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Ruling

Subject: GST and supply of Visa Gift Card

Issue 1

For the purposes of item 1 in the table of subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), is the provision of the gift card by XYZ Pty Ltd (XYZ) the provision of an interest in an account made available by XYZ in the course of its banking business within the meaning of the Banking Act 1959 (Banking Act) and is therefore an input taxed financial supply?

Answer

Yes, for the purposes of item 1 in the table of subregulation 40-5.09(3) of the GST Regulations (Item 1), the provision of the gift card by XYZ is a provision of an interest in an account made available by XYZ in the course of its banking business within the meaning of the Banking Act and is therefore an input taxed financial supply.

Issue 2

Are the fees charged by XYZ in relation to the card issue, balance enquiries, currency conversion and any credit card surcharge (for the use of credit cards to purchase a gift card) consideration for an input taxed supply?

Answer

Yes, the fees charged by XYZ in relation to the card issue, balance enquiries, currency conversion and any credit card surcharge (for the use of credit cards to purchase a gift card) are consideration for an input taxed supply and are therefore not subject to GST.

Issue 3

Is the loading of value onto the gift card an input taxed supply and therefore, XYZ is not liable for GST on amounts loaded onto the gift card?

Answer

The loading of value on the gift card is not a supply, and is therefore not subject to GST.

Issue 4

Is the forfeiture of the balance of any unused funds after expiry of the gift card consideration for an input taxed supply by XYZ?

Answer

Yes, the forfeiture of the balance of any unused funds after the expiry of the gift card is consideration for an input taxed supply and is not subject to GST.

(All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless stated otherwise)

Relevant facts and circumstances

· XYZ is a corporation to which paragraph 51(xx) of the Commonwealth of Australia Constitution Act 1901 (the Constitution) applies and is an authorised deposit-taking institution (ADI) that carries on its enterprise of taking deposits and making advances of money in Australia.

· XYZ introduced the gift card which it sells through its branches (or other distributors) to customers for a fee. The gift card is a prepaid card that operates through a network of which XYZ is a member bank.

· When a gift card is sold to a customer, the customer loads value onto the gift card. The gift card is then signed and activated for use by either the customer or by someone to whom the customer gives the gift card (the cardholder).

· A card issue fee is charged for the purchase of a gift card.

· The initial value of the gift card is printed on the gift pack that the gift card will arrive in.

· No monthly statements are provided for the gift cards.

· Cardholders use the gift cards to make purchases of goods or services from merchants. The gift card may also be used to make purchases via phone, internet or point of sale from any merchants who accept this kind of gift card.

· After a cardholder makes an authorised purchase with the gift card from a merchant, XYZ pays the merchant for the amount of the transaction which took place between the cardholder and the merchant.

· The funds loaded onto gift cards may be held by XYZ in a separately identified pool of funds, so payments may be made by XYZ to merchants (until such time as the loaded value is used up).

· The gift card expires on the date specified on the card (generally 12 months after activation). Any unused funds remaining on the gift card after it expires are forfeited to XYZ.

· The cardholder can ascertain the balance of funds available on the product over the internet, or (for a fee) by calling an information line. Any lost or stolen gift cards are not replaced, and the value on such cards is not refunded to the cardholder, or the customer who originally purchased a card, but instead, the amount is forfeited to XYZ.

· The gift card as currently issued does not allow the card holder to withdraw cash, whether through an ATM, the card issuer, or its branches. There is no direct debit facility available on the gift card.

· XYZ maintains an electronic record of issued gift cards in its computer system (referred to as an operating account). Such records show the initial value of each gift card and the balance of the gift card after the initial value has been debited or reduced by relevant transactions between cardholders and merchants. A gift card's balance in the operating account is used for the purposes of authorising future transactions between the cardholder and merchants.

Reasons for decisions

Question 1

For the purposes of item 1 in the table of subregulation 40-5.09(3) of the GST Regulations, is the provision of the gift card by XYZ the provision of an interest in an account made available by XYZ in the course of its banking business within the meaning of the Banking Act 1959 (Banking Act) and is therefore an input taxed financial supply?

Decision

Under section 9-5, XYZ makes a taxable supply if:

a) the supply is for consideration; and

b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and

c) the supply is connected with Australia; and

d) the entity is 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.

Subsection 40-5(1) provides that a financial supply is input taxed and subsection 40-5(2) provides that a financial supply has the meaning given by the GST Regulations. Amongst other things, subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations is a financial supply.

Paragraph (a) of item 1 in the table to subregulation 40-5.09(3) of the GST Regulations refers to an interest in or under an account made available by an Australian ADI in the course of its banking business within the meaning of the Banking Act.

Account

The dictionary to the GST Regulations defines an account as follows:

Account:

a) means an account mentioned in item 1 in the table in regulation 40-5.09; and

b) includes an account in relation to which the account holder (the customer) has the right:

i. to have the account maintained by the account provider (the provider); and

ii. to repayment of the amount credited to the account by the provider; and

iii. to require the provider to act on directions by the customer that are in accordance with the arrangements, or any agreement, between the provider and the customer in relation to operation of the account.

The term 'account' in paragraph (a) of the above definition is not defined further in the GST Regulations.

Paragraphs 202-206 of Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) and paragraphs 51-54 of Goods and Services Tax Ruling GSTR 2004/1 Goods and services tax: reduced credit acquisitions (GSTR 2004/1) discusses the meaning of the term 'account'.

In this case, XYZ maintains an electronic record of issued gift cards in its operating account as well as the initial value of each gift card and the balance of the gift card after the initial value has been debited or reduced by relevant transactions between cardholders and merchants.

Consistent with the discussion in the above mentioned paragraphs in GSTR 2002 and GSTR 2004/1, we are of the view that the gift card facility is an account for the purposes of paragraph (a) of item 1.

