Edited version of your private ruling

Authorisation Number: 1012562038248

Ruling

Subject: Decreasing adjustments

Question 1

Can the Commissioner confirm that the vouchers provided by ABC Pty Ltd to Third Parties in relation to their cash back promotions is a payment of 'money' and therefore, are third party payments subject to decreasing adjustments under Division 134 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

The Commissioner is of the view that the provision of vouchers by ABC Pty Ltd to third Parties in relation to their cash back promotions does not constitute a payment of money. Accordingly, the face value vouchers provided by you to third parties are not third party payments subject to a decreasing adjustment under Division 134 of the GST Act.

Relevant facts and circumstances

You are a large importer/distributor in the Australian market.

You are registered for GST in Australia.

You supply products to retailers at wholesale prices and retailer's on-supply these products to customers (Third Party) at retail value. Consideration is paid by the retailer to you for the supplies made to them. Consideration is also paid by the Third Party to the retailer for the supplies made to them.

In relation to certain products, you participate in a "cash back" promotion whereby if a Third Party purchases a certain product from a retailer, they will be eligible to claim a cash back payment from you within a specified period.

The process involved for the Third Party to claim the cash back payment is as follows:

· The Third Party purchases certain products from the retailer during a specified period;

· The Third Party visits a website and completes the online claim form and attaches the receipt with the claim form;

· Once the claim is validated, the Third Party's bonus cash back payment will be transferred directly to their nominated bank account or they can be issued with a face value voucher.

The face value vouchers provided by you include (but are not limited to) a cash back voucher.

We have been provided with a detailed breakdown of the various forms of payments and vouchers.

You currently have a marketing agency which manages the cash back promotion process on you behalf. When a cash back payment is required, you will pay the marketing agency the required amount and the marketing agency will forward the cash back payment face value voucher to the Third Party.

The cash back payment that is made to the Third Party is either made in the form of a payment transferred directly to the Third Party's nominated bank account or sent to them via a face value voucher. When you purchase the face value vouchers from third party suppliers, the vouchers are purchased for their face value and not for an amount less than what is actually provided to the Third Party. Therefore, the value of the face value vouchers is an equivalent amount to a cash payment that would have been made in the same instance.

When you provide a cash back payment via a cash card, an EFTPOS or credit card pre-loaded with a value corresponding to the cash back payment amount is provided to the Third Party. The Third Party cannot add money to the cash card and the cash card cannot be re-loaded by the Third Party when the balance of the cash card is reduced to nil. The Third Party cannot withdraw nor redeem the amount on the cash card.

You maintain a provision cash account with a balance equal to the maximum amount of total cash back payments you are likely to make. This is calculated based on the number of items that relate to the cash back promotions multiplied by the value of the cash back amounts that are required to be paid for those items.

You have appropriate procedures, codes and system processes in place to track all cash back payments that are made to Third Parties.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 3,

A New Tax System (Goods and Services Tax) Act 1999 Division 134 and

A New Tax System (Goods and Services Tax) Act 1999 Division 195.

Reasons for decision

Operative Provisions

Division 134 of the A New Tax System (Goods and Services Tax Act) 1999 (the GST Act) applies to third party payments made on or after 1 July 2010. All references unless otherwise stated, are to the GST Act.

Where a GST registered entity supplies a "thing" to an intermediary who on-sells the "thing" to a third party, the original supplier may, in some circumstances, make a payment directly to the Third Party (a so-called, "third party payment"). Section 134-5 operates to provide a decreasing adjustment to the original supplier where a payment is made "in connection with, in response to or for the inducement of" the above acquisition made by the Third Party from the intermediary. Where the Third Party is registered for GST (and has claimed input tax credits in respect of the acquisition from the intermediary), section 134-10 provides an increasing adjustment for the Third Party in relation to the third party payment.

Section 134-5 states:

134-5 Decreasing adjustments for payments made to third parties  

(1)

You have a decreasing adjustment if:

(a) you make a payment to an entity (the payee) that acquires a thing that you supplied to another entity (whether or not that other entity supplies the thing to the payee); and

(b) your supply of the thing to the other entity:

(i) was a *taxable supply; or

(ii) would have been a taxable supply but for a reason to which subsection (3) applies; and

(c) the payment is in one or more of the following forms:

(i) a payment of money;

(ii) an offset of an amount of money that the payee owes to you;

(iii) a crediting of an amount of money to an account that the payee holds; and

(d) the payment is made in connection with, in response to or for the inducement of the payee's acquisition of the thing; and

(e) the payment is not *consideration for a supply to you.

…

(3) This subsection applies to the following reasons why your supply of the thing to the other entity was not a *taxable supply:

(a) you and the other entity are *members of the same *GST group;

(b) you and the other entity are members of the same *GST religious group;

(c) you are the *joint venture operator for a *GST joint venture, and the other entity is a *participant in the GST joint venture.

