Edited version of private ruling

Authorisation Number: 1011716471632

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Ruling

Subject: GST and supply of a Gift Card

Question 1:

Is Gift Card one an account for the purposes of sub-regulation 40-05.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) and if so, is the supply of the Gift Card an input taxed supply pursuant to section 40-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer Question 1:

Yes, the supply of Gift Card one is an account for the purpose of sub-regulation 40-05.09(3) of the GST Regulations and the supply is an input taxed supply pursuant to the GST Act.

Question 2:

Is Gift Card two an account for the purposes of item 1 of sub-regulation 40-5.09(3) of the GST Regulations and if so, is the supply of Gift Card two an input taxed supply pursuant to section 40-5 of the GST Act?

Answer Question 2:

Yes, the supply of Gift Card two is an account for the purpose of sub-regulation 40-05.09(3) of the GST Regulations and the supply is an input taxed supply pursuant to the GST Act.

Question 3:

Are the various fees charged to the Cardholder in relation to the supply of Gift Card one consideration for an input taxed supply and therefore not subject to GST?

Answer Question 3:

Yes, the fees charged for the supply of Gift Card one are consideration for an input taxed supply and therefore not subject to GST.

Question 4:

Are you liable for GST on the value loaded onto Gift Card one?

Answer Question 4:

No, you are not liable for GST on the value loaded onto Gift Card one.

Question 5:

Are you liable for the GST on the balance of any unused funds forfeited after expiry of Gift Card one?

Answer Question 5:

No, you are not liable for GST on the balance of any unused funds forfeited after the expiry date on Gift Card one.

Question 6:

Are the various fees charged by you to the Cardholder in relation to the supply of Gift Card two consideration for an input taxed supply and therefore not subject to GST?

Answer:

Yes, the fees charged for the supply of Gift Card two is consideration for an input taxed supply and therefore not subject to GST.

Question 7:

Are you liable for GST on amounts loaded onto Gift Card two?

Answer:

No, you are not liable for GST on amounts loaded onto Gift Card two.

Question 8:

Are you liable for GST on the forfeiture of the balance of any unused funds after expiry of Gift Card two?

Answer:

No, you are not liable for GST on the forfeiture of the balance of any unused funds after expiry of Gift Card two.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You advised us of the following facts:

You currently issue Gift Card one.

You also intend to issue Gift Card two.

Records of each individual card will be maintained for you by a third party contractor as part of its administration of the card arrangements.

You maintain records in your general ledger in relation to the cards issued for the purposes of reconciliation. .

A third party handles Gift Card one information and resolves any problems on behalf of you.

The third party will also handle Gift Card two information on behalf of you.

The third party is responsible on behalf of you for authorising or declining transactions.

You are ultimately responsible for resolving problems in relation to the Gift Card one and Gift Card two.

You are required to act on directions from the Gift Cardholder in accordance with the conditions of use of the Gift Card.

The Cardholder can ascertain the balance of funds available via various methods.

Features of Gift Card one:

Gift Card one is a financial product.

Each individual Gift Card has its own unique number which is printed on the card.

Gift Card one can be purchased from you. There is no distributor for Gift Card one.

When Gift Card one is sold, your staff collect the money from the customer equal to the value to be loaded onto Gift Card one plus an administration fee.

Gift Card one is signed by the Cardholder and may then be used to make purchases via phone, internet or point of sale from any merchants who accept Gift Card one anywhere in the word.

The value of Gift Card one is stored on the systems of both the third party and you.

There is no ATM PIN attached to Gift Card one.

Gift Card one is not reloadable.

Gift Card one is anonymous that is, no cardholder or purchaser details are on the card.

There will be no ability to withdraw cash using the card.

The customer that purchased Gift Card one may use the card or may give it to a third party.

The lost or stolen cards are not replaced and the value on lost and stolen cards is not refunded.

The Cardholder does not have any entitlement to the supply of particular goods and services.

Gift Card one does not store any information as to the remaining funds available.

