Edited version of private ruling

Authorisation Number: 1011866998366

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Ruling

Subject: GST and sale of a booklet of gift vouchers

Questions:

Is the sale of the booklet of vouchers ('vouchers booklet') by an Australian company (you) to a fundraising organisation a taxable supply?

When a voucher within the vouchers booklet is redeemed for goods at a participating retailer, is this transaction subject to GST?

Are you entitled to claim an input tax credit in respect of the GST charged by the retailer for providing the goods?

Answers:

Yes, the sale of the vouchers booklet by you to a fundraising organisation is a taxable supply. However, the sale of the vouchers booklet is not a taxable supply to the extent that the vouchers entitle the end-customers (holders of the vouchers) to any input taxed or GST-free supplies.

No, there is no GST payable when an end-customer redeems a voucher for the goods at the retailer where no additional consideration is provided.

Yes, you are entitled to claim an input tax credit where GST is charged by the retailer and/or manufacturer for supplying the goods to you (but provided to the end-customer), and you have provided (or liable to provide) consideration for the goods associated with your vouchers booklet.

Relevant facts and circumstances

An Australian company (you) is involved in voucher(s) sales. You are registered for goods and services tax (GST).

· You commenced selling booklets of gift vouchers ('vouchers booklet') to various organisations which then on-sell the vouchers booklet as part of their fundraising activities. Generally, the vouchers booklet that you sell operates as follows:

· You acquire a range of goods from a retailer(s) at a discount. You then package the distribution of those goods into a vouchers booklet. The individual voucher can then be redeemed at the participating retailer(s);

· The vouchers booklet(s) have a price printed on it;

· You sell the vouchers booklet(s) to an organisation for less than the price printed;

· The organisation then sells the vouchers booklet(s) for fundraising to end-customers for the face value printed on the vouchers booklet(s). The difference between the cost price and the face value of the vouchers booklet is the margin that is retained by the organisation;

· The end-customers (or holders) then use the voucher booklet(s) to redeem the individual vouchers at the participating retailer(s). The retailer(s) does not charge the end-customers anything for the goods that has been subject to the redemption. The end-customers are not required to purchase anything from the retailer(s) at the time of redeeming the individual vouchers;

· The retailer(s) then presents the redeemed vouchers to you for payment for the goods at the agreed price (which is the value of the goods acquired at discount per booklet).

A sample copy of a vouchers booklet is provided. The cover of the vouchers booklet has a stated value. The vouchers booklet contains individual vouchers that can be redeemed for the goods stated on each voucher, such as a separate voucher redeemable for a soft drink, a chocolate bar, a pack of nuts, and a coffee or water. Customers are also entitled to a reduced price offer for future purchases of the vouchers booklets. No values are stated on the individual vouchers within the vouchers booklet(s).

Additional information provided:

You advise that currently there are no written agreements between the parties.

An example of an arrangement between the parties may be:

· A manufacturer may wish to distribute some goods. The manufacturer gives/or has already given the goods to a retailer. The retailer paid for the goods to the manufacturer.

· You may enter into an arrangement with the manufacturer and/or retailer where the goods are provided to an end-customer (holder of the vouchers) via redemption of vouchers.

· You create the vouchers booklet(s) which you sell to the organisations. The organisations then on-sell the vouchers booklet(s) to the end-customers. The end-customers redeem the vouchers at the retailer. The end-customer(s) redeems the voucher for the goods for free (no additional costs paid to the retailer).

· As the retailer had paid for the goods (that is, to the manufacturer), you pay an agreed/discounted value for the goods to the retailer, which is for the goods that has been provided/redeemed by the end-customer(s). The amount paid to the retailer can vary depending of the amount of vouchers redeemed by the end-customer(s).

· In some circumstances, the goods (which are used in the vouchers booklet) are provided to you for no costs, that is, no payment for the goods that are redeemed by the end-customers from the retailer. In such circumstance, the manufacturer agrees to provide you with these goods for no costs.

Although the vouchers are redeemable for the goods, the selling price of the voucher booklet(s) would cover your printing costs and design of the vouchers booklets). However, you are not providing a printing and design services to the manufacturer, retailer or organisation, but in creating, designing and selling the vouchers booklets you receive some consideration (on the sale of the vouchers booklets).

Reasons for decisions

Issue 1 - Sale of the vouchers booklet(s) by you to a fundraising organisation

GST is payable on a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). From the facts provided, you satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(a) You make the supply of the vouchers booklet to the organisations in return for consideration (by way of payments); and

(b) The supply is made in the course or furtherance of an enterprise (business) that you carry on; and

(c) The supply is made through a business that you carry on in Australia and/or is done in Australia (and therefore the supply is connected with Australia); and

(d) You are registered for GST.

