Edited version of private ruling

Authorisation Number: 1011508685055

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Ruling

Subject: GST and Input tax credits

Question

Are you entitled to an input tax credit for the purchase of a pre-paid mobile broadband credit?

Answer: Yes.

Relevant facts and circumstances

Your ruling is based on the following facts.

You are registered for goods and services tax (GST).

In the course of your work you use mobile broadband services.

You purchased a Sim Card which you used as part of a pre-paid mobile broadband service. This also entitled you to a set amount of mobile broadband service for a 1 month period.

The pre-paid mobile broadband works like a pre-paid mobile phone, but instead of a monthly bill, you pay up-front.

You purchased a top up credit for your pre-paid mobile broadband service.

The Telco website categorises this option under Recharge Vouchers.

You paid this amount via your credit card.

You were able to view and print a copy of the online recharge top-up (via recharge history account on the website).

You also have a copy of your internet banking extract from your credit card statement which shows this transaction.

These documents are not tax invoices for GST purposes and do not contain all the relevant details that satisfy the requirements of a tax invoice.

You have written to the Telco to request a tax invoice/receipt but they have advised that they do not provide one.

You have supplied the terms and condition pursuant to the Standard Agreement document for your service.

Reasons for decision

Summary

You are entitled to an input tax credit for the purchase of a pre-paid mobile broadband where the relevant conditions of a creditable acquisition are satisfied. In this case, the input tax credit entitlement arises as the pre-paid mobile broadband credits are redeemed to use the broadband services on a data usage basis (downloading or uploading) per 1 byte increments.

As it is expected that the price of the telecommunication supplies (each individual data usage) will be less than $82.50 (GST-inclusive) then the Telco will not have a legal obligation to issue a tax invoice. Should each individual data usage amount to $82.50 (GST inclusive) or more, then there will be an obligation for the Telco to provide a tax invoice.

Detailed reasoning

Under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) there is an entitlement to an input tax credit for any creditable acquisition made.

A creditable acquisition, as provided for in section 11-5 of the GST Act is made if:

· the thing acquired is solely or partly for a creditable purpose

· the supply of the thing to the purchaser is a taxable supply

· the purchaser provides or is liable to provide consideration for the supply, and

· the recipient of the supply is registered or required to be registered.

The first condition is that the acquisition of prepaid mobile broadband credits must be for a creditable purpose. Under subsection 11-15(1) of the GST Act an entity acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise. However, under subsection 11-15(2) of the GST Act, a thing is not acquired for a creditable purpose if the acquisition is related to making supplies that are input taxed or the acquisition is of a private or domestic nature.

When you acquire prepaid mobile broadband credit you are acquiring a right or entitlement to be supplied broadband facility in the future, on exercising or redeeming your right or entitlement.

In your case, the prepaid mobile broadband credit is acquired to enable broadband access as part of your work duties. Thus, the prepaid mobile broadband credit is acquired for a creditable purpose.

To meet the second condition of a creditable acquisition the supply of prepaid mobile broadband credit to you must be a taxable supply.

Under section 9-5 of the GST Act a supply is a taxable supply where the following conditions are met:

· the supply is made for consideration

· the supply is made in the course or furtherance of an enterprise carried on by the supplier

· the supply is connected with Australia, and

· the entity making the supply is registered or required to be registered.

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

Prepaid mobile broadband credits are not GST-free under Division 38 of the GST Act, nor input taxed under Division 40 of the GST Act. However, prepaid mobile broadband credits may fall within Division 100 of the GST Act.

Division 100 of the GST Act provides a special rule that alters the GST treatment of certain vouchers, which are commonly referred to as face value vouchers (FVV).

To be a voucher to which Division 100 of the GST Act applies, prepaid mobile broadband credits must satisfy the meaning of 'voucher' in section 100-25 as well as the additional requirements in section 100-5 of the GST Act.

Voucher

A voucher is defined in section 100-25 of the GST Act.

