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Ruling

Subject: Third party payments

Question 1

From 1 July 2010, does Entity X have a decreasing adjustment under section 134-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where a cashback amount is allocated to a Participant's Account?

Answer

Yes. Entity X has a decreasing adjustment under section 134-5 of the GST Act where it makes a payment to a third party in accordance with the Redemption Terms and Conditions.

Question 2

Where Entity X has a decreasing adjustment under section 134-5 of the GST Act, is the adjustment attributable to the tax period in which Entity X receives notification from a financial services provider (Entity Y) that the cashback amount has been allocated to the Participant's Account and the Card has been issued to the participant?

Answer

Yes. The adjustment is attributable to the tax period in which Entity X receives notification from Entity Y that the cashback amount has been allocated to the Participant's Account and the Card has been issued to the participant.

Question 3

Is Entity X obligated to issue a third party adjustment note where the cashback amount is less than $825?

Answer

No. Entity X is not required to issue a third party adjustment note where the cashback amount is less than $825.

Relevant facts and circumstances

Entity X is a distributor of various consumer products in Australia.

Entity X makes a taxable supply of its consumer products to authorised retailers (Retailers).

Entity X operates a redemptions program (the program) as part of its marketing strategy.

The program allows participants that purchase particular goods from Retailers to claim either a specific cash amount, the 'cashback amount', (such as a $100 Card) or a specific good. A redemption is specific to the purchase of a particular product and runs for a fixed period of time.

The participant (i.e. the purchaser) is required to submit a claim for the cashback amount within a specific period following the redemption procedures set out in the Redemption Terms and Conditions.

Entity X and a financial services provider (Entity Y) have entered into an Agreement for the issuing of personalised Prepaid Cards (Cards) to participants designated by Entity X.

On a weekly basis during the redemption period, Entity X sends Entity Y a file containing the names and addresses of all valid redemption participants. Entity Y then issues an invoice to Entity X for the total redemption amount, plus Entity Y's fees.

According to the Agreement, once Entity X pays the funds to Entity Y, Entity X has no further right to, or interest in the funds.

When Entity Y receives the funds from Entity X, the funds are tracked by Entity Y which sets up an account (Participant Account) for each participant as instructed by Entity X.

The funds in the Participant Account may be drawn upon by the participant to purchase goods and services where the prepaid Cards are accepted.

Participants can only use the Card up to the value of their Participant Account and are not able to withdraw cash, nor redeem the account balance on the Participant Account (that is participant are limited to using the Card to make payment for goods and services).

Participants can access the available balance and transaction history of their Participant Account online, by phone or by e-mail.

No interest is payable to the participant on the Participant Account balance.

Entity X has been registered for GST since from 1 July 2000 and is not a member of a GST group.

Entity X accounts for its GST on a non-cash basis and reports on a monthly tax period basis.

Reasons for decision

Question 1:

Division 134 of the A New tax System (Goods and Services Tax Act) 1999 (GST Act) applies to third party payments made on or after 1 July 2010. Section 134-5 states:

134-5 Decreasing adjustments for payments made to third parties

1. You have a decreasing adjustment if:

(a) you make a payment to an entity (the payee) that acquires a thing that you supplied to another entity (whether or not that other entity supplies the thing to the payee); and

(b) your supply of the thing to the other entity:

(i) was a *taxable supply; or

(ii) would have been a taxable supply but for a reason to which subsection (3) applies; and

(c) the payment is in one or more of the following forms:

(i) a payment of money;

(ii) an offset of an amount of money that the payee owes to you;

(iii) a crediting of an amount of money to an account that the payee holds; and

(d) the payment is made in connection with, in response to or for the inducement of the payee's acquisition of the thing; and

(e) the payment is not *consideration for a supply to you.

…

(1) This subsection applies to the following reasons why your supply of the thing to the other entity was not a *taxable supply:

(a) you and the other entity are *members of the same *GST group;

(b) you and the other entity are members of the same *GST religious group;

(c) you are the *joint venture operator for a *GST joint venture, and the other entity is a *participant in the GST joint venture.