A fee is charged on foreign currency and/or overseas transactions to cover any fees that may be charged to you.

When Gift Card one is used for point of sale purchases, the merchant swipes the card through its merchant terminal and card holder signs the transaction receipt.

When Gift Card one is used for online and phone purchases, authorisation will be via input of the card number.

Gift Card one will expire after 12 months with the remaining Gift Card value forfeited. You have no obligation to honour Gift Card one to the extent of the forfeited amount.

Features of Gift Card Two

The Gift Card two is a financial product.

Each individual Gift Card two has its own unique number which is printed on the card.

Gift Card two is supplied by particular outlets (Distributors) to customers.

You may pay commission or fees to the Distributor.

The distributor will sell Gift Card two on behalf of you to customers over the counter and via phone and internet orders.

When Gift Card two is sold, a distributor will activate and load value onto the card using a web based application and will collect payment from the purchaser of the card (the Customer).

Gift Card two is signed by the Cardholder and may then be used to make purchases via phone, internet or point of sale from any merchants who accept the card in Australia.

Both you and the third party in its role as service provider to you keep record of the balance of each card.

You maintain records in your general ledger in relation to Gift Card two issued for purposes of reconciliation.

The value of Gift Card two will be stored on the systems of both the third party and yours. It is not stored on the card itself.

There will be no ATM PIN attached to Gift Card two.

Gift Card two will not be reloadable.

Gift Card two will be anonymous, that is, no Cardholder or purchaser details are on the card.

There will be no ability to withdraw cash using Gift Card two.

The customer that purchases Gift Card two may use the card or may give it to a third party.

The Cardholder will not have any entitlement to the supply of particular goods and services.

Gift Card two will not store any information as to the remaining funds available. The Cardholder can check the balance of funds available on the card. .

When the Gift Card is used for point of sale purchases, the merchants swipes the card through its merchant terminal and the card holder signs the transaction receipt.

When the card is used for online and phone purchases, authorisation will be via input of the card number.

The lost or stolen card will not be replaced and the value on lost and stolen cards is not refunded.

The card will expire after 12 months with the remaining Gift Card value forfeited.

You are the entity that issues Gift Card two.

You are ultimately responsible for resolving problems relating to Gift Card two. The third party performs any necessary functions for you in this regard.

Reasons for decision:

Question 1:

Is Gift Card one an account for the purposes of sub-regulation 40-05.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) and if so, is the supply on Gift Card one an input taxed supply pursuant to section 40-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Under section 9-5, you make a taxable supply if:

· the supply is for consideration; and

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

· the supply is connected with Australia; and

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

Item 1 in the table to sub-regulation 40-5.09(3) of the GST Regulations refers to an interest in or under an account made available by an Australian ADI (authorised deposit-taking Institution) in the course of its banking business within the meaning of the Banking Act 1959; or it State banking business.

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.

In this case, a record of each individual card is maintained. This includes maintaining a record of all transactions for each card and a running balance of each card. You maintain a record in the general ledger of cards issued.

The term 'account' is considered in 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; and paragraphs 51-54 of Goods and Services Tax Ruling GSTR 2004/1 Goods and services tax: reduced credit acquisitions. Consistent with the discussion in those rulings, we conclude the prepaid card facility in this case is an 'account' for the purpose of paragraph (a) of Item 1.

Made available

A cardholder can ascertain the unused balance available on the cardholder's prepaid card facility over the internet or by calling an information line. Accordingly, we consider that the card facility in this case, can be said to be 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.

The leading High Court authority on the meaning of the term 'banking' is Commissioner 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 the business of banking as:

 ... the collection of money by receiving deposits on 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.

It is considered that the terms and features of the prepaid card facility fall within the characteristics identified by Isaacs J, such that the provision of the Gift Card may be characterised as falling within the entity'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.

