Edited version of your private ruling

Authorisation Number: 1012611740331

Ruling

Subject: GST and supply of exchange traded derivative contracts executed on a foreign market.

Question

Do you make a GST-free supply of exchange traded derivative contracts where the trade is executed on a foreign market?

Answer

Yes, you make a GST-free supply of exchange traded derivative contracts where the trade is executed on a foreign market.

You satisfy all the requirements in paragraphs (a) to (d) of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because:

(a) You make a supply of derivative contracts/future contracts (derivatives) on futures exchanges located outside of Australia for consideration, being a cash settlement.

(b) The supply is made as part of the enterprise that you carry on in Australia.

(c) The supply is connected with Australia per section 9-25(5)(b) of the GST Act.

(d) You are registered for GST

Hence, your supply of derivatives is taxable to the extent that it is not GST-free or input taxed.

Input taxed supply:

We consider that your supply of derivatives would fall within the ambit of a derivative listed in item 11 of the table in sub regulation 40-5.09(3) of the GST Regulations. You make input taxed financial supply of the derivatives if the requirements of sub regulation 40-5.09(1) of the GST Regulations are satisfied.

You supply derivative contracts for consideration (cash settlement), in the course of their enterprise, and the supply is made through an enterprise that they carry on in Australia, hence the supply is connected with Australia. Hence the supply meets the requirements in paragraph 40-5.09(1)(a) of the GST Regulations.

You are the creator of the interest when it enters into the derivative contract, hence you satisfy the definition of a financial supply provider under sub regulation 40-5.06(1) of the GST Regulations. In addition, you are registered for GST. Accordingly, the requirements in paragraph 40-5.09(1)(b) of the GST Regulations are also satisfied.

Therefore, your supply of derivatives traded on the foreign commodity market is a financial supply and is input taxed for GST purposes.

GST-free supply

Your supply of derivatives satisfies item 2 in the table in subsection 38-190(1) of the GST Act (item 2) and hence the supply is GST-free because:

• You may treat its futures transactions as having taken place with a non-resident counterparty where the relevant exchange is located outside of Australia. Hence the supply meets the requirement that the recipient is not in Australia when the thing supplied is done.

• Your supply of derivatives to a non-resident is neither a supply of work physically performed on goods in Australia when the work is done, nor a supply directly connected with real property situated in Australia.

Limitation of item 2:

The GST-free status of your supply of derivatives to a non-resident is not negated by subsection 38-190(3) of the GST Act because:

(a) it is a supply under an agreement entered into, whether directly or indirectly with a non-resident; and

(b) the actual flow of your supply is to the non-resident entities. In addition, you do not have an agreement to supply the derivatives to another entity in Australia.

In summary, your supply of derivatives to non-resident entities where the trade is executed on a foreign market is a GST-free supply under Item 2.

GST-free and input taxed supply

Where a supply would be both GST-free and input taxed, subsection 9-30(3) of the GST Act states:

9-30(3) To the extent that a supply would, apart from this subsection, be both GST-free and input taxed:

(a) the supply is GST-free and not input taxed, unless the provision under which it is

input taxed requires the supplier to have chosen for its supplies of that kind to be

input taxed; or

(b) the supply is input taxed and not GST-free, if that provision requires the supplier

to have so chosen.

This means that if a supply is both GST-free and input taxed, the supply is GST-free. Hence your supply of derivatives where the trade is executed on a foreign market is a GST-free supply.

Relevant facts and circumstances

You are Australian companies registered for GST in Australia.

You enter into various hedging or price protection strategies via the derivative and/or futures commodity markets. You are involved in exchanging traded derivative contracts in Australia and on futures exchanges located outside of Australia.

You engage the services of brokers or other service providers to execute its trades. The broker generally charges a single fee based on the quantity of contracts traded by you. However, the broker will identify the components of its fee including the brokerage, clearance fees and exchange fees. Additionally, the broker outlines the market on which the trades were executed.

In regard to derivative transactions traded on overseas exchanges, the counterparties are

unknown. Generally, derivative/futures contracts traded on foreign markets are settled via cash.

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 Subsection 38-190(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(3).

Income Tax Assessment Act 1936 subsection 6(1)

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

A New Tax System (GST) Regulations 1999 40-5.09.

A New Tax System (GST) Regulations 1999 40-5.06