It has been submitted by Entity X that from 1 July 2010, Entity X will have a decreasing adjustment under section 134-5 of the GST Act where the cashback amount is allocated to the Participant's Account.

In this case, the Commissioner agrees that Entity X will satisfy the requirements of section 134-5 of the GST Act and have a decreasing adjustment where Entity X makes a payment to a third party in accordance with the Redemption Terms and Conditions of the cashback promotion outlined in the facts. This decision is based on the following reasons.

Paragraph 134-5(1)(a)

Under the Redemption Terms and Conditions Entity X makes a payment consisting of a cashback amount to the payee (i.e. the participant). This cashback amount takes the form of a personalised Prepaid Card (Card). As such we consider paragraph 134-5(1)(a) of the GST Act is satisfied.

Paragraph 134-5(1)(b)

Entity X has advised that for the purpose of the redemption program the supply of consumer products made to Retailers are taxable supplies. As such subparagraph 134-5(1)(b)(i) of the GST Act is satisfied and there is no requirement to consider subparagraph 134-5(1)(b)(ii).

Paragraph 134-5(1)(c)

Paragraph 134-5(1)(c) of the GST Act requires that the payment is in one or more of the following forms - a payment of money, an offset of an amount that the payee owes to you, a crediting of an amount of money to an account that the payee holds.

In this case, we consider that Entity X will satisfy subparagraph 134-5(1)(c)(i) of the GST Act. This is on the basis that the definition of 'money' in section 195-1 of the GST Act includes whatever is supplied as payment by way of:

· credit card or debit card; or

· crediting or debiting an account; or

· creation or transfer of a debt.

The term 'account' appears within the definition of 'money', but is not further defined in the GST Act. It therefore takes its ordinary meaning and should be read in the context in which it appears.

In this case, the Participant Account set up by Entity Y for each participant is used to record funds allocated to participants and the balance can be tracked in various ways. As the Participant Account is a formal record that is maintained to track remaining monetary balances of the allocated funds, it is an 'account' for the purpose of the 'money' definition in the GST Act.

A participant's account balance is increased as a result of Entity Y's allocation of funds into the Participants Account, through the account being 'credited'. As a result of the allocation of the funds, the participant is able to use these funds to acquire goods or services, up to the limit of the credit balance of the Participant Account.

Based on the facts, the funds credited to the Participant's Account are paid by Entity X and the crediting is done in accordance with Entity X's instructions pursuant to the Agreement. Therefore, it is Entity X that is making the payment to the participant and the payment takes the form of crediting the Participant's Account. The participant accesses the payment through use of a prepaid Card which is issued to the participant by Entity Y in line with Entity X's instructions.

Because Entity X is making the payment to a participant through the crediting of an account, the payment constitutes 'money' as defined in section 195-1 of the GST Act. It follows that for the purposes of subsection 134-5(1) of the GST Act, Entity X has made a payment in the form of a payment of money.

As the payment satisfies subparagraph 134-5(1)(c)(i) of the GST Act, it is not necessary to consider subparagraphs 134-5(1)(c)(ii) and (iii).

Paragraph 134-5(1)(d)

Based on the facts, Entity X makes the cashback amount available to participants who purchase particular products from Retailers. Further, the redemption program has been developed by Entity X as part of its marketing strategy to increase the sale of its products.

As such, we consider the payment is made in connection with, in response to or for the inducement of the payee's acquisition of the thing according to paragraph 134-5(1)(d) of the GST Act.

Paragraph 134-5(1)(e)

The final requirement under subsection 134-5(1) of the GST Act is that the payment is not consideration for a supply to you.

In this case, we do not consider that there is any supply being made to Entity X for the payment of a cashback from Entity X to the participant. Therefore, the requirement of paragraph 134-5(1)(e) of the GST Act is satisfied.

Conclusion

Based on the above analysis, the Commissioner agrees that Entity X will satisfy the requirements of section 134-5 of the GST Act and has a decreasing adjustment where Entity X makes a payment to a participant under the redemption program.

Question 2:

Section 29-20(1) of the GST Act provides that an adjustment is attributable to the tax period in which you become aware of the adjustment.