Subsection 100-25(1) of the GST Act states:

3. A voucher is any:

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

(b) prepaid phone card or facility;

The redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms.

Subsection 100-25(2) defines a prepaid phone card or facility as follows:

4. A prepaid phone card or facility is any article or facility supplied for the primary purpose of enabling the holder:

(a) to use, on a prepaid basis, telephone or like services supplied by a supplier of telecommunications supplies; or

(b) to make, on a prepaid basis, acquisitions that are facilitated by using telephone or like services supplied by such a supplier.

Goods and Services Tax Ruling GSTR 2003/5 provides guidance on the application of Division 100 of the GST Act. Paragraph 26 of GSTR 2003/5 states:

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.

A prepaid phone card or facility referred to in section 100-25 of the GST Act is defined to include any article or facility that is supplied on a prepaid basis for the primary purpose of enabling the holder to use telephone or like services. 'Like services' are intended to include services such as, software content and data transmission services (including email) and internet access services. Therefore the prepaid mobile broadband service would fall within this category.

In this case you have entered into an agreement with a Telco that allows you to use a prepaid mobile broadband service. The cost of the service depends on the pre-paid voucher you select. The service allows you to access the internet and related data services from your computer via a wireless connection. Your data usage applies to uploading and downloading using this service. Your contract states that the supplier will charge you for the volume of data uploaded and downloaded using the service. The rate of charge is on the basis of 1 kilobyte increments.

Therefore, the prepaid mobile broadband service credit you have prepaid is a voucher under subsection 100-25(1) of the GST Act because:

· it is a prepaid phone card or similar facility under paragraph 100-25 (1)(b) of the GST Act

· their presentation is integral to supplies on redemption (activated personal sim card & password is required to log-in to the supplier network to access the broadband services.), and

· upon redemption the holder is entitled to access the internet (Broadband/internet usage is deducted from the current data balance on the prepaid account).

Furthermore, paragraphs 49-51 of GSTR 2003/5 provide guidance on 'transfer of funds/credits to accounts'. A credit to an account, by transferring money to the account, where the 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. 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 consideration for a taxable supply as explained in the example extracted from GSTR 2003/5.

Example 8: electronic payment docket - not a voucher

Fuzzy Enterprise Australia offers a facility whereby a customer may establish and recharge its account by transferring funds to Fuzzy. This can be done by the customer going to a local supermarket, which has a Fuzzy terminal and selecting the value to be transferred to the account using eftpos, credit card, or cash. At the end of the transaction the customer receives a docket which shows various details including the amount transferred, a recharge number, expiry date, and a telephone number which must be dialled and the relevant details entered to activate the recharge to the customer's account. Once the recharge is achieved the docket can be discarded.

The docket is not a voucher to which section 100-25 applies, nor does section 9-5 apply to the docket. It is a means of establishing or accessing credit held or to be held in an account. The docket itself does not entitle the holder to supplies upon its redemption. The GST treatment needs to be determined when the supplies are made. However, if the docket or recharge number can be used to obtain immediate supplies, the docket may be a voucher to which section 100-25 applies.

In your case, the payment of your Sim card account is for the purchase of a voucher and not the transferring of credit (money) to that account. Your contract provides the various plans offered by the supplier for the prepaid mobile broadband services. Each plan has a data allowance and validity period. You have purchased a recharge voucher plan. Your contract also states that any unused data will be forfeited at the end of the data validity period (and is non-refundable).

The prepaid mobile broadband credits satisfy the definition of a voucher under section 100-25 of the GST Act.

FVV

We now have to consider whether the prepaid mobile broadband credits satisfy section 100-5 of the GST to be a FVV.

Section 100-5 of the GST Act provides that the supply of a voucher is not a taxable supply if

· on redemption of the voucher the holder is entitled to supplies up to a monetary value stated on the voucher, and

· the consideration of the voucher does not exceed the monetary value of the voucher.

