Edited version of your written advice

Authorisation Number: 1012747224293

Date of advice: 22 December 2014

Ruling

Subject: GST and unredeemed vouchers

Question 1

Does entity X (X) have an increasing adjustment where it has supplied a voucher to a recipient who is overseas, that voucher has not been fully redeemed and X has, for accounting purposes, written back to current income any reserves for the redemption of the voucher?

Answer

Yes. X has an increasing adjustment for the amount of 1/11 of the stated monetary value of a voucher to the extent that it is not redeemed.

Question 2

With respect to vouchers supplied to customers who are in Australia, does X have an increasing adjustment where it has supplied a voucher that has not been fully redeemed and X has, for accounting purposes, written back to current income any reserves for the redemption of the voucher?

Answer

Yes. X has an increasing adjustment for the amount of 1/11 of the stated monetary value of a voucher to the extent that it is not redeemed.

Question 3

For the purposes of calculating the increasing adjustment under section 100-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) can X use historical redemption records to determine the extent to which the supply of the voucher is not taxable?

Answer

This question does not need to be answered given the responses to questions 1 and 2.

Relevant facts and circumstances

X operates in Australia.

X sells 'face value vouchers' (otherwise known as Gift Cards) to customers who are in and outside Australia. These may be purchased in-store or online.

The vouchers can be loaded once only with any value between $Y to $Z per card. No additional fee is charged to the customer (e.g. administrative charge or processing fee). That is, the face value of the voucher equals the amount paid. The voucher is used by the holder in stores or online.

Each voucher has a security PIN, which is required to be entered into the EFTPOS terminal when making a purchase. The purchase amount will be deducted from the voucher's available balance. If the purchase amount exceeds the available balance on the voucher, the holder is required to then pay the difference by another accepted means.

Vouchers issued by X are able to be redeemed only in in Australia. Vouchers can be purchased by customers that are in Australia (either online or directly/personally from a store) or by customers that are overseas (by online only). However, the voucher can only be redeemed in Australia. X does not ship goods overseas.

The vouchers can be redeemed for GST-free and taxable products in Australia.

The vouchers expire in a specified number of months from the date of issue.

At any given time, a proportion of these vouchers remain unredeemed by the expiry date. In respect to vouchers sold in the past specified number of years, a specified percentage have remained unredeemed on the expiry of the vouchers. X's policy is to write back the unearned income (which covers vouchers sold to customers who are in or outside Australia) on expiry of the vouchers.

By way of example with respect to vouchers sold in the last specified number of months by X, where the vouchers have been redeemed, a specified percentage of the face value has been used to purchase GST-free supplies.

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 9-25.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-30(1).

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(2).

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

A New Tax System (Goods and Services Tax) Act 1999 Section 100-15.

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

Reasons for decision

Questions 1 and 2

Reasoning

Unless otherwise stated, all legislative references in this Ruling are to the GST Act.

In GSTR 2003/5 we have stated that if the issue of a voucher, but for Division 100, is otherwise not a taxable supply then Division 100 is not applicable (paragraph 56 of GSTR 2003/5).

The below first considers if the supply of a voucher to a customer who is overseas would otherwise be a taxable supply under section 9-5 without any reference to Division 100.

Whether the supply of a voucher to a customer who is overseas is connected with Australia

The voucher supplied by X to a customer who is overseas evidences a right to acquire goods in Australia.

Paragraph 9-25(5)(b) provides that a supply of anything other than goods or real property is connected with Australia if:

the supplier makes the supply through an *enterprise that the supplier *carries on in Australia; …

Subsection 9-25(6) states that an enterprise is carried on in Australia if the enterprise is carried on through:

(a) a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936); or

(b) a place that would be such a permanent establishment if paragraph (e), (f) or (g) of that definition did not apply.

X carries on its enterprise in Australia under subsection 9-25(6). The customer who is overseas will purchase the voucher off X's Australian website and can only redeem the voucher in Australia. Based on the information provided, the supply of a voucher to a customer who is overseas is connected with Australia under paragraph 9-25(5)(b) as X makes the supply through an enterprise that it carries on in Australia. Therefore the requirement of paragraph 9-5(c) is met.

Further, the supply of a voucher to a customer who is overseas meets the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(d).

