Edited version of your private ruling

Authorisation Number: 1012532538880

Ruling

Subject: GST and importation

Question 1

Is the importation of the Gift Cards by you subject to GST?

Answer

Yes.

Question 2

If the Gift Cards are subject to GST on importation is GST payable on the value of the physical card or on the full amount that you paid to the supplier of the Gift Cards overseas?

Answer

GST is payable on the value of the taxable importation which depends, among other things, on the customs value of the goods. The customs value of the goods is determined by the relevant government authority.

Question 3

If the Gift Cards are subject to GST on importation, can you claim an input tax credit of the full GST charged to you on importation?

Answer

Yes.

Question 4

Are you liable to pay GST on the sale of the Gift Cards to the retailers?

Answer

Yes.

Question 5

Is the sale of the Gift Cards an input taxed financial supply?

Answer

No.

Question 6

Are you entitled to input tax credits on acquisitions that you make in relation to the supply of the Gift Cards to the retailers?

Answer

Yes.

Relevant facts and circumstances

You are an importer and distributor of specified products in Australia.

You are about to enter into a new distribution agreement of products which are different to what you normally sell.

The product that you are going to import, and which you will resell to retailers, is a card, which will have a price stated on the front, as well as a number of barcodes. It is expected that the retailers will sell these Gift Cards to end users or to give away as presents.

The card itself is worth a few cents with all the value being the value on the account that the consumer can access after they buy an activated card from a retailer and then go to that account to access the value on the account over the internet. That account will have a store of value equal to the face value of the card.

The way the product will work is a follows:

1. You will buy the Gift Cards from the supplier overseas, take possession of the Gift Cards overseas, and pay an amount to the supplier, which is less than the 'face value' on the card. At the time that you buy the Gift Cards, each card will have a barcode, which identifies an account set up by the supplier.

2. You will then import the Gift Cards in your own name.

3. You will then sell the Gift Cards to retailers (for cost, plus a small margin, but for less than the face value of the card).

4. The retailers will then sell the Gift Cards to consumers (for cost, plus a small margin, but for not more than the face value of the card) to use, or to give as gifts.

5. The consumers then, via the internet, can access the account set up, which has a value equal to the face value on the Gift Card.

6. The consumers can then use the value stored in that account to buy goods or services from the supplier.

The Gift Cards will only allow the consumer to access the value in the account that has been set up, and they can then buy goods and services only by accessing the value in the accounts.

Every end user has an account with the overseas supplier. The cardholder will login into their account and type in the serial number shown on the Gift Card to transfer the card value to the account. The cardholder can then purchase specified goods and services from the supplier.

Once the account has been first accessed via the Gift Card, the Gift Card has no value or purpose and will be discarded. Hence, the Gift Card only allows the consumer the ability to access the store of value on a supplier's account.

The value of each card is shown on the card. The Gift Cards have a value between $X to $Y.

The Gift Cards cannot be topped up or reloaded by the customers and are not multifunction vouchers. The Gift Cards have no expiry date.

You sell the Gift Cards to retailers.

You have provided a copy of the your agreement with the overseas supplier (Agreement)

The Agreement provides, among other things, that the ownership of the Gift Cards passes to you in the port of shipment outside Australia.

The Agreement also prescribes the terms and conditions of the agreement that you enter into with the resellers in Australia. The Agreement provides that the overseas supplier is the beneficiary of all the agreements between you and the reseller relating to distribution of Gift Cards in Australia.

You advised that a Gift Card is not:

· a debit card which is linked to accounts provided by an Australian authorised deposit-taking institution

· an account facility which is linked to accounts provided by an Australian authorised deposit-taking institution, or

· a stored value card which is linked to accounts provided by an Australian authorised deposit-taking institution.

You confirmed that only when a customer purchases Gift Card from the retailer that a credit is established in the customer's account.

You are the importer of the Gift Cards into Australia. Your customs agent has advised you that you have to pay GST to the government authority when you import the Gift Cards because they are 'physical' cards. Your customs agent says he will not be able to clear the Gift Cards for home consumption unless you pay the GST on importation. Your customs agent has also advised you that even though each card is only worth a few cents, you would have to pay GST on the full price that you paid to the supplier because the 'customs value' is the full invoice value from the supplier to you plus freight.

You provided a copy of the customs declaration which shows the amount $X as GST which has been deferred.

