Edited version of your private ruling

Authorisation Number: 1012565121500

Ruling

Subject: GST and sale of gift cards

Question

Do you make a taxable supply when you sell a Gift Card to an end user who will open and access the relevant account?

Answer

No.

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 is a card, which will have a price stated on the front, as well as a number of barcodes. You will buy these cards and sell them to retailers. It is expected that the retailers will sell these Gift Cards to end users or to give away as presents.

The consumer can access the value in the card 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 Gift Cards are not vouchers for the purposes of section 100-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as 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.

The way the product will work is a follows:

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

3. 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.

4. 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.

5. 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.

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.

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 a Gift Card from the retailer that a credit is established in the customer's account.

You advised that there will be situations where you would activate and sell a Gift Card to an end user exactly the same way that a retailer does. You can do that when you run special promotions or make staff sales. You want us to confirm that you do not have to pay GST when you sell or provide a Gift Card to a person who will open and access the relevant account.

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 9-40

Reasons for decision

Summary

When you sell an activated Gift Card to an end user the end user is transferring money to the account, where that money is to be used for future supplies. As outlined in GSTR 2003/5, when you supply the facility for the account you are not making 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.

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

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

Paragraphs 49 to 54 of GSTR 2003/5 deal with vouchers and customer accounts and state:

Vouchers and customer accounts

49. A credit to an account, by transferring money to the account, where that money is to be used for future supplies, is not a supply. This is the case even though a card or thing resembling a voucher may be given to create the credit or enable access or use of the credit in the account.

50. The supplier of the facility for the account is not supplying a voucher, nor is it making a supply of money. The supplier of the facility for the account is not making a taxable supply; and it is not providing consideration for a taxable supply.

51. The entity establishing the credit to the account is not acquiring a voucher nor is it making a payment for the credit in the account; rather, the entity is transferring credit into the account as provision for the acquisition of future supplies. The transfer of funds is not a taxable supply; and it is not consideration for a taxable supply. However, where an unused amount in an account is forfeited, for example on a particular expiry date, the amount forfeited is consideration for use of the facility. The use of the facility is a supply which is taxable if the requirements of section 9-5 are met. The relevant GST is attributable on forfeiture.

Example 7: Vouchers and customer accounts

52. Future World Ltd supplies a card to customers for $55. The card has on it a PIN, a stated monetary value, and a telephone number.^9A By using the PIN the card is used to activate an account with a value of $55 on Future World's system. Once the account is activated the card may be discarded. The card is not integral to the future supplies. The card is the means of establishing a credit of $55 in the account. The card is not redeemed for supplies but is transferring money to establish a credit. The card is not a voucher to which section 100-25 applies. The GST treatment of future supplies will be determined when they are supplied. In this case the basic rules in subsection 9-17(1) do not apply, the basic rules in section 9-5 apply when the supplies occur.

Example 8: electronic payment docket - not a voucher

53. Fuzzy Enterprise Australia offers a facility whereby a customer may establish and recharge its account by transferring funds to Fuzzy.^9B This can be done by the customer going to a local supermarket, which has a Fuzzy terminal and selecting the value to be transferred to the account using eftpos, credit card, or cash. At the end of the transaction the customer receives a docket which shows various details including the amount transferred, a recharge number, expiry date, and a telephone number which must be dialled and the relevant details entered to activate the recharge to the customer's account. Once the recharge is achieved the docket can be discarded.

54. The docket is not a voucher to which section 100-25 applies, nor does section 9-5 apply to the docket. It is a means of establishing or accessing credit held or to be held in an account. The docket itself does not entitle the holder to supplies upon its redemption. The GST treatment needs to be determined when the supplies are made. However, if the docket or recharge number can be used to obtain immediate supplies, the docket may be a voucher to which section 100-25 applies.

You advised 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. The consumer can access the value on the account 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. The cardholder will login into their account and type in the serial number shown on the card to transfer the card value to the account. The cardholder can purchase goods and services from the supplier. The Gift Cards will only allow the cardholder 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 account. 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.

We agree with your submission that when you sell an activated Gift Card to an end user the end user is transferring money to the account, where that money is to be used for future supplies. The end user is transferring credit into the account as provision for the acquisition of future supplies. As outlined in GSTR 2003/5, when you supply the facility for the account you are not making a taxable supply. You are therefore not liable to pay GST on the sale of the Gift Cards to end users.

However, as stated in paragraph 51 of GSTR2003/5, where an unused amount in an account is forfeited, for example on a particular expiry date, the amount forfeited is consideration for the use of the facility. The use of the facility is a supply which is taxable if the requirements of section 9-5 are met. The relevant GST is attributable on forfeiture.