Edited version of your private ruling

Authorisation Number: 1012494005988

Ruling

Subject: GST and EFTPOS surcharge

Question 1

Is GST payable under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 on the 'cash out' amount provided to a customer via an EFTPOS transaction?

Answer

No, providing 'cash out' to a customer via an EFTPOS transaction is not a taxable supply and is not subject to GST.

Question 2

Is GST payable under section 9-40 of the A New Tax System (Goods and Services Tax) Act on the EFTPOS surcharge payable by a customer on an EFTPOS transaction?

Answer

Yes, GST is payable on the EFTPOS surcharge as it is consideration for a taxable supply.

Question 3

How much GST is payable under section 9-40 of the A New Tax System (Goods and Services Tax) Act in relation to the EFTPOS surcharge?

Answer

The GST payable in relation to the EFTPOS surcharge is 1/11^th of the surcharge amount.

Question 4

Is GST payable under section 9-40 of the A New Tax System (Goods and Services Tax) Act on a credit card surcharge payable by a customer?

Answer

Yes, GST is payable on a credit card surcharge as it is consideration for a taxable supply.

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.

The entity provides food and beverages for consumption on the premises.

The entity is registered for GST and all supplies of food and beverages by the entity are taxable supplies for the purposes of the A New Tax System (Goods and Services Tax) Act.

The entity has EFTPOS terminals which allow customers to pay for meals or beverages using either debit or credit cards and allows customers using debit cards to get 'cash out'.

The entity charges customers a surcharge for using the EFTPOS system to pay for food and beverages or obtain 'cash out'.

EFTPOS is a payment system which allows for the electronic transfer of funds used to pay for goods or services at the point of sale. There are four entities involved in an EFTPOS transaction:

· Cardholder - the customer making the purchase

· Issuer - the financial institution of the cardholder

· Merchant - the retail outlet providing the goods or services

· Acquirer - the financial institution of the merchant

The EFTPOS system allows instructions to be sent to the issuer to authorise payment to the merchant (via the acquirer) from the cardholder.

The EFTPOS system is essentially an assembly of contractual obligations entered into by the participants in the system. The EFTPOS system is governed by the EFTPOS Scheme Rules. Merchants and cardholders' obligations and entitlements are determined by their respective financial institution in accordance with the EFTPOS Scheme Rules (ie Terms & Conditions; Merchant Agreement, etc).

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 section 9-10.

A New Tax System (Goods and Services Tax) Act 1999 section 9-15.

A New Tax System (Goods and Services Tax) Act 1999 section 9-40.

A New Tax System (Goods and Services Tax) Act 1999 section 9-70.

A New Tax System (Goods and Services Tax) Act 1999 section 9-75.

Reasons for decision

Question 1

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is only payable on taxable supplies that an entity makes. Section 9-5 of the GST Act provides that you make a taxable supply if:

· you make the supply for consideration; and

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

· the supply is connected with Australia; and

· you are registered or required to be registered.

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

A supply is broadly defined by section 9-10 of the GST Act and includes a supply of goods, a supply of services the provision of advice or information, a financial supply, an entry in or release from an obligation, amongst others.

However, subsection 9-10(4) of the GST Act states that a supply of money is not a supply for GST purposes, unless the money is provided as consideration for another supply of money. That is, the provision of money to purchase money is treated as a supply for GST purposes whereas the provision of money to purchase goods is not treated as a supply.

When the entity provides 'cash out' to a customer, it will only be a supply of money under the GST Act if the customer provides money as consideration for the cash. For example, if the entity provides $100 'cash out', it is not a supply unless it receives an equal amount of money as consideration for the supply of 'cash out'.

The fee charged by the entity to the customer when the EFTPOS system is used to process the 'cash out' transaction is not consideration for the supply of the $100 cash. This is because the surcharge has no relationship to the amount of the transaction, it is merely an impost for using the EFTPOS system. The surcharge remains the same amount regardless of the amount of the transaction and therefore, is not consideration for the supply of the cash out amount.