You contentions:

You submitted in your private ruling request that the way the product will work is consistent with the description of 'a facility for an account' as explained in paragraphs 49 to 52 of GSTR 2003/5. You stated that even though you will refer to the products as 'Gift Cards', it appears that GSTR 2003/5 does not consider them to be Gifts Cards because the cards themselves do not entitle the consumer (ie the holder) to buy any goods or services at all.

You further submitted that, as outlined in GSTR 2003/5 the sales of these Gift Cards would not be input taxed financial supplies because the consumer does not receive any money for their money, or for the card, and the value that the consumer will access is not in a bank account (paragraph 67 of GSTR 2003/5).

You also submitted that GSTR 2003/5 considers that the sales of these Gift Cards, representing a facility to access credit in a supplier's account, to retailers by you will not be supplies at all for GST purposes. As they will not be supplies for GST purposes, the sales by you will not be subject to GST. You consider that it seems inconsistent for you to have to pay GST on the Gift Cards, worth only a few cents, where the Australian Taxation Office (ATO) has ruled that there is no supply. You therefore consider that the importation of the Gift Cards should not be subject to GST as GSTR 2003/5 states that the supply of the cards to retailers is not a taxable supply.

You submitted that section 13-20 the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) would apply only if you are considered to be importing 'goods'. If it is considered that you are importing goods and have to pay GST on the importation, then section 15-5 of the GST Act allows you to claim input tax credits for importing the Gift Cards.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

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

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 13-5

A New Tax System (Goods and Services Tax) Act 1999 section 13-10

A New Tax System (Goods and Services Tax) Act 1999 section 13-15

A New Tax System (Goods and Services Tax) Act 1999 section 13-20

A New Tax System (Goods and Services Tax) Act 1999 section 15-5

A New Tax System (Goods and Services Tax) Act 1999 section 15-10

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 42-5

A New Tax System (Goods and Services Tax) Act 1999 section 100-5

A New Tax System (Goods and Services Tax) Act 1999 section 100-25

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

A New Tax System (Goods and Services Tax) Regulations 1999 Subregulation

40-5.09

Reasons for decision

Question 1

Is the importation of the Gift Cards by you subject to GST?

Summary

Yes the importation of the Gift Cards by you is subject to GST as it is a taxable importation.

Detailed reasoning

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies and taxable importations.

Section 13-15 of the GST Act provides that you must pay the GST payable on any taxable importation that you make.

Subsection 13-5(1) of the GST Act states:

(1) You make a taxable importation if:

(a) goods are imported; and

(b) you enter the goods for home consumption (within the meaning of the Customs Act 1901).

However, the importation is not a taxable importation to the extent that it is a *non-taxable importation.

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

Are the Gift Cards goods?

Section 195-1 of the GST Act states 'goods means any form of tangible personal property'.

We consider that the Gift Cards are tangible personal property therefore they come within the definition of goods for GST purposes.

Are the goods imported?

The first requirement for a taxable importation is that 'goods are imported'. The word 'import' is defined in section 195-1 to mean 'import goods into Australia'.

Goods and Services Tax Ruling GSTR 2003/15 Goods and services tax: importation of goods into Australia (GSTR 2003/15) discusses the operation of the provisions in the GST Act which apply to the importation of goods into Australia.

Paragraph 29 of GSTR 2003/15 provides that generally, goods are imported into Australia when they are brought to Australia to be unloaded here. 'Imported' in this context has its ordinary meaning.

Paragraph 81 of GSTR 2003/15 provides that the ATO takes the definition of the word 'import' in section 195-1 of the GST Act to apply to the derivative 'imported' in the expression 'goods are imported'.

We consider that the Gift Cards are imported goods. Therefore paragraph 13-5(1)(a) of the GST Act is satisfied.

Do you enter the goods for home consumption?

The second requirement for a taxable importation is that goods are entered for home consumption which is achieved by the lodgement of an entry of imported goods for home consumption with the government authority.

As stated in paragraphs 96 and 97 of GSTR 2003/15, the identity of the entity importing goods into Australia is not relevant for the purposes of establishing who makes a taxable importation. The entity that enters the goods for home consumption is the entity that makes the taxable importation.

Accordingly, we need to determine whether you satisfy the second requirement for a taxable importation (paragraph 13-5(1)(b) of the GST Act) and enter the Gift Cards for home consumption.

Paragraphs 30 to 32 of GSTR 2003/15 state:

30. Imported goods are entered for home consumption, within the meaning of the Customs Act, by an 'owner', as defined in that Act, entering imported goods for home consumption. The imported goods are entered by lodging an import entry in the name of the 'owner'.