Made available

In this case, a cardholder can ascertain the balance of funds available on the gift card over the internet, or (for a fee) by calling an information line. Additionally, a gift card's balance in the operating account is used for the purposes of authorising future transactions between the cardholder and merchants. Therefore, our view is that the gift card facility in this case is an account 'made available' to the cardholder for the purposes of item 1.

Banking business

'Banking business' is defined in subsection 5(1) of the Banking Act as:

(a) a business that consists of banking within the meaning of paragraph 51(xiii) of the Constitution; or

(b) a business that is carried on by a corporation to which paragraph 51(xx) of the Constitution applies and that consists, to any extent, of:

i. both taking money on deposit (otherwise than as part-payment for identified goods or services) and making advances of money; or

ii. other financial activities prescribed by the regulations for the purposes of this definition.

'Banking' in paragraph 51(xiii) is not defined in the Constitution. The leading High Court authority on the meaning of 'banking' is Commissioner of the State Savings Bank of Victoria v Permewan, Wright & Co Ltd (1914) 19 CLR 457. There, Isaacs J at 470 - 1 described the essential characteristics of a banking business as:

… the collection of money by receiving deposits upon loan, repayable when and as expressly or impliedly agreed upon, and the utilization of the money so collected by lending it again in such sums as are required. These are the essential functions of a bank as an instrument of society. It is, in effect, a financial reservoir receiving streams of currency in every direction, and from which there issue outflowing streams where and as required to sustain and fructify or assist commercial industrial or other enterprises or adventures.

In consideration of the circumstances in this case as well as the principles found in the judgement of Isaac J, our view is that provision of the gift card facility by XYZ is characterised as falling within XYZ's business that consists of banking for the purposes of paragraph (a) of the definition of banking business.

It is also considered that the provision of the prepaid card facility by the entity will satisfy the requirement of paragraph (b) of the definition of banking business. This is because the entity, being a corporation to which paragraph 51(xx) of the Constitution applies, is carrying on a business that consists, to any extent, of both taking money on deposit (otherwise than as part-payment for identified goods or services) and making advances of money.

In light of the analysis above, our view is that for the purposes of item 1 in the table of subregulation 40-5.09(3) of the GST Regulations, the provision of the gift card by XYZ is a provision of an interest in an account made available by XYZ in the course of its banking business within the meaning of the Banking Act.

Other considerations

We note the analysis put forth by XYZ surrounding Division 100 vouchers and stored value cards and confirm that the gift card is an account facility that is linked to accounts provided by an Australian ADI and is therefore not a face value voucher (FVV) as per paragraph 67 of Goods and Service Tax Ruling GSTR 2003/5 Goods and services tax: vouchers (GSTR 2003/5).

Additionally, as the gift card itself does not store any values or spending limits but rather, relies on information held by the magnetic strip on the reverse of the card to identify a particular card and the account to which it is linked, our opinion is that the gift card is not a stored value card as per the view contained at paragraph 51 of Goods and Services Tax Ruling GSTR 2003/12 Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment (GSTR 2003/12).

Accordingly, the gift card does not fall within item 5 of regulation 40-5.12 of the GST Regulations which lists stored value facility cards and prepayments not linked to accounts provided by an Australian ADI in connection with an account mentioned in item 1 in the table in regulation 40-5.09 of the GST Regulations as being not financial supplies.

As such, the supply of the gift card by XYZ is an input taxed financial supply.

Question 2

Are the fees charged by XYZ in relation to the card issue, balance enquiries, currency conversion and any credit card surcharge (for the use of credit cards to purchase a gift card) consideration for an input taxed supply?

Decision

In accordance with the items listed in the table to Schedule 2 of the GSTR 2002/2 as well as the view contained at Question 15.1 to the Tax Office's web publication Financial services - questions and answers, our opinion is that fees charged by XYZ in relation to the card issue, balance inquiries, currency conversion and any credit card surcharge (for the use of credit cards to purchase a gift card) are consideration for the supply of the gift card which is input taxed.

Specifically, the relevant items in the table to Schedule 2 of GSTR 2002/2 which cover fees for card issue, balance enquiries and currency conversion are Line numbers B36, A7 and B42 respectively.

Question 3

Is the loading of value onto the gift card an input taxed supply and therefore, XYZ is not liable for GST on amounts loaded onto the gift card?

Decision

Loading of value onto the gift card

Paragraphs 49-51 of GSTR 2003/5 deals with vouchers and customer accounts and states that:

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.

When XYZ issues the gift card to customers, a value as selected by the cardholder is loaded onto the card using a web based application. The payment by the cardholder will cover the principal value that is loaded together with any fees charged by XYZ. The card is signed by the cardholder and may then be used to make purchases via phone, internet and Point of Sale from any merchants. Based on these facts, we consider that the payment by the cardholder that represents the principal value to be loaded onto the gift card supplied by XYZ is credit to an account. Therefore, the amount provided by the cardholder when acquiring the gift card with a preloaded value is not a supply and is not consideration for any supply to the extent of the amount loaded onto the gift card. The loading of value on the gift card is thus not subject to GST.

Question 4

Is the forfeiture of the balance of any unused funds after expiry of the gift card an input taxed supply by XYZ?

Decision

It is part of the terms and conditions for the use of the gift card that any balance of the unused funds after the expiry date will be forfeited to XYZ.

As referred to above, paragraph 51 of GSTR 2003/5 relevantly provides that where an unused amount in an account is forfeited on a particular expiry date, the amount forfeited is consideration for use of the facility.

As the supply of a gift card facility is input taxed, the forfeiture of the balance of any unused funds after the expiry of the gift card is consideration for an input taxed supply and is not subject to GST.