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

You are not providing printing and design services to the manufacturer, retailer or fundraising organisations. You are creating, designing and selling the vouchers booklets to the organisations, where the individual vouchers within the voucher booklet(s) is redeemable at the retailer(s) for certain goods.

The sale of the vouchers booklet(s) by you to the organisations is not GST-free or input taxed, unless the voucher(s) entitles the end-customer (holder) to input taxed or GST-free supplies (discussed later under the heading 'Treatment of a non-face value voucher').

Division 100 of the GST Act - Vouchers

For the sale of vouchers we need to take into consideration Division 100 of the GST Act. Where Division 100 of the GST Act applies, this Division alters the application of section 9-5 of the GST Act, so that a supply of certain vouchers is not a taxable supply.

Subsection 100-5(1) of the GST Act states:

(1) A supply of a *voucher is not a *taxable supply if:

(a) on redemption of the voucher, the holder of the voucher is entitled to supplies up to the *stated monetary value of the voucher; and

(b) the *consideration for supply of the voucher does not exceed the stated monetary value of the voucher.

(* denotes a defined term in section 195-1 of the GST Act).

Further, subsection 100-25(1) of the GST Act states:

(1) 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. However, a postage stamp is not a voucher.

To be a GST voucher under the special rules in Division 100 of the GST Act, an article must satisfy the requirements in section 100-25 of the GST Act as well as the requirements in section 100-5 of the GST Act.

Goods and Services Tax Ruling GSTR 2003/5: Vouchers (GSTR 2003/5) discusses the GST treatment of vouchers.

As stated in paragraph 7 of GSTR 2003/5, a voucher evidences a right or entitlement to receive supplies in the future, and the obligation to make supplies, on the exercise or redemption of that right or entitlement. A voucher plays a part in two transactions:

· The supply of the voucher itself, and

· The redemption of the voucher for supplies.

For an article to be a voucher for the purposes of subsection 100-25(1) of the GST Act it must upon redemption entitle the holder to receive supplies in accordance with its terms.

The vouchers within the vouchers booklet that you sell to the organisations satisfy the requirements of subsection 100-25(1) of the GST Act because:

· The vouchers (within the vouchers booklet) can be exchanged for supplies of goods (or services, if applicable) and are considered a voucher, token or coupon for the purposes of paragraph 100-25(1)(a) of the GST Act. The right or entitlement to receive the supplies cease on the exercise of the right or entitlement on redemption or expiry of the voucher(s);

· The presentation of the vouchers is integral to supplies on redemption at a participating retailer; and

· Upon redemption, the vouchers entitle the holder to receive supplies.

Accordingly, the vouchers within the vouchers booklet that you sell to the organisations satisfy the meaning of a voucher within subsection 100-25(1) of the GST Act. The next step is to determine if the additional requirements under section 100-5 of the GST Act are satisfied.

Section 100-5 of the GST Act - additional requirements

Paragraph 56 of GSTR 2003/5 provides the following additional requirements of section 100-5 of the GST Act:

· 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 receive a reasonable choice and flexibility of supplies;

· the voucher must have a stated monetary value; and

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

From the facts provided, the cover of the vouchers booklet has a stated value. However, there is no stated monetary value on or recorded for each individual voucher within the vouchers booklet. Each voucher within the vouchers booklet can only be redeemed for the goods (or services, if applicable) specified on that individual voucher. The terms of each voucher within the vouchers booklet does not entitle the holder to a reasonable choice and flexibility as to the types of supplies for which each voucher may be redeemed. On redemption of the each voucher, the holder is not entitled to supplies up to a stated monetary value, but only of the particular goods (or services, if applicable) specified on each voucher. Accordingly, the additional requirements of section 100-5 of the GST Act are not satisfied, and Division 100 of the GST Act does not apply.

Treatment of a non-face value voucher

As provided in paragraph 167 of GSTR 2003/5, if a thing is a voucher as defined in section 100-25 of the GST Act but it does not meet the additional requirements of section 100-5 of the GST Act, it is not a face value voucher (FVV). Such a voucher is referred to as a 'non-FVV'.

The GST treatment of the supply of the non-FVV is determined by applying the basic rules. As stated above, the sale of the vouchers booklet(s) by you to the organisations satisfies all the requirements of a taxable supply under section 9-5 of the GST Act, and therefore you are liable for GST on the supply of the vouchers booklet(s).