31. If you, as 'owner', lodge an import entry in your name, you enter imported goods for home consumption within the meaning of the Customs Act and you are liable to pay GST on that importation if the importation is a taxable importation.

32. Typically, the 'owner' that enters imported goods is the legal owner of the goods, or the importer, exporter, consignee, or other person with an interest in, or control of, the goods. While the 'owner' can lodge the entry for home consumption itself, it is more likely that a licensed customs broker is engaged to prepare the entry on behalf of the 'owner'. In either case, the entry is made in the name of the 'owner' and, if it is a taxable importation, it is the owner that makes the taxable importation and is liable for GST. The customs broker does not make the taxable importation and is not liable for the GST on the taxable importation.

You advised that you will acquire the Gift Cards from the supplier overseas and import them into Australia using your customs agent. Based on the information provided, we consider that you meet the requirement of paragraph 13-5(1)(b) of the GST Act as you are the entity that enters the goods for home consumption.

Is the importation of the Gift Cards a non-taxable importation?

The third aspect of section 13-5 of the GST Act which needs to be considered is whether the importation of the Gift Cards is a non-taxable importation.

Section 195-1 of the GST Act provides that non-taxable importation has the meaning given by section 13-10 and Division 42 of the GST Act.

Section 13-10 of the GST Act states:

An importation is a non-taxable importation if:

(a) it is a non-taxable importation under Part 3-2; or

(b) it would have been a supply that was *GST-free or *input taxed if it had been a supply.

Division 42 sets out classes of importations that are non-taxable importations. Section 42-5 of the GST Act states:

42-5 Non-taxable importations - Schedule 4 to the Customs Tariff Act 1995

(1) An importation of goods is a non-taxable importation if the goods are covered by item 4, 10, 11, 15, 18, 21, 21A, 23, 24, 25, 26 or 27 in Schedule 4 to the Customs Tariff Act 1995.

(1A) An importation of a container is a non-taxable importation if:

a) goods covered by item 22 in Schedule 4 to the Customs Tariff Act 1995 are imported in or on the container; and

b) the container will be exported from Australia without being put to any other use.

…

(1C) An importation of goods is a non-taxable importation if the goods are covered by:

a) item 1, 3, 7, 12, 13 or 29 in Schedule 4 to the Customs Tariff Act 1995; and

b) regulations made for the purposes of this subsection.

(2) To avoid doubt, a reference to goods that are covered by an item in Schedule 4 to the Customs Tariff Act 1995 includes a reference to goods to which that item would apply apart from the operation of subsection 18(1) of that Act.

The Gift Cards do not fall within any of the items in Schedule 4 to the Customs Tariff Act 1995 that are specified in subsection 42-5 of the GST Act. Accordingly the importation of the Gift Cards is not a non-taxable importation under paragraph 13-10(a) of the GST Act.

Further the importation of the Gift Cards is not a non-taxable importation under paragraph 13-10(b) of the GST Act as the supply of the Gift Cards had it been a supply, would not have been GST-free or input taxed.

As the importation of the Gift Cards does not fall under section 13-10 of the GST Act the importation of the Gift Cards is not a non-taxable importation. Consequently, you are making a taxable importation pursuant to section 13-5 of the GST Act and as such are liable to pay GST on the importation of the Gift Cards.

Question 2

If the Gift Cards are subject to GST on importation is GST payable on the value of the physical card or on the full amount that you paid to the supplier of the Gift Cards overseas?

Detailed reasoning

Subsections 13-20(1) and 13-20(2) of the GST Act state:

13-20 How much GST is payable on taxable importations?

(1) The amount of GST on the *taxable importation is 10% of the *value of the taxable importation.

(2) The value of a *taxable importation is the sum of:

(a) the *customs value of the goods imported; and

(b) the amount paid or payable:

(i) for the *international transport of the goods to their *place of consignment in Australia; and

(ii) to insure the goods for that transport;

to the extent that the amount is not already included under paragraph (a); and

(ba) the amount paid or payable for a supply to which item 5A in the table in subsection 38-355(1) applies, to the extent that the amount:

(i) is not an amount, the payment of which (or the discharging of a liability to make a payment of which), because of Division 81 or regulations made under that Division, is not the provision of *consideration; and

Note: Division 81 excludes certain taxes, fees and charges from the provision of consideration.

