Edited version of your written advice

Authorisation Number: 1051253506934

Date of advice: 19 July 2017

Ruling

Subject: GST and attribution

Question 1

Is the GST on the card fee for the supply of a transit card attributable, pursuant to subdivision 29-A of the A New Tax System (Goods and Services Tax) Act 1999, at the time of issue?

Answer

Yes

Question 2

Is the GST on the initial minimum top up amount (where required) and on the subsequent top up amounts attributable, pursuant to subdivision 29-A of the GST Act 1999 at the time when the card is later debited (i.e. on a per usage basis)?

Answer

Yes

Relevant facts and circumstances

You are registered for GST.

You account on an accruals basis.

You are a statutory authority that carries on an enterprise of providing public transport services in Australia. Among the public transport services operated by you are bus, train and ferry services, the provision of parking and other services.

In order to use the public transport services, patrons are generally required to pay a fare. The travel fare system uses a combination of travel zones and time limits. Patrons may choose to either purchase cash tickets at the time of travel or use a card to pay their fare.

The card is an electronic ticketing system operated by you and used across your bus, train and ferry services and parking fares using specific technology.

Patrons who apply for a card are provided with a pre numbered card. A non-refundable fee is charged for the card which may be registered with you; however, registration is not compulsory.

An owner of a registered card is able to check the card balance and trip history online.

Where the card is registered, the patron's account is refundable or transferrable on request. For example where:

● the card is stolen, the patron can put a stop on the card and have their account refunded or transferred to another account

● a patron dies

● a patron loads an amount and subsequently does not utilise the credit.

Where the card is unregistered, the patron's account is not refundable or transferable.

To obtain a card, a combination of a card fee and/or initial top up may be required depending on the type of card issued.

Patrons can top up their cards manually or through automatic direct debit to their bank account. A nominated amount is added when the credit balance falls below a certain amount.

The appropriate fare is debited from the patron's card when it is presented in lieu of payment for any services. For example, when the card is used to 'tag on' and subsequently 'tag off' any transport services in your travel network.

If a patron forgets to tag on or off properly, a default fare is deducted from the card balance, the next time the patron tags on.

If the fare deducted is more than the value on the card, the card will go into negative balance. The patron will be unable to tag on again until the card's balance is equivalent to at least a two-section cash fare.

For accounting purposes, top up payments are treated as unearned revenue until the patron applies their credit against actual usage.

No invoices are issued as fares are low value transactions.

The specific card is not linked to an Australian authorised deposit-taking institution i.e. it is not a debit card or a credit card.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 29-A

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 9-17

Reasons for decision

Note: In this reasoning, unless otherwise stated,

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999

● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Section 9-5 provides that 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 the indirect tax zone; and

(d) you are registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The GST-free and input tax provisions do not apply in your circumstances.

You carry on an enterprise of providing public transport and services in Australia. You supply a card which enables cardholders to participate in the public transport system, for a fee. As you are registered for GST and receive consideration, all requirements of a taxable supply will be met under section 9-5.

Attribution of the GST to taxable supplies

Card issue fee

Is the card a Division 100 voucher?

Paragraph 29 of Goods and Services Tax Ruling GSTR 2003/5 Goods and Services Tax: Vouchers explains that a voucher that has more than one function is not a voucher within the meaning of paragraph 100-25(1)(a).

Paragraphs 30 and 31 states:

30. A multi function voucher is a voucher, or any part of a voucher, that has been created with a number of possible functions or purposes incorporated on the voucher or on that part of the voucher. Such a voucher not only entitles the holder to receive supplies on redemption, but also enables and entitles the holder to perform a number of additional functions. The other functions of a multi function voucher continue to be available up to or after the time it has been redeemed for supplies.

31. The meaning of voucher in section 100-25 requires the redemption of the voucher to give rise to the exercise of the entitlement to supplies. A multi function voucher may not cease to carry the additional functions once it is fully redeemed or expired. It is able to be reused once it has been redeemed or has expired. A multi function voucher is not a voucher as referred to in paragraph 100-25(1)(a) for the purposes of section 100-25. Examples of a multi function voucher include:

● a voucher that enables the holder to top up, reload, or recharge the voucher with a value;

● a voucher that has been topped up, reloaded or recharged with value; or

● a voucher with unique number, where the unique number enables the holder to reload, or recharge the voucher with a value.

The card you supply:

● has a unique number

● enables the holder to top up, reload, or recharge the card with a value

● provides ongoing rights and entitlements.

Therefore, the card is not a voucher within the meaning of paragraph 100-25(1)(a). Consequently normal attribution rules will apply.

You account on an accruals basis, but do not issue an invoice for the supply of the transit card. Therefore, pursuant to subsection 29-5(1), the GST payable on the consideration received for the supply of the card is attributable to the tax period in which the consideration is received i.e. at the time of issue.

