Edited version of your written advice

Authorisation Number: 1012723811412

Ruling

Subject: GST and vouchers

Questions and Answers:

In relation to the voucher (plastic cards):

Question 1:

Is an Australian entity (you) making a supply of a face value voucher (FVV) under Division 100 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which is not a taxable supply?

Answer 1:

Yes. Your supply of the voucher is a FVV under Division 100 of the GST Act and is not a taxable supply. GST will be payable on redemption of the voucher for any taxable supplies of goods and services.

Question 2:

Is the bonus voucher given to a customer for no consideration subject to GST?

Answer 2:

No. The bonus voucher given to a customer for no additional consideration is not subject to GST.

Question 3:

Can you determine the order that the stated monetary value on the voucher and the bonus voucher are redeemed for supplies?

Answer 3:

Yes, the GST legislation does not specify the order in which a customer should redeem the voucher (a FVV) or bonus voucher (a non-FVV). However, where a FVV is unredeemed, in full or in part, when it expires, you are required to make an increasing adjustment to account for the GST payable on the FVV.

In relation to the account facilities:

Question 4:

Are you making a supply of a FVV under Division 100 of the GST Act or a supply of money in relation to the customer account facilities?

Answer 4:

No, a credit to a customer's account (even though a plastic card may be given to create the credit or enable access/use of the credit in the account) is neither a supply of a voucher, nor a supply of money. The GST treatment of future supplies will be determined when the goods and services are supplied.

Question 5:

Is the bonus voucher (credits) offered for no consideration on the customer account facilities subject to GST?

Answer 5:

No. The bonus voucher (credits) offered for no additional consideration on the customer account facilities is not subject to GST. When a customer uses the bonus credits (which were given for no consideration) to acquire goods and services, the supply is also not subject to GST.

Relevant facts and circumstances

An Australian entity (you) is registered for GST.

You aim to establish a chain of stores across Australia. Each store provides services to local individual customers and also sells various products.

You are considering two operational methods for your business:

Operation Method 1

You will sell vouchers to your customers in the form of plastic cards with magnetic strip which entitle the holder to receive supplies from your chain of stores up to the value stated on the voucher.

A computer system incorporating point of sale will be installed in each store to control over-the-counter sales recording, cash and stock levels, as well as enabling it to update each customer's vouchers.

You advise that the features of your voucher (plastic cards) include:

• The voucher/card cannot be topped up.

• The voucher states the name of the store, the card holder's name, and card expiry date on it.

• The magnetic strip, when being read by the computer system in the store, states the monetary value of the voucher and the unredeemed value the voucher.

Further, to promote your business, you will provide a bonus voucher(s) on a separate plastic card with a magnetic strip. For example, for every $XXX voucher purchased, you will offer extra credits of $XX on a separate bonus voucher (plastic card).

You also advise that your voucher (plastic card) has the following features:

• The voucher is a plastic card with machine-readable face value on its magnetic strip. The stated monetary value which can be verified by the computer system at any point of time.

• The redemption of the voucher entitles the card holder to receive supplies at your chain of stores in accordance with its terms. The voucher has a single function and cannot be topped up.

• The voucher is freely transferable although it is issued to a specific customer. On presentation, the voucher entitles the holder to supplies up to the stated monetary value on the voucher.

• Upon redemption the voucher entitles the holder to receive a reasonable choice and flexibility of supplies. This is because you offer a range of services and products (at different values). The holder may use the voucher to acquire any of the services or any combination of them up to the monetary value of the voucher.

Operation Method 2

In addition to the above, you will apply operation method 2 in some of your chain stores.

Under this method, you will establish and maintain an account facility for each customer with credit on it on which the account holder is entitled to draw as consideration for further supplies. To operate the account, the customer will be issued a plastic card with a magnetic strip on it. Upon being scanned, the card reads the balance of the cardholder's account in your computer system.

The customer can establish and recharge its account by buying vouchers of various face values from your chain of stores. Once the recharge is achieved the voucher can be discarded. A customer can also visit your stores in person to deposit money into their account via cash or credit card payments.

From time to time, you may offer gift vouchers as unsolicited promotional items to attract more business.

As part of a marketing strategy, you will provide a customer who has purchased vouchers of a certain face value with bonus credits. Once the customer accepts the offer his/her account is topped up. You do not receive any consideration from the customers for the bonus credits.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, Section 9-5

A New Tax System (Goods and Services Tax) Act 1999, Division 100

Reasons for decision

Issue 1:

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), 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.