We note that if the supply of the vouchers booklet satisfies the requirements of section 9-5 of the GST Act, it is a taxable supply. However, if a non-FVV entitles the holder to input taxed or

GST-free supplies, the supply of the voucher, as a supply of a right to input taxed or GST-free supplies is also input taxed or GST-free respectively. A non-FVV may be part of a mixed supply, and if another part of the supply is either GST-free or input taxed, it is necessary to apportion the consideration between the parts (paragraphs 169 and 170 of GSTR 2003/5). This may apply in circumstances where a voucher is redeemable for GST-free supplies of certain foods (refer to GST Food Guide (NAT 3338) which is available at www.ato.gov.au ).

Additional information - Sale of the vouchers booklet(s) by a fundraising organisation to an

end-customer

Where an entity sells the vouchers booklet(s) to an end-customer(s) satisfies all the requirements of section 9-5 of the GST Act (including the requirement to be registered for GST), the GST treatment will be the same as discussed above.

Certain activities and events of charitable institutions may be treated as GST-free (under Subdivision 38-G of the GST Act) or input taxed (under Subdivision 40-F of the GST Act). For further information, refer to the Guide for non-profit organisations - Fundraising (NAT 13095), in particular pages 23 to 34, which is available at www.ato.gov.au).

Issue 2 - Redemption of non-FVV

From the facts provided, the holder of the vouchers within the vouchers booklet is entitled to redeem them for the specified goods (or services, if applicable).

Paragraphs 177 and 178 of the GSTR 2003/5 cover the redemption of a non-FVV, and state:

177. The supply on redemption of a non-FVV is a taxable supply if the requirements in section 9-5 are met.

178. In relation to the supply or supplies on redemption of a non-FVV paragraph

9-15(3)(a) applies to limit the consideration for the supply on redemption of the voucher to any additional consideration provided either for that supply or in connection with the exercise of the right evidenced by the voucher. If there is no such additional consideration, there is no consideration for the supplies on redemption of the voucher.

Further, paragraph 9-15(3)(a) of the GST Act provides that:

(a) if a right or option to acquire a thing is granted, then:

i. the consideration for the supply of the thing on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option; or

ii. if there is no such additional consideration - there is no consideration for the supply;

On redemption of the vouchers within the vouchers booklet to acquire the goods (or services, if applicable), there is no additional consideration provided by the end-customers (holders of the vouchers) for the goods, either for that supply or in connection with the exercise of the right evidenced by the vouchers. In accordance with paragraph 9-15(3)(a) of the GST Act, as there is no consideration for the supplies on redemption of the vouchers, paragraph 9-5(a) of the GST Act is not satisfied and the supplies of the goods (or services, if applicable) on redemption of the vouchers are not taxable.

Issue 3 - Supply of goods by a retailer/manufacturer, tax invoice(s), and entitlement to input tax credits

From the facts provided, you advise that you may provide consideration to a retailer(s) in respect to the supplies of goods (or services, if applicable) on redemption of the vouchers within the vouchers booklet by an end-customer(s). GST is charged by the retailer(s) on the payments you make to the retailer(s) in relation to this transaction(s). In certain circumstances, you provide no consideration as the manufacturer(s) has made an agreement to supply you with the goods (that is provided to the end-customers) for no costs.

Where the retailer(s) satisfies all the requirements of section 9-5 of the GST Act (and the supply of the goods is not GST-free or input taxed), and they charge GST on the supply of the goods (or services, if applicable) made to you, but provided to the end-customers, the supply of the goods (or services) to you is a taxable supply.

When a supplier (that is, a retailer and/or manufacturer) makes a taxable supply to you, the supplier is required to provide you with a tax invoice in relation to that supply.

Creditable acquisitions

Under section 11-20 of the GST Act, an entity is entitled to claim an input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a)    you acquire anything solely or partly for a *creditable purpose; and

(b)    the supply of the thing to you is a *taxable supply; and

(c)    you provide, or are liable to provide, *consideration for the supply; and

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

You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise (business). You do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed, or the acquisition is of a private or domestic nature.

Where you satisfy all these requirements in relation to an acquisition, you will be entitled to claim an input tax credit for the GST charged on that acquisition.

From the facts provided, you have satisfied paragraphs 11-20(a) and 11-20(d) of the GST Act as you acquire the goods from the retailer(s) (and/or manufacturer(s)) for a creditable purpose, and you are registered for GST.

Accordingly, you will be entitled to claim an input tax credit for the GST charged by a retailer(s) and/or manufacturer(s) to you when you have provided (or liable to provide) consideration for the goods associated with your vouchers booklet(s).

You have advised that in certain circumstances, you are not required to pay for the goods used in your vouchers booklet. In these circumstances, where you have not been charged GST by the retailer(s) and/or manufacturer(s), and have not paid any consideration to them for the goods (or services, if applicable), you are not entitled to claim an input tax credit on these acquisitions of the goods associated with your vouchers booklet(s).