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Ruling

Subject: GST and entitlement to reduced input tax credits

Question

Is entity A entitled to a reduced input tax credit, under item 29(a) of the table in subregulation 70-05.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), for the acquisition of product delivery services where those services relate to Automated Teller Machines (ATMs) that are:

(a) installed in the structure of the premises of a branch of entity A (but located outside of the main operating area);

(b) installed at business premises that are not occupied by entity A?

Answer

(a) No, entity A is not entitled to a reduced input tax credit, under item 29(a) of the table in subregulation 70-05.02(2) of the GST Regulations, for the acquisition of product delivery services where those services relate to ATMs installed in the structure of the premises of a branch of entity A (but outside of the main operating area).

(b) Yes, entity A is entitled to a reduced input tax credit, under item 29(a) of the table in subregulation 70-05.02(2) of the GST Regulations, for the acquisition of product delivery services where those services relate to ATMs installed at business premises that are not occupied by entity A.

Relevant facts and circumstances

· Entity A registered for the goods and services tax (GST).

· As part of its business, entity A owns and operates a number of machines across different locations in Australia.

· Entity A has entered into agreements with third parties, in relation to its machines.

· Entity A has contracts with entity B for product delivery services relating to its operations. Under those contracts, entity B arranges for entity C to provide services for all entity A's machines. Entity B acts as agent for entity A to manage and enter into agreements with entity C.

· Entity B acts as entity A's agent for arranging for entity C to collect and deliver to entity A's machines.

· Entity C collects and delivers the cassettes from and to the machines. The spent product cassettes are delivered to the warehouse of entity B where the cassettes are re-loaded. The re-loaded cassettes are used to replenish each machine at the time the spent cassette is collected.

· The two types of machines for consideration in this ruling are:

o installed in the structure of the premises of a branch of entity A and there is no ability for the branch staff to access the machine. Entity A's branch staff is not involved and have no ability to service any of these machines. This is normally due to the design of the building where the machine is essentially built.

o Machines located at business premises other than those used by entity A in its operations.

· Both types of machines are serviced by entity C, including the emptying and reloading of the cassettes in these machines.

· Invoices issued for these services are accounted for under entity A's machine network.

· All cassettes of the machines is owned by entity A. Ownership and title remains with entity A at all times. Entity A insures its product. The product is not purchased by, or sold or transferred to either entity B or entity C.

· Entity B receives the invoices from entity C and reconciles them for regulatory purposes. The invoices are sent to entity A. Entity A pays entity C directly.

· Entity A is also liable to pay fees to entity B for its services.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 section 11-15,

A New Tax System (Goods and Services Tax) Act 1999 section 11-20,

A New Tax System (Goods and Services Tax) Act 1999 section 40-5 and

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 70-5.02.

Reasons for decision

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides for an entitlement to an input tax credit for any creditable acquisition made by an entity.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

(a) it acquired anything solely or partly for a creditable purpose; and

(b) the supply to it is a taxable supply; and

(c) it provides, or is liable to provide, consideration for the supply, and

(d) it is registered or required to be registered for GST.

Of relevance in this ruling is the concept of creditable purpose. Section 11-15 of the GST Act states that:

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

…

*The asterisked terms are defined in the Dictionary, starting at section 195-1 of the GST Act.

Under section 40-5 of the GST Act, a financial supply (having the meaning given by the GST Regulations) is an input taxed supply.

In operating its network, entity A makes input taxed financial supplies under regulation 40-5.09 of the GST Regulations. The acquisition of the product delivery services by entity A relates to the making of these input taxed supplies. Therefore, entity A's acquisition of the product delivery services would not be for a creditable purpose under paragraph 11-15(2)(a) of the GST Act.

However, in some cases, acquisitions that relate to making financial supplies may attract a reduced input tax credit if these acquisitions are listed, relevantly, in regulation 70-5.02 of the GST Regulations. These acquisitions are termed reduced credit acquisitions. In the case of these acquisitions, you would be entitled to claim reduced input tax credits equivalent to 75% of the GST included in them.

Item 29(a) of the table in subregulation 70.5.02(2) of the GST Regulations (item 29(a)) is relevant for the delivery services acquired by entity A. The relevant portion of item 29(a) is reproduced below:

29. Trustee and custodial services (except safe custody of money, documents and other things), including:


(a) transfer of cash without purchase, sale or transfer of assets,
excluding cash delivery and collection from branches of Australian ADIs; and

…

Goods and Services Tax Ruling GSTR 2004/1 Goods and services tax: reduced credit acquisitions (GSTR 2004/1), contains the ATO view on the application of Division 70 of GST Act and Division 70 of Part 4-2 of the GST Regulations in relation to reduced credit acquisitions.

Item 29(a) - transfer of cash without purchase, sale or transfer of assets, excluding cash delivery and collection from branches of Australian ADIs

Item 29(a) of the table in subregulation 70.5.02(2) specifically mentions 'transfer of cash without purchase, sale or transfer of assets'. In this regard, GSTR 2004/1 at paragraph 688 states:

688. An acquisition of a secure cash transport service is an acquisition of a custodial service under item 29 even though such an acquisition would not normally be provided by a trustee or a custodian. The words without purchase, sale or transfer of assets are included to restrict the acquisition of such secure transport services to those cases where the service is provided for a fee, rather than where the cash is actually purchased by the secure cash transport service.

In this case, ownership of the product remains with entity A at all times. As such, the requirement of item 29(a) for a 'transfer of product without purchase, sale or transfer of assets' is satisfied.

However, the acquisition of secure product transport services for the transportation of the product between branches is specifically excluded in item 29(a) as a reduced credit acquisition.

In this case, entity A secure product transport services consists of the transportation of the product to and from entity A's machines. Therefore, it must be determined if such services fall within the exclusion in item 29(a).

Meaning of the word 'branch' for the purposes of item 29(a)

The word 'branch' is not defined in the GST Act or the GST Regulations and therefore takes its ordinary meaning. The Macquarie Dictionary, 2001, rev. 3^rd edn, Macquarie University, NSW relevantly defines 'branch' as:

3. any member or part of a body or system; a system; a section or subdivision: the various branches of learning

4. the local operating division of a company, chain store, library, or the like.

Therefore, the ordinary meaning of the word 'branch', in the context of the operations, is 'the local operating division of'.

The term 'branch' as used by this services industry is also considered.

Whilst the word 'branch' is not defined in the relevant Acts which deal with the banking industry, APRA has provided an understanding of the use of the word by Australian ADIs.

Including, accepting and withdrawing products and account keeping facilities and other lending services.

Therefore, when taking into account both the ordinary meaning and the meaning accepted by the financial service industry, the word 'branch', for the purposes of item 29(a), means a local operating division. The operating division is a fixed location or premises from which, as a minimum, face-to-face service is provided, including products deposits and withdrawals.

It follows that the delivery and collection of cassettes to machines located at such premises is that this includes machines which are located within the premises of a branch but outside the main operating area, irrespective of whether such machines are serviced or accounted for.

Accordingly, the acquisition of such services is excluded from being a reduced credit acquisition under item 29(a). As the acquisition is not a reduced credit acquisition, entity A is not entitled to a reduced input tax credit for the acquisition.

Conversely, the delivery and collection of cassettes to machines that are not located at premises is not the 'product delivery and collection from branches. Therefore, the acquisition of such services would be a reduced credit acquisition under item 29(a) of the table in subregulation 70.5.02(2) of the GST Regulations. As a result, entity A is entitled to claim a reduced input tax credit for the GST included in the fees charged for the acquisition of these product delivery services.