(Items marked with an *asterisk are defined in the Dictionary at section 195-1 of the GST Act).

Defined terms in the GST Act

The term 'money' in subparagraphs 134-5(1)(c)(i) to (iii) is not identified by an asterisk at the start of the term.

Subsection 3-1(1) states that many of the terms used in the GST law are defined. Subsection 3-1(2) goes on to state that most defined terms in the GST Act are identified by an asterisk appearing at the start of the term. This indicates that most and not all defined terms are identified by an asterisk appearing at the start of the term. Therefore, the fact that the term 'money' in subparagraphs 134-5(1)(c)(i) to (iii) is not identified by an asterisk at the start of the term is not an indication that the term 'money' in those subparagraphs is not to be read subject to the definition of 'money' in section 195-1.

Also there is no indication in the GST Act to the contrary that the term 'money' in those subparagraphs is not to be read as defined in section 195-1.

Furthermore, you did not contend that the definition of 'money' in section 195-1 does not apply to subparagraphs 134-5(1)(c)(i) to (iii).

We conclude that the term 'money' in subsection 134-5(1) is a defined term and the section 195-1 definition applies.

Definition of money

The word 'money' is defined in section 195-1:

money includes:

(a) currency (whether of Australia or of any other country); and

(b) promissory notes and bills of exchange; and

(c) any negotiable instrument used or circulated, or intended for use or circulation, as currency (whether of Australia or of any other country); and

(d) postal notes and money orders; and

(e) whatever is supplied as payment by way of:

(i) credit card or debit card; or

(ii) crediting or debiting an account; or

(iii) creation or transfer of a debt.

However, it does not include:

(f) a collector's piece; or

(g) an investment article; or

(h) an item of numismatic interest; or

(i) currency the market value of which exceeds its stated value as legal tender in the country of issue.

The primary submission made by you is that the payments made by you to Third Parties in the form of Face Value Vouchers (FVV) are akin to a "payment of money" for the purposes of sub paragraph (1)(c ) of subsection 134-5(1). We however, do not subscribe to this view.

You have contended that:

· 'money' in paragraph 134-5(1)(c) takes the section 195-1 definition and

· the section 195-1 definition is 'inclusive'.

You further contend that given that the definition is inclusive, the 'following list of examples does limit the overall definition'. There is no list of examples that follows this statement. It appears that the 'list of examples' is a reference to paragraphs (a) to (i) in the definition of money in section 195-1.

If so, notwithstanding the acknowledgment that the definition of 'money' in section 195-1 is limited to the list of examples, you refer to judicial comments in four separate cases to support your contention that:

· the meaning of 'money' is not 'limited to such items as cash, currency and sums on account at a bank'

· 'money' can include 'letters of credit and leasehold estate[s]'

· the meaning of 'money' depends on the context in which it is used, the subject matter of the legislation and 'surrounding circumstances'; and

· 'money' must certainly involve a stated value'.

It is contended that the face value vouchers have a stated value being the value that was paid for them by you, which is also equal to the value that the third parties are entitled to under the cash back promotion. On the provision of these vouchers to the third parties, the value is the voucher provided to the third parties, and that value is the same as money albeit in a different form.

This, it is also contended, effectively reduces the consideration received by you for the supply made by you to the third parties through intermediaries. It is then contended that the purpose of Division 134 is to provide an adjustment event when a supplier, bypassing an intermediary, provides a rebate direct to a final customer, which reduces the value of the initial supply. According to your contention, this was what happened when the face value vouchers were provided to the third parties and hence Division 134 applies to result in a decreasing adjustment for you.

Is the definition of 'money' in section 195-1 exhaustive?

We agree with your contention that the definition of 'money' in paragraph 134-5(1) takes the section 195-1 definition. As stated above, you appear to acknowledge that the things listed in paragraphs (a) to (i) in the section 195-1 definition would be the only things which constitute the meaning of 'money'.

However, if the above was not acknowledged by you, it would be necessary to consider whether the definition of 'money' in section 195-1 is exhaustive or otherwise.

Pearce and Geddes in Statutory Interpretation in Australia¹ state that, the use of 'includes' in a definition may be intended to enlarge the ordinary meaning of the word or it may be used to intend the definition to be exhaustive².

It is noted that face value vouchers are not referred to expressly in the section 195-1 definition of money.

If the section 195-1 definition is exhaustive, then the fact that face value vouchers are not expressly referred to would mean that they are not money for the purposes of section 134-5. Therefore, payment using a face value voucher would not satisfy the requirement in subsection 134-5(1) in that there would not be 'a payment of money'.

If the section 195-1 definition is intended to enlarge the ordinary meaning of the word, then the issue is whether face value vouchers are caught by the ordinary and/or enlarged ordinary meaning of the word.

