Edited version of your written advice

Authorisation Number: 1012709637416

Ruling

Subject: GST and international money transfers

Question:

Are the supplies of the international money transfers by an Australian entity GST-free pursuant to item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Item 4)?

Answer:

Yes, the supplies of the international money transfers by the Australian entity are GST-free pursuant to Item 4.

Relevant facts:

The Australian entity is registered for goods and services tax (GST).

The Australian entity provides international money transfers (IMT). An IMT is a means of securely transferring funds from Australia to banks in other countries.

The Australian entity uses an international communications system and also the entity's network of banks and overseas branches to make payments to beneficiaries in overseas countries.

Generally, an IMT can take two forms as follows:

• A delivery of physical currencies to a payee outside Australia ('delivery')

• A deposit into a payee's bank account ('deposit').

In relation to the 'delivery' IMT, a customer will specify an overseas destination and payee to whom physical currency is to be delivered.

In relation to the 'deposit' IMT, a customer specifies a deposit to be made into a foreign bank account from an Australian bank account.

Relevant legislative provisions:

A New Tax System (Goods and Services Tax) Act 1999, Section 38-190

Reasons for decision

Summary

The supplies of the international money transfers (as a remittance service or an overseas telegraphic transfer) are GST-free.

Detailed reasoning

Supplies of foreign currency products may be GST-free, or partly GST-free, under item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Item 4). Item 4 relevantly provides that 'a supply that is made in relation to rights' is GST-free 'if… the rights are for use outside Australia'.

This involves a two step process. Firstly, determine if the supply of the foreign currency product can be said to be 'made in relation to rights'. Secondly, determine whether the relevant rights are 'for use outside Australia'.

Delivery of physical currency to a payee outside Australia (Remittance Service)

Is the supply one that is made in relation to rights?

A remittance service differs from a retail foreign exchange transaction where the recipient receives the foreign bank notes. A supply of a remittance service means that the Australian customer wants a specific amount of physical currency available for pick up by a third party payee or delivered to the payee, at an overseas location.

The essential character of the supply is to facilitate a dealing in rights, being the delivery of physical currency to the payee at an overseas location (rather than the Australian recipient exercising its contractual rights to be paid the funds).

When are the rights for use outside Australia?

It is accepted that the intended use of the physical currency is outside of Australia, when the recipient of the remittance service supply specifies an overseas location for delivery or pick up by the payee. In that situation, the rights that attach to the physical currency are for use outside of Australia and the supply of a remittance service is GST-free under Item 4.

Deposit into a payee's bank account (Overseas Telegraphic Transfer)

Is the supply one that is made in relation to rights?

The essential character of a supply of an Overseas Telegraphic Transfer (OTT) is to transfer money to the bank account of an overseas third party (the payee). OTTs may be supplied by banks to account holders and non-account holders.

What is referred to as a 'transfer' from one account to another via the banking system does not involve the actual transfer of physical currency or the transfer or assignment of ownership of a chose in action (a right). Rather it involves the extinguishment (or reduction in value) of one chose in action (the payer's) and the creation (or increase in value) of another (the payee's), represented by the relevant accounting entries.

Whilst the rights held by the payer are extinguished during the transfer process, it is accepted there is a dealing in rights, being the effective transfer of the value in the rights from the payer to the payee. Therefore, as the essential character of the supply of the Overseas Telegraphic Transfer is to facilitate a dealing in rights, it is a supply in relation to rights.

In this context, the relevant right is the chose in action represented by the deposit into the payee's account at an overseas location (rather than the extinguished chose in action of the payer, or the payer's contractual rights under the OTT agreement).

When are the rights for use outside Australia?

In this instance, as the essential character of the OTT is the facilitation (or effective transfer) of the rights to an overseas bank account, it is accepted that these rights are for use outside of Australia. Where the payer (the recipient of the OTT) nominates that the amount is to be transferred to the account of a payee who is located outside of Australia, the rights are for use outside of Australia and the supply of the OTT is GST-free under Item 4.