frequently and deal with your investments whilst overseas. The contracts are entered into overseas. The confirmations are communicated to you via email from overseas. All accounts relating to this activity are held offshore.

You are an Australian resident for tax purposes. You do not conduct your activities via an agent/broker in Australia.

Currently you are not registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-30

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-10

A New Tax System (Goods and Services Tax) Act 1999 section 25-1

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

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

A New Tax System (Goods and Services Tax) Act 1999 section 84-5

A New Tax System (Goods and Services Tax) Act 1999 section 84-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.02

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.03

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.04

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.05

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.06

A New Tax System (Goods and Services Tax) Regulations 1999 subregulation

40-5.09(1)

Income Tax Assessment Act 1936 subsection 6(1)

Reasons for decision

Summary

You are not required to be registered for GST as your GST turnover does not meet the registration turnover threshold.

You are not entitled to an ABN as you are not carrying on an enterprise in Australia or making supplies that are connected with Australia.

Detailed reasoning

GST registration

Section 23-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity may choose to register for GST if:

· it is carrying on an enterprise but has a GST turnover of less than $75,000 ($150,000 for non-profit entities), or

· it intends to carry on an enterprise from a particular date.

Section 23-5 of the GST Act outlines when an entity is required to be registered for GST and states:

You are required to be registered under this Act if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

(* denotes a term defined in section 195-1 of the GST Act)

Enterprise

The term enterprise is defined in subsection 9-20(1) of the GST Act to include, among other things, an activity, or series of activities, done in the form of a business (paragraph 9-20(1)(a) of the GST Act).

You advised that investing in contracts for deference is the only enterprise that you are currently carrying on and that your activities satisfy business activity tests. Based on the information that you have provided, you are carrying on an enterprise and meet the requirement of paragraph 23-5(a) of the GST Act.

GST turnover

Under subsection 188-10(1) of the GST Act, you have a GST turnover that meets the registration turnover threshold if:

(a) your current GST turnover is $75,000 or more, and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or

(b) your projected GST turnover is $75,000 or more.

Subsection 188-15(1) of the GST Act provides that your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month.

Subsection 188-20(1) of the GST Act provides that your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months.

However, sections 188-15 and 188-20 of the GST Act provide that certain supplies are excluded from the calculation of both the current and projected GST turnovers including:

· supplies that are input taxed, and

· supplies that are not connected with Australia.

Input taxed supplies

Paragraph 9-30(2)(a) of the GST Act provides that a supply is input taxed if it is input taxed under Division 40 of the GST Act or under a provision of another GST Act.

Financial supplies

Subdivision 40-A of the GST Act deals with financial supplies. Section 40-5 of the GST Act states:

40-5 Financial supplies

(1) A *financial supply is input taxed.

(2) Financial supply has the meaning given by the regulations.

'Supply' has the meaning given by section 9-10 of the GST Act and includes a financial supply (paragraph 9-10(2)(f) of the GST Act).

Regulation 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) sets out the requirements for financial supplies. It states:

40-5.09 What supplies are financial supplies

(1) The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if:

(a) the provision, acquisition or disposal is:

(i) for consideration; and

(ii) in the course or furtherance of an enterprise; and

(iii) connected with Australia; and

(b) the supplier is:

(i) registered or required to be registered; and

(ii) a financial supply provider in relation to supply of the interest.

Accordingly, a supply is a financial supply if there is the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or subregulation 40-5.09(4) of the GST Regulations, and the requirements of paragraphs 40-5.09(1)(a) and 40-5.09(1)(b) of the GST Regulations are met.

Regulations 40-5.02 to 40-5.05 of the GST Regulations define the terms, interests, provision, disposal and acquisition as follows:

40-05.02 Interests

An interest is anything that is recognised at law or in equity as property in any form. …

40-5.03 Provision

Provision of an interest includes allotment, creation, grant and issue of the interest.

40-5.04 Disposal

Disposal of an interest includes assignment, cancellation, redemption, transfer and surrender of the interest

40-05.03 Acquisition

Acquisition, in relation to the provision or disposal of an interest, includes acceptance and receipt of the interest.

The provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or subregulation 40-5.09(4) of the GST Regulations

The first requirement of subregulation 40-5.09(1) of the GST Regulations is that there is a provision, acquisition or disposal of an interest by you under an item mentioned in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations.

Goods and Services Tax Determination GSTD 2005/3 (GSTD 2005/3) deals with contracts for difference and financial spread betting contracts. Paragraph 4 of GSTD 2005/3 provides that for the purposes of the GST Act and the GST Regulations, financial investment in the form of a contract for difference is a cash-settled derivative.