(ii) is not already included under paragraph (a) or (b); and

(c) any *customs duty payable in respect of the importation of the goods; and

(d) any *wine tax payable in respect of the *local entry of the goods.

Section 195-1 of the GST Act states that 'customs value, in relation to goods, means the customs value of the goods for the purposes of Division 2 of Part VIII of the Customs Act 1901'.

The Customs Act 1901 is administered by the ACBPS. Therefore, any questions on the calculation of the customs value of the Gift Cards should be referred to the government authority.

Question 3

If the Gift Cards are subject to GST on importation, can you claim an input tax credit for the full GST charged to you on importation?

Summary

You can claim an input tax credit for the full GST charged to you on importation as you are making a creditable importation when you import the Gift Cards.

Detailed reasoning

Section 15-15 of the GST Act provides that you are entitled to the input tax credit for any creditable importation that you make.

Section 15-5 of the GST Act defines what a creditable importation is. This section states:

15-5 What are creditable importations?

You make a creditable importation if:

(a) you import goods solely or partly for a *creditable purpose; and

(b) the importation is a *taxable importation; and

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

You import

The first requirement for an entity to make a creditable importation is that the entity imports the goods.

Paragraph 47 of GSTR 2003/15 provides that there can be only one entity that imports the goods within the meaning of Division 15.

Paragraph 48 of GSTR 2003/15 provides that for a taxable importation under Division 13, the entity that enters goods for home consumption is not necessarily the entity that imports them. The act of entering goods through the government authority does not in itself equate to importing goods.

GSTR 2003/15 provides at paragraph 49 that the entity that imports goods within the meaning of Division 15, in the context of a taxable importation under Division 13, is the entity that:

(a) causes the goods to be brought to Australia for application to its own purposes after importation, whether by way of supply, use, or otherwise; and

(b) completes the customs formalities for the entry of the goods.

Based on the information provided, you are the entity that causes the Gift Cards to be brought to Australia for application to your own purpose after importation. You purchase the Gift Cards from the supplier overseas and arrange for the cards to be brought to Australia for the purposes of selling them to retailers in Australia. Your customs agent completes the customs formalities for the entry of the Gift Cards for home consumption on your behalf.

Creditable purpose

Section 15-10 of the GST Act provides that you import goods for a creditable purpose to the extent that you import the goods in carrying on your enterprise. However, you do not import the goods for a creditable purpose to the extent that:

· the importation relates to making supplies that would be input taxed, or

· the importation is of a private or domestic nature.

Based on the information that you have provided the importation of the Gift Cards does not relate to making input taxed supplies and is not of a private or domestic nature.

Therefore the requirements of paragraph 15-5(a) of the GST Act are met.

The importation also meets the requirements of paragraphs 15-5(b) and 15-5(c) of the GST Act. You are therefore entitled to input tax credits for the importation of the Gift Cards pursuant to section 15-15 of the GST Act.

Question 4

Is the sale of the Gift Cards an input taxed financial supply?

Summary

The supply of the Gift Cards is not an input taxed financial supply.

Detailed reasoning

Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act provides that a financial supply has the meaning given in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition, or disposal of an interest mentioned under subregulation 40-5.09(3) or subregulation 40-5.09(4) of the GST Regulations is a financial supply if:

(a) the provision, acquisition or disposal of that interest is:

· for consideration

· in the course or furtherance of an enterprise

· connected with Australia, and

(b) the supplier is:

· registered or required to be registered for GST, and

· a financial supply provider in relation to the supply of the interest.

Based on the information that you have provided the supply of the Gift Cards to retailers is not a provision, acquisition, or disposal of an interest mentioned under subregulation 40-5.09(3) or subregulation 40-5.09(4) of the GST Regulations.

As such, you are not making an input taxed financial supply under subsection 40-5(1) of the GST Act when you sell the Gift Cards to the retailers.

Question 5

Are you liable to pay GST on the sale of the Gift Cards to the retailers?

Summary

You are liable to pay GST on the sale of the Gift Cards to the retailers as the supply of the Gift Cards to the retailers is a taxable supply.

Detailed reasoning

Section 9-40 of the GST Act provides that you are liable to pay GST on any taxable supply that you make.

A supply is a taxable supply if it meets all the requirements of section 9-5 of the GST Act. This section states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

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

(c) the supply is *connected with Australia; and

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

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

Are the Gift Cards vouchers within the meaning of Division 100 of the GST Act?