Statutory interpretation principles applied to section 195-1

The word 'includes' is used in the section 195-1 definition of money. Ordinarily the word 'includes' is used where the intention is to enlarge upon the ordinary meaning of the word.

The ordinary meaning of money is set out in the Macquarie Dictionary as:

1. gold, silver or other metal in gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value.

2. current coin.

3. coin or certificate (as banknotes, etc.) generally accepted in payment of debts and current transactions.

4. any article or substance similarly used.

5. a particular form or denomination of currency.

6. a money of account.

7. property considered with reference to its pecuniary value.

8. an amount or sum of money.

9. wealth reckoned in terms of money.

10. (plural) Law pecuniary sums.

11. pecuniary profit.

Paragraph (a) in the definition in section 195-1 refers to 'currency (whether of Australia or of any other country)'. This is the only item which falls within the ordinary meaning of money as it falls within senses 3 and 5 of the dictionary meaning.

Other than for paragraph (a) in section 195-1, paragraphs (b) to (e) refer to things that are not within the readily understood ordinary meaning of money. The items referred to in these paragraphs may be thought of as money-like in their function in effecting the exchange of value, providing valuable consideration or payment in everyday life and commerce.

In light of the fact that 'currency' as referred to in paragraph (a) falls within the ordinary meaning of 'money' and the items referred to in paragraphs (b) to (e) do not fall within the ordinary meaning, the section 195-1 definition is, in our view, an exhaustive definition. If it was intended to extend the ordinary meaning of money, it would be expected that currency as referred to in paragraph (a) would not be included in its definition as currency itself falls within the ordinary meaning of 'money'.

The definition does not include things that are money-like in application, nor anything in the nature of property.

Our view is supported by an examination of the items in paragraph 134-5(1)(c) and in the section 195-1 definition of money. Notably, two of the three forms of payment referred to in paragraph 134-5(1)(c) (an offset of an amount of money that the payee owes and a crediting of an amount of money to an account that the payee holds) are similar (not identical) to subparagraphs (e)(ii) and (iii) in the section 195-1 definition (crediting or debiting an account and creation or transfer of a debt). The forms of payment in subparagraphs 134-5(1)(c) (ii) and (iii) appear to be specifically chosen to cover the context of third party payments that takes the form of an offset of an amount of money and the crediting of an amount of money to an account. They together with the first of the three forms of payment ('a payment of money') exhaustively cover the field in which section 134-5(1) operates.

Considering your contentions

As noted above, you have referred to four cases to illustrate the proposition that the meaning of 'money' depends on the context in which the term is used, the subject matter of the legislation and the 'surrounding circumstances'. We consider that an important consideration which has not been acknowledged in your submission is the fact that it is the applicable law as stated by the legislature that ultimately decides the meaning of money.

Consequently, it is our view that in the context of this matter, it is the words of section 134-5 that have to be interpreted and applied and not the judicial comments in other cases that were decided in the context of their own particular legislative regimes.

In interpreting and applying the words of section 134-5, our view is that the entitlement to a decreasing adjustment arises in this matter relevantly where a payer makes a payment of money to a third party, the payee. 'Money' has the exhaustive meaning as defined in section 195-1 and the exhaustive meaning does not include face value vouchers. As such, Division 134 does not operate to provide a decreasing adjustment to you in respect of your provision of face value vouchers to third parties.

You have contended that the purpose of Division 134 is to provide an adjustment event when a supplier, bypassing an intermediary, provides a rebate directly to a final customer which reduces the value of the initial supply.

The Explanatory Memorandum accompanying the Tax Laws Amendment (2012 GST Administration Measures No. 1) Bill 2012 (EM) which introduces Division 134 at clause 1.1 states:

Schedule 1 to this Bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that the appropriate amount of goods and services tax (GST) is collected and the appropriate amount of input tax credits claimed in situations where there are payments between parties in a supply chain which indirectly alter the price paid or received by the parties for the things supplied. (Emphasis added)

We note that the terms used are 'price paid or received' rather than the term you have referred to, being, value. In normal parlance, the terms 'price paid or received' in sales and purchase transactions which these manufacturer payments affect refer to a sum of money consisting of currency. That is, it is this sum of money that constitutes the price that is paid or received.

In section 134-5, the manufacturer payments can be in the following forms:

· monetary payment

· offset of money to the payee's account

· credit of an amount of money to the payee's account

This suggests that it was the legislature's intention that it is only the stated forms of payment that are sufficiently proximate to and connected with the original sum of money constituting the price that are considered to indirectly alter the price originally received or paid by the parties for the things supplied.

Accordingly, the face value vouchers provided by you to third parties in relation to its cash back promotions are not manufacturer payments subject to decreasing adjustments under Division 134.

¹ Pearce, DC and Geddes, RS 2007, Statutory Interpretation in Australia, 7th edn., Lexisnexis Butterworths, Australia.

² op. cit. Pearce, DC and Geddes, RS p. 248.

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