Division 100 of the GST Act provides that a supply of a 'voucher' is not a taxable supply. To be a GST voucher under the special rules in Division 100 of the GST Act, an article must satisfy the requirements in section 100-25 of the GST Act as well as the requirements in section 100-5 of the GST Act.

Section 100-25 requirements

Section 100-25 of the GST Act states:

(1) A voucher is any:

(a) voucher, token, stamp, coupon or similar article; or

…

the redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms. However, a postage stamp is not a voucher.

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

Goods and Services Tax Ruling GSTR 2003/5 covers the application of Division 100 of the GST Act, and states:

26. For a voucher to fall within subsection 100-25(1):

• it must satisfy either paragraph 100-25(1)(a) or (b);

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

• upon redemption, the voucher must entitle the holder to receive supplies.

In determining whether an article is similar to a voucher, token, stamp or coupon its characteristics, function and purpose must be taken into consideration.

The above three requirements of subsection 100-25(1) of the GST Act are addressed in detail in paragraphs 26A to 31, 33 to 34, and 38 to 44 of GSTR 2003/5.

On the basis of the facts provided, your supply of the voucher (plastic cards) which entitles the holder to supplies from your chain of stores satisfies all the requirements of a 'voucher' in section 100-25 of the GST Act.

Section 100-5 requirements

Section 100-5 of the GST Act imposes additional conditions that must be satisfied before a section 100-25 voucher will be a Face Value Voucher (FVV). The supply of a voucher that meets such conditions is not a taxable supply.

Paragraph 56 of GSTR 2003/5 lists the additional requirements of section 100-5 of the GST Act, which are:

• the supply of a voucher must otherwise be a taxable supply (discussed at paragraphs 57 to 67);

• 'the holder of the voucher is entitled' (discussed at paragraphs 68 to 73);

• upon redemption the voucher must entitle the holder to receive a reasonable choice and flexibility of supplies. (discussed at paragraphs 74 to 79);

• the voucher must have a stated monetary value (discussed at paragraphs 80 to 83F); and

• on redemption of the voucher the holder is entitled to supplies up to its stated monetary value (discussed at paragraphs 84 to 129).

On the basis of the facts provided, the supply of your voucher (plastic card) satisfies all the additional requirements of section 100-5 of the GST Act.

Accordingly, the supply of your voucher is a FVV in accordance with Division 100 of the GST Act and is not subject to GST. GST is only payable on redemption of the voucher for taxable supplies of goods and services.

Issue 2:

The facts indicate that to promote your business, you will provide bonus vouchers (on separate plastic cards) for no consideration.

A requirement in section 100-5 of the GST Act is that the supply of the voucher must otherwise be a taxable supply. This is discussed at paragraphs 57 to 67 of GSTR 2003/5.

Paragraph 58 of GSTR 2003/5 states:

There must be consideration for the supply of a voucher

58. One of the requirements for a supply to be taxable is that it must be made for consideration. For section 100-5 to apply there must be consideration for the supply of the voucher. If there is no consideration for the supply of the voucher section 100-5 does not apply and the basic rules apply. Similarly, subsection 100-10(3) will not apply as it will only apply to vouchers which meet the requirements of both section 100-25 and section 100-5. For example, section 100-5 will not apply to a voucher which has been:

• donated by an entity to a charity; or

• given away, as an unsolicited gift or unsolicited promotional item (non-charity).

Accordingly, where you give away bonus vouchers for no consideration, section 100-5 of the GST Act is not satisfied and Division 100 of the GST Act does not apply.

Non-FVV

In relation to non-FVV, GSTR 2003/5 states:

167. If a thing is a voucher as defined in section 100-25 but it does not meet the additional requirements of section 100-5, it is not a FVV. For the purposes of this Ruling, such a voucher is referred to as a 'non-FVV'. If the voucher is not a FVV it is necessary to consider the GST consequences on the supply of the voucher and the supplies on the redemption of the voucher.

175. Where a voucher is supplied for no consideration, it is not a taxable supply. Section 9-5 provides that, for a supply to be a taxable supply, it must be for consideration.