Division 100 of the GST Act provides that the supply of a voucher for supplies up to a stated monetary value is not a taxable supply.

In order for the special rules in Division 100 of the GST Act to apply, the voucher must fall within the meaning of section 100-25 of the GST Act and satisfy the requirements of section 100-5 of the GST Act.

Section 100-25 of the GST Act provides the meaning of 'voucher' and it 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.

Goods and Services Tax Ruling GSTR 2003/5 explains the Commissioner's view on the application of Division 100 of the GST Act.

In your case, you are not dealing with a prepaid phone card or facility. Hence, paragraph 100-25(1)(b) of the GST Act is not applicable.

Paragraph 26 of GSTR 2003/5 provides that for a voucher to fall within section

100-25 of the GST Act:

· it must satisfy either paragraph 100-25(1)(a) or (b);

· the presentation of the voucher must be integral to supplies on redemption; and

· upon redemption, the voucher must entitle the holder to receive supplies.

For the purpose of paragraph 100-25(1)(a) of the GST Act, when determining whether an article is similar to a voucher, token, stamp or coupon, its characteristics, function and purpose need to be taken into consideration.

GSTR 2003/5 provides that section 100-25 applies to a voucher where its presentation is integral to the supply to which the holder is entitled. Where the presentation of the voucher is not integral to the exercise of the right or entitlement to the supplies, the article will not be a voucher for the purposes of section 100-25 of the GST Act.

Paragraph 38 of GSTR 2003/5 provides that the meaning of voucher in section 100-25 includes the requirement that the article entitle the holder to receive supplies upon its redemption. The article must be capable of being redeemed. An article, which is not redeemable for supplies, will not be a voucher.

Further, paragraph 72 of GSTR 2003/5 provides that a voucher may be supplied between a number of entities before it comes into the possession of the holder who presents it for supplies. Supplies of a transferable, anonymous voucher between intermediate entities are supplies to which section 100-5 may apply. That is, section 105-5 may apply at every stage of the supply of the voucher.

Based on the information that you have provided, the Gift Cards are not vouchers for the purposes of section 100-25 of the GST Act. This is because the presentation of the Gift Cards is not integral to the exercise of the right or entitlement to the supplies and the Gift Cards are not redeemed for supplies.

Does the supply of the Gift Cards by you to the retailer result in the retailer establishing a credit to an account?

You submitted that the way the product will work is consistent with the description of 'a facility for an account' as explained in paragraphs 49 to 52 of GSTR 2003/5. You also submitted that GSTR 2003/5 considers that sales of the Gift Cards, representing a facility to access credit in a supplier's account, to retailers by you will not be supplies at all for GST purposes.

We disagree with your submission that when you sell the Gift Cards to the retailers that the retailers are establishing a credit in the supplier account by transferring money to the account. We consider that it is only when the retailer on-sells a Gift Card to an end user that the Gift Card is activated and money is transferred and credit is established in an account.

When you supply a Gift Card to a retailer the Gift Card is not activated and is not possible for the retailer to exploit the right attached to the Gift Card to establish a credit in a supplier's account. Consequently the supply of the Gift Cards to the retailers which will only be activated when sold to an end user is not a situation as described in paragraphs 49 to 52 of GSTR 2003/5.

We consider that the supply of the Gift Cards by you to a retailer meets all the requirements of section 9-5 of the GST Act. That is:

· the supply is for consideration

· the supply is in the course or furtherance of your enterprise

· the supply is connected with Australia

· your are registered for GST, and

· the supply is not GST free or input taxed under a provision of the GST Act or a provision of another Act.

As the supply of the Gift Cards is a taxable supply under section 9-5 of the GST Act, you are liable to pay GST on the supply.

Question 6

Are you entitled to input tax credits on acquisitions that you make in relation to the supply of the Gift Cards?

Summary

You are entitled to the input tax credit for any creditable acquisition that you make.

Detailed reasoning

Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

For an acquisition to be a creditable acquisition all the requirements of section 11-5 of the GST Act must be met. 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.

Paragraph 11-5(a) of the GST Act requires that you make an acquisition for a creditable purpose.

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, pursuant to subsection

11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that the acquisition:

(a) relates to making supplies that would be input taxed, or

(b) is of a private or domestic nature.

Accordingly, when you make an acquisition in relation to the supply of the Gift Cards that meets all the requirements of section 11-5 of the GST Act you are entitled to an input tax credit under section 11-20 of the GST Act for that creditable acquisition.