Goods and Services Tax Ruling, Goods and services tax: non-monetary consideration (GSTR 2001/6) discusses when a payment has a sufficient connection with a supply such that it is 'consideration for a supply'. Paragraphs 66 to 68 of GSTR 2001/6 state:

66. The references in the GST Act to 'supply for consideration' and more commonly to 'consideration for a supply' underscore the close coupling between the supply and the consideration that is necessary before a payment will be consideration for a supply that will make the supply subject to GST.

67. In a similar fashion to the GST legislation in New Zealand, the nature of the nexus required between supply and consideration is specified in the definition of consideration. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply.

68. In determining whether a payment is consideration under subsection 9-15(1), the test is whether there is a sufficient nexus between the supply and the payment made.

Goods and Services Tax Ruling, Goods and services tax: guarantees and indemnities (GSTR 2006/1) explains that the payment of money by a guarantor or surety is made in discharging its obligations under the contract and is not consideration for a supply made to that guarantor. A similar principle applies in the EFTPOS payment system where each participant has obligations and entitlements. The operation of the EFTPOS system allows for the merchant to provide cash out to a card holder and be reimbursed for that amount upon settlement of the transaction. The payment made to the merchant by the acquirer from the cardholder's account (via the issuer) is not payment for the supply of cash to the customer. The reimbursement is the fulfilment of each party's obligations under the EFTPOS Scheme Rules.

The reimbursement of the cash out is not consideration for the supply of the (cash out) money to the cardholder.

Therefore, as the provision of the cash to the cardholder is not made for consideration, subsection 9-10(4) of the GST Act deems it not to be a supply. On this basis the 'cash out' amount can not be a taxable supply under section 9-5 of the GST Act.

Consequently, there is no GST payable under section 9-40 of the GST Act on the 'cash out' amount when a cardholder is given cash by the entity in an EFTPOS 'cash out' transaction.

Question 2

As mentioned above, section 9-40 of the GST Act provides that GST is payable on taxable supplies made under section 9-5 of the GST Act. There are three variations of an EFTPOS transaction for which the entity charges a surcharge:

· Cash out only;

· Purchase only; and

· Purchase with Cash out

In each case, GST will be payable on the surcharge only if the surcharge is consideration for a taxable supply made by the entity.

Cash Out

When a customer uses a debit card to obtain cash out provided by the entity, the entity uses its EFTPOS terminal to access the EFTPOS system to process the transaction.

Although the entity provides cash to the cardholder, as explained in Question 1, the provision of that cash is deemed not to be a supply because of the operation of subsection 9-10(4) of the GST Act. The fee charged by the entity to the customer when the EFTPOS system is used to process the cash out transaction is not consideration for the supply of the cash. This is because the surcharge has no relationship to the amount of the transaction, it is merely an impost for using the system.

The surcharge remains the same amount regardless of the amount of the transaction and therefore, is not consideration for the supply of the cash out amount.

Subsection 9-10(2) of the GST Act defines 'supply' to include a 'supply of services' and 'an entry into an obligation to do anything'. Therefore, it must be determined whether the entity makes any other supply in return for the surcharge.

When the entity uses its merchant terminal to access the EFTPOS payment system, it is using this access to allow the cardholder to obtain cash from the entity. The entity allows this as it knows that the money will be reimbursed through the EFTPOS Scheme Rules. The supply made by the entity to the cardholder may be described as 'allowing the cardholder to utilise the entity's access to the EFTPOS system'. This is either a supply of services under paragraph 9-10(2)(b) of the GST Act or the entry into an obligation by the entity to allow the use of the EFTPOS system to process the transaction which would be captured by paragraph 9-10(2)(g) of the GST Act.

As there are no other supplies made by the entity and the surcharge imposed by the entity directly relates to the entity allowing the cardholder to utilise its access to the EFTPOS system to process the cash out transaction, the surcharge is consideration for that supply.