Paragraph 56 of GSTR 2003/5 outlines the additional requirements of a voucher which the voucher must satisfy under section 100-5 of the GST Act to be a FVV. The additional requirements are:

· the supply of a voucher must otherwise be a taxable supply

· the holder of the voucher is entitled

· upon redemption the voucher must entitle the holder to received a reasonable choice and flexibility of supplies

· the monetary value must be stated on the voucher

· on redemption of the voucher the holder is entitled to supplies up to its face value.

Prepaid mobile broadband credits satisfy section 100-5 of the GST Act. The supply of the mobile broadband credits have a monetary value and on redemption there is an entitlement to mobile broadband supply/usage up to the monetary value of the voucher. In addition, the holder has flexibility of choice of supplies in that broadband credit provides access to various websites for both downloading and uploading purposes for a chosen duration (provided the total cost does not exceed face value).

As all of the above conditions are satisfied the supply of the prepaid mobile broadband credits are treated as face value vouchers (FVV) for GST purposes.

As a consequence, the supply of prepaid mobile broadband credits from the telecommunications company (Telco) to you (via topping on-line) is not a taxable supply and the second condition of a creditable acquisition is not met. Accordingly, you are not entitled to input tax credits when you purchase prepaid mobile internet credits via the on-line topping process.

Redemption of FVV

Paragraph 84 of GSTR 2003/5 explains that a GST liability may arise at the point when a supply is made on redemption of a FVV. However, this supply will only be taxable if the requirements of section 9-5 are met.

A GST liability would arise when prepaid mobile broadband credits are redeemed during accessing the internet (uploading and/or downloading usage). Your prepaid mobile broadband services contracts outlines the redemption of the prepaid credits. Thus, where the supply of the mobile broadband usage to you meets all the conditions of a taxable supply, the second condition of a creditable acquisition will be met.

According to paragraph 85 of GSTR 2003/5 when a taxable supply is made on redemption of a voucher, GST will be payable based on the consideration provided for the supply.

Furthermore, paragraph 119 of GSTR 2003/5 provides that a voucher may be partially redeemed in a transaction and still be a FVV. If a FVV is only partially redeemed, the consideration for the supplies on redemption is the amount by which the FVV is being redeemed.

In your case, on redemption of the prepaid mobile broadband credits, you receive a taxable supply in the form of access and usage of the internet supplied by a Telco. Thus, the second condition of a creditable acquisition is met.

Therefore, the remaining conditions of a creditable acquisition are met because you provide consideration for the internet usage when you redeem (or partially redeem) the mobile broadband credits for the volume of data downloaded and/or uploaded and you are registered for GST.

When does the entitlement to input tax credits arise for the purchase of prepaid mobile broadband credit?

Accordingly, you would be entitled to claim input tax credits for the acquisition of the telecommunication services supplied to you in the form of a mobile phone broadband usage. However, as a creditable acquisition is only made when the mobile phone broadband credits are redeemed to incur internet usage, the input tax credit entitlement only arises at this point.

In most instances the price of the telecommunication supplies (for example, each individual broadband upload or/and download) will be less than $82.50 and so there is no legal obligation for the Telco to issue a tax invoice. The terms and conditions of your contract state that you will not be sent any invoices for the redemption, although you are able to access your current data usage and usage history for the previous six months online by logging into the broadband usage website.

In your case, the purchase of the prepaid mobile broadband credits is not a creditable acquisition for GST purposes. However, since the prepaid mobile broadband credits are considered to be face value vouchers, on redemption a creditable acquisition is made. Therefore, you are entitled to claim input tax credits for the mobile broadband usage made on redemption of your prepaid broadband credits, provided they are solely for business use, and only to the extent where they have been redeemed.

Where the price of the telecommunication supplies (each individual data usage) will be less than $82.50 (GST-inclusive) then the Telco will not have a legal obligation to issue a tax invoice. Should each individual data usage amount to $82.50 (GST inclusive) or more, then there will be an obligation for the Telco to provide a tax invoice to you within 28 days of you formally requesting it.