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Edited version of your private ruling

Authorisation Number: 1012469030977

Ruling

Subject: GST and consideration for a supply

Question 1

Is the facility fee paid by a merchant to ABC Pty Ltd consideration for an input taxed supply made by ABC Pty Ltd to the customer?

Answer

Yes, the facility fee is consideration for an input taxed financial supply.

Relevant facts and circumstances

Relevant legislative provisions

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

Section 9-5

Section 9-15

Section 40-5

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

Regulation 40-5.09

Reasons for decision

Summary

The facility fee is consideration for an input taxed financial supply of credit.

Detailed reasoning

GST is payable on taxable supplies. However, a supply is not a taxable supply to the extent that it is input taxed.

Input taxed supplies are provided for in Division 40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). If a supply is input taxed, then no GST is payable on the supply, and there is no entitlement to an input tax credit for anything acquired or imported to make the supply.

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

Subdivision 40-A of the GST Regulations provides that the provision, disposal or acquisition of an interest by a financial supply provider is a financial supply.

Regulations 40-5.09 of the GST Regulations defines what supplies are financial supplies. Subregulation 40-5.09(1) states:

In this particular case, ABC provides loans to individuals to allow them to purchase products from selected merchants. The loans are interest free loans for a certain introductory period. Any outstanding balance on the loan at the expiration of the introductory period results in interest being paid on that balance until the entire loan balance is extinguished.

We therefore know that the provision of the loan facility is made in the course or furtherance of an enterprise that ABC conducts, it is connected with Australia, ABC is registered for GST and is a financial supply provider. We will limit our discussion to sub-regulation 40-5(1)(a)(i), which deals with consideration.

Consideration is provided for in section 9-15 of the GST Act. Relevantly, paragraph 9-15(1)(a) states that consideration includes 'any payment, or any act or forbearance, in connection with the supply of anything'.

Subsection 9-15(2) of the GST Act provides that it does not matter whether the payment was voluntary, or whether it was by the recipient of the supply.

The Commissioner's views on consideration are outlined in Goods and Services Tax Ruling GSTR 20036/9 Goods and services tax: supplies (GSTR 2006/9). Paragraph 180 provides that there must be sufficient nexus between the supply and the consideration.

In this particular case, ABC provides a credit arrangement to an individual. The individual uses this credit arrangement to purchase goods from certain merchants.

In order for a merchant and an individual to use the service provided by ABC, the merchant who sells the goods to the individual must provide the procedure to allow the credit arrangement to be provided. As such, the merchant will provide the application forms, for example. However, the merchant is not acting as an agent for ABC.

The merchant pays a 'facility fee' to ABC. The facility fee varies, and reflects the interest cost that ABC bears during the interest free period. The merchant pays the facility fee to induce the customer into buying products.

The Commissioner has considered similar arrangements at paragraphs 177 to 180 of GSTR 2006/9, which state:

This is known as proposition 14, which discusses a third party may pay for a supply but not be the recipient of the supply.

Therefore, the facility fee, which is paid by the merchant, allows the individual customer to enter into a credit arrangement with ABC. Once the credit arrangement is entered into, the customer has to make suitable repayments to ABC. The merchant sells the products to the customer, and then withdraws from the transaction.

In our view, there is a nexus between the supply of the credit to the individual customer and the facility fee paid by the merchant. As such, it is consideration for an input taxed supply.


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