As the supply made by the entity is done in the course of its enterprise, is made in Australia, is neither GST-free nor input taxed and the entity is registered for GST, the supply made in exchange for the surcharge is a taxable supply under section 9-5 of the GST Act.

Purchase

When a customer uses a debit card to pay for the purchase of goods and/or services provided by the entity, the entity is making two supplies. The first and most obvious is the underlying supply of the goods and services (ie food and beverages). Even though the entity is not providing cash, the entity is still making a supply by allowing the use of the EFTPOS system to process the transaction as discussed above.

In Waverley Council v. Commissioner of Taxation [2009] AATA 442 (Waverley Council), The Administrative Appeals Tribunal agreed with the Commissioner that, in the circumstances presented, the credit card surcharge was additional consideration for the underlying supplies made by the council (eg rates, dog registration, parking permits, etc). Although the case related to supplies that are not subject to GST (ie Australian taxes, fees and charges) the principles from this case, which are discussed in detail in the ATO Interpretative Decision, GST and credit card surcharge for payment of an Australian tax, fee or charge (ATO ID 2008/116), apply equally to other supplies where a surcharge is imposed.

The underlying supply made by the entity of the food and beverages is the substance of the transaction and the entity charges consideration for this supply. Where the entity imposes an additional charge to pay using a debit card, the surcharge is additional consideration for the underlying supply of food and beverages. As stated in ATO ID 2008/116:

This view is consistent with the general principle that for United Kingdom VAT purposes, the taxable amount for a supply of goods or services includes all payments which the supplier requires the customer to make as a condition for receiving the supply. If, for example, a supplier of goods or services requires a customer to pay an additional charge above the price of the actual goods or services, for payment by debit or credit card, that charge is further consideration for the purchase of those goods or services and VAT is payable on that amount in accordance with the VAT treatment of the goods or services (see HM Revenue & Customs Business Brief BB18/06: 30 October 2006 and Business Brief BB17/1998-1: 7 August 1998).

This approach is consistent with a more recent decision by the European Court of Justice (ECJ) in Everything Everywhere Ltd (formerly T-Mobile UK Ltd) v. The Commissioners of Her Majesty's Revenue & Customs case C-276/09 (Everything Everywhere). In that case, Everything Everywhere imposed a GBP3 (Great British Pound) surcharge when a customer chose to pay a bill using a certain method (eg by cheque). At paragraph 28 of its judgement, the ECJ states:

… the receipt of a payment and the handling of that payment are intrinsically linked to any supply of services provided for consideration. It is inherent in such a supply that the provider should seek payment and make appropriate efforts to ensure that the customer can make effective payment in consideration for the service supplied. In principle, any method of payment for a supply of services involves the provider taking certain steps in the handling of the payment, even if the extent of those steps may vary from one method of payment to another.

When the entity uses its merchant terminal to access the EFTPOS payment system, it is using this access to allow the cardholder to pay for the purchase of food and beverages supplied by the entity. The surcharge imposed by the entity is additional consideration for the supply.

As the supplies made by the entity are taxable supplies (of food and beverages) and the surcharge is additional consideration for the supply of food and beverages, the surcharge forms part of the price of that supply and is subject to GST.

Purchase with Cash Out

When a customer uses a debit card to pay for a purchase and obtain cash out, the entity uses its EFTPOS terminal to access the EFTPOS system to process the transaction.

As discussed above at Question 1, the entity is not making a 'supply' of the cash provided to the cardholder for GST purposes. The entity is providing a supply that may be described as 'allowing the cardholder to utilise the entity's access to the EFTPOS system'. This is in addition to the underlying supply of the food and beverages supplied by the entity to the customer.

As discussed above with a purchase of food and beverages only, the surcharge is additional consideration for that underlying supply. Therefore, it then needs to be determined whether the surcharge is also consideration for the supply of allowing the cardholder to utilise the entity's access to the EFTPOS system.