177. The supply on redemption of a non-FVV is a taxable supply if the requirements in section 9-5 are met.

178. In relation to the supply or supplies on redemption of a non-FVV subsection 9-17(1) applies to limit the consideration for the supply on redemption of the voucher to any additional consideration provided either for that supply or in connection with the exercise of the right evidenced by the voucher. If there is no such additional consideration, there is no consideration for the supplies on redemption of the voucher.

Accordingly, your supply of such bonus voucher is not a taxable supply under section 9-5 of the GST Act because the supply is not for consideration. There will be no GST on the supplies on redemption of the voucher unless consideration is given in addition to the voucher by the holder and the other requirements for a taxable supply are satisfied.

Issue 3:

The facts indicate that you will supply the voucher (that is, FVV) and the bonus voucher (that is, non-FVV). A customer can choose to present either the voucher or bonus voucher to redeem for supplies of goods and services. The GST legislation does not specify the order in which a customer should redeem the voucher (a FVV) or bonus voucher (a non-FVV). The order of redeeming the voucher and bonus voucher is a commercial decision between you and the customer.

However, the following applies to the voucher that is a FVV:

Increasing adjustments for unredeemed FVV s - section 100-15

121. Section 100-15 applies only to FVVs. There may be circumstances where some FVVs are not redeemed. Section 100-15 requires increasing adjustments to account for the GST payable on FVVs where:

• a voucher was supplied for consideration;

• the voucher was a FVV;

• the voucher has not been fully redeemed; and

• the supplier of the voucher writes back, for accounting purposes, to current income any reserves for the redemption of the voucher.

122. A FVV that is unredeemed, in full or in part, when it expires may be subject to section 100-15, but only to the extent that it is not redeemed.

124. Section 100-15 does not apply to a voucher that was supplied for no consideration.

125. Where a supplier does not maintain reserves for the redemption of FVVs, the expiry of a FVV will trigger an increasing adjustment in the relevant Business Activity Statement (BAS).

125A. The amount of the adjustment is 1/11 of the stated monetary value of the voucher to the extent to which it has not been redeemed.

Accordingly, where a FVV is unredeemed, in full or in part, when it expires, you are required to make an increasing adjustment to account for the GST payable on the FVV.

Issue 4:

The facts indicate that for some of your chain of stores you will establish and maintain an account facility for each customer with credit on it on which the account holder is entitled to draw as consideration for further supplies. The customer can establish and recharge its account by buying vouchers from your chain of stores. Once the recharge is achieved the voucher is discarded.

GSTR 2003/8 states:

Vouchers and customer accounts

49. A credit to an account, by transferring money to the account, where that money is to be used for future supplies, is not a supply. This is the case even though a card or thing resembling a voucher may be given to create the credit or enable access or use of the credit in the account.

50. The supplier of the facility for the account is not supplying a voucher, nor is it making a supply of money. The supplier of the facility for the account is not making a taxable supply; and it is not providing consideration for a taxable supply.

51. The entity establishing the credit to the account is not acquiring a voucher nor is it making a payment for the credit in the account; rather, the entity is transferring credit into the account as provision for the acquisition of future supplies. The transfer of funds is not a taxable supply; and it is not consideration for a taxable supply. However, where an unused amount in an account is forfeited, for example on a particular expiry date, the amount forfeited is consideration for use of the facility. The use of the facility is a supply which is taxable if the requirements of section 9-5 are met. The relevant GST is attributable on forfeiture.

In this circumstance, a credit to a customer's account (even though a plastic card may be given to create the credit or enable access/use of the credit in the account) is neither a supply of a voucher, nor a supply of money. The GST treatment of future supplies will be determined when the goods and services are supplied.

Note that in the circumstance where you make a supply of a FVV (as addressed in issue 1 above) which is later used to credit the customer's account (if applicable), the GST treatments are as outlined in both Issues 1 and 4.

Issue 5:

The facts indicate that you will provide a customer who purchases vouchers of certain face values with bonus credits. If the customer accepts the offer, you top up his/her account. You do not receive any consideration from the customer for the bonus credits.

As explained above in relation to section 9-5 of the GST Act, there is a requirement that the supply must be for consideration. A supply for no consideration is not a taxable supply.

Accordingly, where a customer uses the bonus credits (which were given for no consideration) on their account to acquire goods and services, the supply is not subject to GST. Note also that gift or unsolicited promotional items given away for no consideration are also not subject to GST.

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