We therefore consider that Gift Card one is an account made available in the course of the entity's banking business within the meaning of the Banking Act. Therefore, for the purposes of Item 1, the provision of Gift Card one by you is a provision of an interest in an account made available by an ADI in the course of its banking business within the meaning of the Banking Act. As such, the supply of Gift Card one by you will be input taxed.

Question 2:

Is Gift Card two issued by you an account for the purposes of item 1 of sub-regulation 40-5.09(3) of the GST Regulations and if so, is the supply of Gift Card two by you an input taxed supply pursuant to section 40-5 of the GST Act?

For the same reasons as stated in question 1, we conclude that the supply of Gift Card two is the provision of an interest in an account and is input taxed pursuant to section 40-5 of the GST Act.

Question 3:

Are the various fees charged by you to the Cardholder in relation to the supply of Gift Card one consideration for an input taxed supply and therefore not subject to GST?

The fees and charges applicable in relation to Gift Card one are an initial administration fee, a fee for use of the telephone service, a fee for speaking to a customer service operator and a fee for foreign currency and/or overseas transactions.

Schedule 2 of GSTR 2002/2; GST Treatment of financial Supplies and related supplies and acquisitions sets out the GST treatment of supplies and fees commonly provided by financial supply providers.

Specifically, Schedule 2 refers to account opening, keeping, maintenance and service fees; enquiry/account information fees; and foreign currency to Australian currency conversion fee. These items are located at A2, A7 and B42 respectively in Schedule 2 and their GST status is input taxed.

As it has been concluded that the supply of Gift Card one is a supply of an interest in an account covered by item 1 in regulation 40-5.09 and is an input taxed supply, the above fees, which are charged in relation to supply of Gift Card one, are consideration for an input taxed supply and they will therefore not be subject to GST.

Question 4:

Are you liable for GST on the value loaded onto Gift Card one.

Goods and Services Tax Ruling GSTR 2003/5 Goods and Services Tax: Vouchers (GSTR 2003/5) at paragraph 49 to 54 discusses vouchers and customer accounts.

It provides at paragraph 49 that 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.

At paragraph 50, it provides that supplier of the facility for the account is not supplying a voucher, making a supply of money, making taxable supply or providing consideration for a taxable supply.

Paragraph 51 of GSTR 2003/5 states that:

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 the customer is provided with the Gift Card, staff collect money equal to the value to be loaded onto the card (along with the administration fee) and loads that value onto the card a via web based system. The Gift Card is then immediately available for use.

Therefore, the amount preloaded on Gift Card one is not a supply and is not consideration.

As such, you will not be liable for GST on the value loaded onto the Gift Card one.

Question 5:

Are you liable for the GST on the balance of any unused funds forfeited after expiry of Gift Card one?

At paragraph 51 of GSTR 2003/5 it states that where an unused amount is forfeited on a particular date, the amount forfeited is consideration for use of the facility.

You state that Gift Card one will expire after 12 months with the remaining Gift Card value forfeited. You have no obligation to honour Gift Card one to the extent of the forfeited amount.

As the supply of the Gift card is input taxed, the forfeiture of any unused fund after the expiry date is consideration for an input tax supply and therefore not subject to GST.

As such, you will not be liable for the GST on the balance of any unused funds forfeited after expiry of Gift Card one.

Question 6:

Are the various fees charged by you to the Cardholder in relation to the supply of Gift Card two consideration for an input taxed supply and therefore not subject to GST?

Please refer to reason for decision to question 3. For the same reasons, all the fees charged by you in relation to the supply of Gift Card two are consideration for input taxed supplies and therefore not subject to GST.

Question 7:

Are you liable for GST on amounts loaded onto Gift Card two?

Please refer to reason for decision to question 4. For the same reasons, the loading of value on to Gift Card two is not subject to GST.

Question 8:

Are you liable for GST on the forfeiture of the balance of any unused funds after expiry of Gift Card two?

Please refer to reasons for decision to question 5. For the same reasons, the forfeiture of the balance of any unused funds after expiry of Gift Card two is not subject to GST and you will therefore not be liable for GST on such forfeiture.