Goods and Services Tax Ruling, Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) discusses composite supplies, where a supply contains a dominant part and includes something that is integral, ancillary or incidental to that part and, at paragraph 20 states:

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

Integral to the entity's supply of food and beverages is the acceptance of payment through a variety of means. Ordinarily, acceptance of payment does not require analysis to determine if a supply is made (and if so, whether that supply is a taxable supply) because there is normally no clear consideration provided for that supply. However, the surcharge is consideration payable by a customer who wishes to pay using the EFTPOS system and, as discussed above, the surcharge is consideration for a taxable supply where there is no other underlying supply (of food and beverages).

Courts in other jurisdictions have considered the issue of supplies which are made up of a number of components. In Customs and Excise Commissioners v. Wellington Private Hospital Ltd [1997] BVC 251 at 266, Millett LJ states:

'The proper inquiry is whether one element of the transaction is so dominated by another element as to lose any separate identity as a supply for fiscal purposes, leaving the latter, the dominant element of the transaction, as the only supply. If the elements of the transaction are not in this relationship with each other, each remains as a supply in its own right with its own separate fiscal consequences.'

GSTR 2001/8 explains that parts which require individual recognition and retention as separate parts due to their relative significance in a supply are separately identifiable. The supply of allowing the cardholder to utilise the entity's access to the EFTPOS system to process a purchase with cash out transaction is not significant in relation to the underlying supply of the food and beverages. Paragraph 59 of GSTR 2001/8 provides some indicators that part of a supply may be incidental to the main supply, and states:

59. No single factor (by itself) will provide the sole test you use to determine whether a part of a supply is integral, ancillary or incidental to the dominant part of the supply. Having regard to all the circumstances, and taking a commonsense and practical approach, indicators that a part may be integral, ancillary or incidental include where:

· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

· it represents a marginal proportion of the total value of the package compared to the dominant part; or

· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

· it contributes to the proper performance of the contract to supply the dominant part.

An objective assessment of the circumstances surrounding the payment of the surcharge where the customer pays for food and beverages and also obtains cash out results in the conclusion that the surcharge is consideration for the underlying supply only. The supply of allowing the cardholder to utilise the entity's access to the EFTPOS system to process the transaction is integral to the underlying supply. This is also supported by comments of the EJC in Everything Everywhere which states:

23 Moreover, in certain circumstances, several formally distinct services, which could be supplied separately and thus give rise, in turn, to taxation or exemption, must be considered to be a single transaction when they are not independent…

24 That is so in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service…

Consequently, the surcharge is consideration for the underlying supply of the food and beverages provided by the entity and is therefore, subject to GST.

Question 3

As discussed above, the surcharge is either consideration for a taxable supply of allowing the cardholder to utilise its access to the EFTPOS system to process the cash out transaction or it is additional consideration for the underlying supply of the food and beverages provided by the entity, both of which are taxable supplies.

The GST payable under section 9-40 of the GST Act on a taxable supply is calculated under section 9-70 of the GST Act as 10% of the GST-exclusive value of the supply. The value of a supply is calculated under section 9-75 of the GST Act as 10/11^ths of the GST-inclusive price of the supply. In respect of the surcharge, the price of the supply is the amount of the surcharge and the GST payable is 1/11^th of that amount.

Question 4

A surcharge imposed in relation to the use of a credit card to pay for the purchase of food and beverages is similar to an EFTPOS surcharge on a purchase as discussed above. That is, the surcharge is additional consideration for the underlying supply.

As discussed in Question 2, both the Waverley Council case and ATO ID 2008/116 specifically consider the imposition of a credit card surcharge. The underlying supply made by the entity of the food and beverages is the substance of the transaction and the entity charges consideration for this supply. Where the entity imposes an additional charge to pay using a credit card, the surcharge is additional consideration for the underlying supply of food and beverages. The surcharge is therefore a taxable supply.