Paragraph 20 of GSTD 2005/3 states:

20. … contracts for difference are the provision of an interest in or under a derivative mentioned in item 11 of the table in subregulation 40-5.09(3) of the GST Regulations. A derivative is defined in the dictionary of the GST Regulations to mean ' an agreement or instrument the value of which depends on, or is derived from, the value of assets or liabilities, an index or a rate '. … contracts for difference are such agreements. The value of these contracts depends on and is derived from the movement of the value or price of assets, an index or a rate from the date they are bought or sold to the date they are

closed out or expire.

Accordingly, a contract for difference is the provision of an interest in or under a derivative mentioned in item 11 of the table in subregulation 40-5.09(3) of the GST Regulations.

Paragraph 40-5.09(1)(a) of the GST Regulations

Supply for consideration

Subparagraph 40-5.09(1)(a)(i) of the GST Regulations requires that the provision, acquisition or disposal of the interest is for consideration.

Paragraph 26 of GSTD 2005/3 provides that on entering into a contract for difference the investor enters into an obligation to make a payment to the provider if the price underlying the contract moves in a particular direction. Similarly the provider enters into an obligation to make a payment to the investor if the price underlying the contract moves in the opposite direction.

Paragraph 27 of the GSTD 2005/3 provides that a contract for difference, by its nature, involves both the acquisition and disposal of interests in the derivative contract by each of the participants. Each party to the contract supplies an interest under a derivative at the time of entry into the contract. That is, each party both makes a supply of the interest and provides non-monetary consideration to the other entity in the form of an interest under the derivative.

Accordingly, the requirement of subparagraph 40-5.09(1)(a)(i) of the GST Regulations is met. That is you are making a supply for consideration when you enter into a contract for difference.

In the course or furtherance of an enterprise

Subparagraph 40-5.09(1)(a)(ii) of the GST Regulations requires that the provision, acquisition or disposal of the interest is in the course or furtherance of an enterprise.

You stated that your activities satisfy the business activity tests. Accordingly, based on the information that you have provided, your dealings in contracts for difference are in the course of an enterprise that you carry on. As such, the requirement of subparagraph 40-5.09(1)(a)(ii) of the GST Regulations is met.

Connected with Australia

Subparagraph 40-5.09(1)(a)(iii) of the GST Regulations requires that the provision, acquisition or disposal of the interest is connected with Australia.

Section 9-25 of the GST Act defines when a supply is connected with Australia. For the purposes of determining whether a supply is connected with Australia, section 9-25 of the GST Act makes a distinction between a supply of goods, a supply of real property and a supply of anything other than goods and real property.

In your case, you are not making a supply of goods or real property when you enter into a contract for difference. Paragraph 26 of GSTD 2005/3, characterises the supply provided by you on entering into a contract for difference, as an entry into an obligation.

Subsection 9-25(5) of the GST Act sets out when a supply of anything other than goods or real property is connected with Australia. This subsection states in part:

Supplies of anything else

(5) A supply of anything other than goods or *real property is connected with Australia if:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an *enterprise that the supplier *carries on in Australia; or …

Goods and Services Tax Ruling GSTR 2000/31 (GSTR 2000/31) explains when a supply is connected with Australia under section 9-25 of the GST Act. Paragraph 63 of GSTR 2000/31 provides that under paragraph 9-25(5)(a) of the GST Act, the connection with Australia requires that the 'thing' being supplied is 'done' in Australia.

Paragraph 77 of GSTR 2000/31 deals with where the 'thing' supplied is the entry into, or release from, an obligation and states:

77. If the supply is the entry into, or release from, an obligation to do anything, or to refrain from an act, or to tolerate an act or situation, the entering into that obligation or the release form that obligation is done where the obligation is entered into or the release is effected.

You advised that you enter into the contracts for difference through your broker who is located overseas. You frequently travel overseas and deal with your investments whilst overseas. The contracts are entered into overseas. The confirmations are communicated to you via email from overseas.

Based on the information provided we consider that your supply of an interest in the derivative contract is not connected with Australia pursuant to paragraph 9-25(5)(a) of the GST Act.

Paragraph 78 of GSTR 2000/31 provides that if the thing supplied is not connected with Australia because the thing is not done in Australia, the supply is connected with Australia if, under paragraph 9-25(5)(b) of the GST Act, the supplier makes the supply through an enterprise that the supplier carries on in Australia.

Section 9-25(6) of the GST Act states that a supplier carries on an enterprise in Australia if the enterprise is carried on through:

(c) a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936); or

(d) a place that would be such a permanent establishment if paragraph (e), (f) or (g) of that definition did not apply.

Subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines permanent establishment as:

permanent establishment in relation to a person (including the Commonwealth, a State or an authority of the Commonwealth or a State), means a place at or through which the person carries on any business and, without limiting the generality of the foregoing, includes:

(a) a place where the person is carrying on business through an agent;

(b) place where the person has, is using or is installing substantial equipment or substantial machinery;

(c) a place where the person is engaged in a construction project; and

(d) where the person is engaged in selling goods manufactured, assembled, processed, packed or distributed by another person for, or at or to the order of, the first-mentioned person and either of those persons participates in the management, control or capital of the other person or another person participates in the management, control or capital of both of those persons - the place where the goods are manufactured, assembled, processed, packed or distributed;

but does not include:

(e) a place where the person is engaged in business dealings through a bona fide commission agent or broker who, in relation to those dealings, acts in the ordinary course of his or her business as a commission agent or broker and does not receive remuneration otherwise than at a rate customary in relation to dealings of that kind, not being a place where the person otherwise carries on business;

a place where the person is carrying on business through an agent:

(i) who does not have, or does not habitually exercise, a general authority to negotiate and conclude contracts on behalf of the person; or

(ii) whose authority extends to filling orders on behalf of the person from a stock of goods or merchandise situated in the country where the place is located, but who does not regularly exercise that authority;

not being a place where the person otherwise carries on business; or

(f) a place of business maintained by the person solely for the purpose of purchasing goods or merchandise.

The definition of permanent establishment for the purposes of subsection 9-25(6) of the GST Act is wider than the definition of permanent establishment found in subsection 6(1) of the ITAA 1936. This is because pursuant to paragraph 9-25(6)(b) of the GST Act, paragraphs (e), (f) and (g) of the definition are not similarly excluded from the definition of permanent establishment for the purposes of subsection 9-25(6) of the GST Act.

Paragraphs 84 and 218 of GSTR 2000/31 provide that for a supply of a thing other than goods or real property, to be connected with Australia under paragraph 9-25(5)(b) of the GST Act, a connection must be established between the Australian permanent establishment and the supply.

You advised that you enter into the contracts for difference through your broker who is located overseas. You travel overseas frequently and deal with your investments whilst overseas. The contracts are entered into overseas. You do not conduct your activities via an agent/broker in Australia.

As paragraph (e) of the definition of permanent establishment in subsection 6(1) of the ITAA 1936 is not excluded from the definition of permanent establishment for the purposes of the GST Act, we consider that you have a permanent establishment overseas through which you enter into contracts for difference. Accordingly, as the supplies are not made through an Australian permanent establishment the supplies are not connected with Australia under paragraph 9-25(5)(b) of the GST Act. Further, the supplies are not connected with Australia under any other provision of the GST Act. As such, the requirement of subparagraph 40-5.09(1)(a)(iii) of the GST Regulations is not met.

As the supply is not connected with Australia, it is not necessary to consider the other requirements of subregulation 40-5.09(1) of the GST Regulations.

As stated earlier, supplies that are not connected with Australia are not included in working out your GST turnover. Consequently, you do not meet the requirement of paragraph 23-5(b) of the GST Act. As you do not meet all the requirements of section 23-5 of the GST Act you are not required to be registered for GST.

Application of section 84-5 of the GST Act

As outlined in GSTD 2005/3, when you enter into a contract for difference you are also making an acquisition from the non-resident supplier. That is you are the recipient of a supply from offshore.

Under section 84-5 of the GST Act, a supply of anything other than goods or real property from offshore that is a supply not connected with Australia, is a taxable supply if the following requirements are met:

· the recipient of the supply acquires the thing supplied solely or partly for the purpose of an enterprise that the recipient carries on in Australia, but not solely for a creditable purpose

· the supply is for consideration, and

· the recipient is 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.

Subsection 84-10(1) of the GST Act provides that where a supply is a taxable supply under section 84-5 of the GST Act, the GST amount payable on that supply is payable by the recipient of the supply.

We consider that section 84-5 of the GST Act does not apply when you enter into contracts for difference under circumstances described. Therefore, you are not liable to pay GST under subsection 84-10(1) of the GST Act.

ABN registration

An entity is entitled to an ABN, if the entity is:

· a company registered under the Corporations Act 2001

· an entity carrying on an enterprise in Australia

· an entity that, in the course or furtherance of carrying on an enterprise, makes supplies that are connected with Australia

· a government entity

· a non-profit sub-entity for GST purposes

· a superannuation fund.

Based on the facts of your case, you are not carrying on your enterprise of investing in contracts for difference in Australia and your supply of the interest in the derivative contracts is not connected with Australia. Further, you are not carrying on any other enterprise in Australia. As you do not meet any of the above requirements you are not entitled to an ABN.

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