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Edited version of your written advice

Authorisation Number: 1012921343522

Date of advice: 18 December 2015

Ruling

Subject: GST

Question 1

Is GST payable by you on the sale of the items from forfeited loan collateral?

Answer 1

Whether or not the acquisition and sale of the forfeited goods are subject to GST will depend on the circumstances under which they are acquired and sold.

The GST treatment of the sale of forfeited pawned goods after the expiry of the loan period depends on whether or not ownership of the forfeited pawned goods transfers to you prior to the sale.

You have advised that you are not able to take ownership of the pawned goods at any time.

Division 105 of the GST Act then becomes relevant to the sale of the forfeited pawned goods after the expiry of the loan period.

When you sell the forfeited pawned goods to a third party after the expiry of the loan period, to recover the money owed to you, section 105-5 of the GST Act will operate to make that sale subject to GST in some circumstances.

In the circumstances where the sale of the pawned goods would have been taxable had the owner (that is, your customer) made the sale themselves, you will be required to remit GST to the ATO when you sell these forfeited pawned goods to third parties (subsection 105-5(1) of the GST Act).

However, the sale will not be subject to GST if the owner (that is, your customer) provides you with a written notice stating that the sale of the pawned goods would not be taxable if the owner were to sell the goods themselves (paragraph 105-5(3)(a) of the GST Act). If you cannot obtain such a notice and you believe on the basis of reasonable information that the sale would not be a taxable supply if your customer had made it themselves (for instance where your customer is not registered or required to be registered for GST), then the sale of the pawned goods by you would not be subject to GST (paragraph 105-5(3)(b) of the GST Act).

Question 2

Are you entitled to claim input tax credits on stock moved from loan collateral to stock on hand and sold and the proceeds are attributed to the repayment of the loan?

Answer 2

No. You are not entitled to claim input tax credits in respect of the forfeited pawned goods that are sold and the proceeds are attributed to the repayment of the loan.

Subdivision 66-A of the GST Act allows you in some circumstances, to claim an input tax credit for an acquisition of second-hand goods even though the supply to you was not a taxable supply.

For subdivision 66-A of the GST Act to apply, the goods must have been acquired by you for the purpose of sale or exchange. Where goods have been acquired as security in a pawn broking arrangement, they are not acquired for the purposes of sale or exchange and are therefore not creditable acquisitions for the purposes of subdivision 66-A of the GST Act.

It follows then that the acquisition of the forfeited pawned goods by you are not creditable acquisitions as these goods have not been acquired by you for sale or exchange but were acquired as a security for a loan you provided. The subsequent sale of the goods at the end of the loan period is in satisfaction of the debt owed to you by your customer. You are therefore not entitled to claim input tax credits in relation to the acquisition of forfeited pawned goods in these circumstances.

Question 3

Are you entitled to claim input tax credits when you purchase items with a value of $300 or more for the purpose of resale from the general public who are not registered for GST? If yes, do you claim the input tax credits at the time of purchase or when the item is sold?

Answer 3

Yes. You claim the input tax credit when the items are sold.

As you have purchased these second-hand goods from the general public customers (that is you take ownership of the goods) and you have purchased the second-hand goods for the purpose of sale or exchange, subsection 66-5(1) of the GST Act will operate to allow you to claim input tax credits on your acquisition of the second-hand goods, subject to subsection 66-5(2) of the GST Act.

The amount of the input tax credit for creditable acquisitions of second-hand goods from an unregistered entity is calculated under section 66-10 of the GST Act. If you acquired the second-hand goods for more than $300, the amount of the input tax credits for the second-hand goods is the lesser of:

Under section 66-15 of the GST Act, if you acquire second-hand goods for more than $300 and you account on a cash basis, you can claim the input tax credit only when you make a taxable supply (that is, when you sell) the second hand-goods, and only to the extent that you receive payment for the sale of the second hand-goods in a tax period.

Question 4

What are the GST implications when you cash a customer's cheque that is presented for 'on the spot' cashing and you charge the customer a fee/commission for doing so?

Answer 4

You are making an input taxed financial supply under subsection 40-5(1) of the GST Act when you cash a customer's cheque and charge a fee for doing so. No GST is payable on an input taxed supply.

A cheque is a negotiable instrument that is used or intended for use or circulation as money. A cheque is also a bill of exchange. As a negotiable instrument or bill of exchange, a cheque falls within the definition of 'money' in section 195-1 of the GST Act.

In cashing a cheque for a customer, you are providing money, in exchange for money in another form (that is, the cheque) provided by the customer, together with the fee to be paid by the customer.

As each party to the transaction is supplying money to the other, and each supply of money is provided as consideration for the other supply of money, each supply is a 'supply' for GST purposes.

Your provision of the cash and your acquisition of the interest in the cheque are financial supplies. Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed. If a supply is input taxed, then there is no GST payable on the supply. Accordingly, there is no GST payable when you cash a customer's cheque and charges a fee for doing so.

Relevant facts and circumstances

• You are an entity and you operate a pawnbroking business in Australia.

• You provide loans to customers secured by collateral. The loans are advanced against security/collateral of a wide variety of items that you are lawfully allowed to deal in that has an intrinsic value on the secondary market.

• The customer is given a specified period of time to repay the loan and redeem the collateral.

• In the event that the loan is not repaid, the collateral is forfeited. You have the right to sell the pawned goods on behalf of the customer, to recover the money owed under the contract under which the goods are pawned. The sale proceeds are then attributed to the repayment of the outstanding loan amount. There is no transfer of title of the collateral items from the customer to you, prior to sale.

• Occasionally, you also purchase items with a value of $300 or more from private individuals from the general public who are not registered for GST, for the purpose of resale. In this instance, you obtain title to the goods that you purchase for resale. No loan is provided to the general public in this instance.

• You also provide instant cheque cashing services to customers. For a small fee/commission, customers who have cheques issued to them from various entities can present those cheques to you for 'on the spot' cashing. The customers receive the amount stated on the cheque less the fee/commission that you charge for the service.

• Your customers are all private individuals.

You are registered for the goods and services tax (GST) and account for GST on a cash basis.

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 subsection 9-10(4)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(1)

A New Tax System (Goods and Services Tax) Act 1999 subdivision 66-A

A New Tax System (Goods and Services Tax) Act 1999 section 105-5

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-5.09(1)

A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-5.09(3)

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