Initial and subsequent top ups

When a patron participates in the system, they may be required to make an initial top up or to top up at a later time. Where this occurs, the value will be stored on the card until it is applied as consideration for a supply of travel or related services.

Subsection 9-5(a) requires that you make a supply for consideration. Thus:

● there must be a supply

● there must be consideration

● the consideration must be for the supply.

Is consideration paid for the supply of a right to travel or for the supply of goods and services (including travel)?

Under section 9-17, where a person is granted a right or option to acquire something, this is a supply. If the option is later exercised, that is a further supply. The amount paid, for each supply is treated separately. The further supply is not subject to GST, unless there is an extra amount payable on the exercise of the option.

Therefore, where a right is supplied, consideration will be payable on the redemption of the goods and services only where additional consideration is received. However, section 9-17 does not specify in which tax period GST is payable, as this is outlined in section 29-5.

You contend that the top up value is not a right to travel as that right has already been paid for on the supply of the card. The top up value of the card therefore can only represent a supply of travel and other services.

Where it is agreed that the top-up value is for the supply of travel, rather than a supply of a right, the consideration for the travel will be received when the patron tags off.

Case law has examined whether a supply is a taxable supply, rather than determining the attribution of the tax payable. When examining whether there is a liability to GST, the High Court said in Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342; [2008] HCA 22 (Reliance Carpet) at paragraph 5:

The composite expression 'a taxable supply' is of critical importance for the creation of liability to GST. In the facts and circumstances of a given case there may be disclosed consecutive acts each of which answers the statutory description of 'supply', but upon examination it may appear that there is no more than one 'taxable supply'.

The High Court in FC of T v Qantas Airways Ltd [2012] HCA 41; 2012 ATC 20-352 (Qantas) discussed, at paragraph 19, the GST on the consideration received is not payable in each of the tax periods in which a series of events occur in the performance of an executory contract; the GST is payable once, in the tax period of the first payment or invoice.

Even where goods or services contemplated by the contract are not supplied it does not mean that the GST treatment of the transaction will necessarily be affected. First, as the High Court points out in Qantas, GST is paid once and attribution does not depend on the time of making the supply. If, in a subsequent tax period, there is a refund of the consideration paid, this may give rise to an adjustment.

There is no written contract outlining the exchange of promises between the patron and you. However, at the very least, there is an implied expectation from the patron that the value loaded on the card can be exchanged for travel and the access to other services.

Consideration received

Section 29-5 provides that GST payable is attributed to the tax period in which any of the consideration is received.

Paragraph 9-15(1)(a) provides that consideration includes any payment, in connection with the supply.

In Electrical Goods Importer v. Commissioner of Taxation [2009] AATA 854, at paragraph 59, the Tribunal held that the words “in connection with” in the definition of consideration must be construed by reference to the supply.

Therefore the attribution rules are not dependent on when the accounting procedures of an entity account for the amount received. The consideration only needs to be received and have a connection with the supply.

Money is received by you when it is paid by the patron at the time of top up. Further the payment has a connection with the supply, as it relates to either the supply of a right to goods and services provided by you or the actual supply of the goods and services.

The attribution rules are not a “time of supply” rule, rather they rely on a connection with the supply, not when the actual supply occurs.

Therefore it is arguable that the GST payable on the taxable supply is payable when the consideration is received, either when the card is issued or when the card is topped up at a later time, regardless of the time of supply.

Supplies not known

In AP Group Limited v. Commissioner of Taxation [2013] FCAFC 105; [2013] ATC 20-417 at paragraph 33, Edmonds and Jagot JJ held, in identifying the character of the connection between the consideration and the supply, the word 'for' ensures that not every connection between a supply and consideration meets the requirements for a taxable supply.

In Reliance Carpet, at paragraph 28, it was found that the same conduct may be directed to a number of purposes or objectives, or it may provide a service or benefit to more than one person. In that context, it is essential to bear in mind that the relevant question is not whether the conduct was for consideration, but whether the particular supply which arose from the conduct was for consideration.

You provide a range of supplies, being the supply of travel, parking or other services. At the time the top up payment is received, it could be said that there is no connection to a supply as required by section 29-5, as the supply is not yet known.

As the balance on a registered card is refundable, it cannot be said that the balance is guaranteed to be applied against any supply following the making of a top up payment. Further, whether the card is registered or not, it is not known which specific supply the payment is to be applied against; i.e. the supplies of travel or of other services.

As the supply for which the top up payment is consideration is not known until the supply is made, the consideration will be received for the supply when the patron tags off.

At the time the consideration for the top up payment is received, there is no connection to a supply as required by section 29-5, as the supply is not yet known. Therefore, pursuant to subdivision 29-A, the GST payable on the top up payments will be attributable at the time when the top up amounts are debited (i.e. on a per usage basis).

Conclusion

The GST payable for the supply of the card is attributable to the tax period in which the consideration is received i.e. at the time of issue. The GST payable on the top up payments will be attributable at the time when the top up amounts are debited (i.e. on a per usage basis).

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