In this case, it has been submitted by Entity X that the decreasing adjustment under division 134 of the GST Act is attributable to the tax period where Entity X receives notification from Entity Y that the cashback amount has been allocated to the Participants Account and the Card has been issued to the participant.

The method for calculating the decreasing adjustment for third party payment is provided under subsection 134-5(2) of the GST Act. In this case, the cashback amount (i.e. the third party payment) paid by Entity X to the participant amounts to $100 of which $9.09 is the decreasing adjustment amount.

Section 134-15 of the GST Act provides the attribution rules for decreasing adjustments for third party payments. Section 134-15 states:

Attribution of decreasing adjustments

1. If:

(a) you have a *decreasing adjustment under section 134-5; and

(b) you do not hold a *third party adjustment note for the adjustment when you give to the Commissioner a *GST return for the tax period to which the adjustment (or any part of the adjustment) would otherwise be attributable;

then:

(c) the adjustment (including any part of the adjustment) is not attributable to that tax period; and

(d) the adjustment (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that third party adjustment note.

However, this subsection does not apply in circumstances of a kind determined by the Commissioner, by legislative instrument, to be circumstances in which the requirement for an adjustment note does not apply.

2. This section does not apply to a *decreasing adjustment of an amount that does not exceed the amount provided for under subsection 29-80(2).

3. This section has effect despite section 29-20 (which is about attributing adjustments).

According to 134-15(2) of the GST Act, the section does not apply to a decreasing adjustment of an amount that does not exceed the amount provided for under subsection 29-80(2). Subsection 29-80(2) states:

Subsections 29-20(3) and 29-75(2) do not apply to a *decreasing adjustment of an amount that does not exceed $50, or such higher amount as the regulations specify.

Currently, regulation 29-80.02 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST regulations) specifies an amount of $75.

As the decreasing adjustment by Entity X is less than $75, the attribution rules under section 134-15 of the GST Act will not apply. Therefore according to subsection 29-20(1), an adjustment that you have is attributable to the tax period in which you become aware of the adjustment.

The term 'adjustment' is defined in section 195-1 of the GST Act to mean an increasing adjustment or a decreasing adjustment. Further section 195-1 defines a 'decreasing adjustment' to mean an amount arising under one of the listed provisions which includes item 6B, section 134-5 - third party payments.

In this case we agree with Entity Xs submission that to the extent that the notification from Entity Y relates to amounts that have been allocated into the Participant's Account and the Card has been issued to a participant, this represents payment to the payee.

Consequently, the tax period for attributing the decreasing adjustment will be aligned with the period of the notification, which is when Entity X becomes aware of this adjustment.

Question 3:

Section 134-20 of the GST Act provides that where there is an adjustment under section 134-5, you are required to issue a third party adjustment note. In particular subsection 134-20(2) and (3) state:

(2) You must give the copy of the document to the entity that received the payment:

(a) within 28 days after the entity requests you to give the copy; or

(b) if you become aware of the *adjustment before the copy is requested - within 28 days, or such other number of days as the Commissioner determines under subsection (4) or (6), after becoming aware of the adjustment.

(3) Subsection (2) does not apply to an *adjustment of an amount that does not exceed the amount provided for under subsection 29-80(2).

Entity X has submitted that it is not obligated to issue a third party adjustment note where the cashback amount is less than $825.

Subsection 134-20(3) of the GST Act provides that a third party adjustment note is not required where there is an adjustment of an amount that does not exceed the amount provided for under subsection 29-80(2). As outlined in decision 2, the amount provided under subsection 29-80(2) is currently $75 as specified by regulation 29-80.02 of the GST Regulations.

Based on the facts, the current cashback amount by Entity X is an amount of $100, which gives rise to a GST decreasing adjustment of $9.11. As this amount is less that $75 Entity X will not be required to issue a third party adjustment note under section 134-20 of the GST Act.

Further we agree that Entity X is not required to issue any third party adjustment note under section 134-20 of the GST Act where the cashback amount is less than $825. This is because, where the amount paid is below $825, this will result in an adjustment which is less than the threshold of $75 which is specified by the GST regulations.