Whether the supply of a voucher to a customer who is overseas is GST-free under item 2 or item 3 in the table in subsection 38-190(1)

Subsection 38-190(1) outlines when a supply of a thing other than goods or real property is GST-free. In the circumstances that a supply of the voucher is covered by item 2 or item 3 in the table in subsection 38-190(1), the GST-free status of the supply will be negated, partially or fully, by subsection 38-190(2).

Pursuant to subsection 38-190(2) the supply of the voucher is not GST-free if it is the supply of a right or option to acquire something else the supply of which:

• would be connected with Australia, and

• would not be GST-free.

Connected with Australia

The voucher supplied to a customer who is overseas evidences a right to acquire goods in Australia. Subsection 9-25(1) provides that a supply of goods is connected with Australia if the goods are delivered or made available in Australia to the recipient of the supply. As the overseas customer can only redeem the voucher in Australia, the requirement of subsection 9-25(1) is met.

Not GST-free

Additionally, based on the information provided, the vouchers supplied by X can be redeemed in Australia for goods the supply of which could be taxable or GST-free supplies. As such subsection 38-190(2) would negate the GST-free status of the supply of the voucher to the extent that the acquisition of goods on redemption would not be GST-free.

As the supply of the voucher to an overseas customer is connected with Australia and is not fully GST-free under Division 38, we consider that there is no material difference where the customer is when the voucher is supplied in determining the application of section 100-15.

Whether X has an increasing adjustment with respect to the vouchers that it supplies to customers who are in Australia and overseas where the vouchers have not been fully redeemed and X has, for accounting purposes, written back to current income any reserves for the redemption of the vouchers

Legislative context

A supply is a taxable supply if it satisfies all the requirements of section 9-5. Section 9-5 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.)

Section 100-5 states:

(1) A supply of a *voucher is not a *taxable supply if:

(a) on redemption of the voucher, the holder of the voucher is entitled to supplies up to the *stated monetary value of the voucher; and

(b) the *consideration for supply of the voucher does not exceed the stated monetary value of the voucher.

…

(2A) The stated monetary value, in relation to a *voucher other than a *prepaid phone card or facility, means the monetary value stated on the voucher or in documents accompanying the voucher.

…

(3) This section has effect despite section 9-5 (which is about what are taxable supplies) and section 9-15 (which is about consideration).

Section 100-15 states:

(1) You have an increasing adjustment if:

(a) you supplied a *voucher for *consideration; and

(b) on redemption of the voucher, the holder of the voucher was entitled to supplies up to the *stated monetary value of the voucher; and

(c) the voucher has not been fully redeemed; and

(d) you have, for accounting purposes, written back to current income any reserves for the redemption of the voucher.

(2) The amount of the increasing adjustment is 1/11 of the *stated monetary value of the voucher to the extent that it was not redeemed.

Subsection 100-25(1) 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.

GSTR 2003/5 provides guidance on the identification and treatment of vouchers to which Division 100 applies. It provides that to be a voucher to which Division 100 applies an article must satisfy the meaning of voucher in section 100-25 as well as the additional requirements in section 100-5. The ruling sets out the requirements that are considered to arise under section 100-5 and refers to a voucher that satisfies both sections 100-25 and 100-5 as a 'face value voucher' (FVV) (paragraph 11).

Section 100-15 only applies to FVVs (paragraph 121 of GSTR 2003/5).

Whether the vouchers in question are FVVs

In this case, there seems to be no doubt that the vouchers that are the subject of the private ruling request satisfy the meaning of voucher in section 100-25. The only requirement that is in contention is the requirement that the supply of a voucher must otherwise be a taxable supply (therefore a FVV) for section 100-15 to apply.

Chapter 4 contains special rules that modify the basic rules in Chapter 2. As stated in section 45-5, the effect of the special rules is that they override the provisions of Chapter 2, but only to the extent of any inconsistency.

Division 100 is specifically identified in the table in section 9-39 as a Division that contains special rules that modify the basic rules relating to Division 9 - Taxable supplies. Accordingly, Division 100 provisions override the basic rules contained in section 9-30 to the extent of any inconsistency.

It is considered that for the purpose of Division 100, even if the voucher can be used to acquire more than one supply, the voucher itself is treated as a single supply.

As such, where a voucher gives the holder an entitlement to redeem the voucher for a reasonable choice of supplies that includes some supplies that would be taxable supplies, the supply of the voucher would otherwise be a taxable supply, at least in part, and therefore the voucher satisfies the requirement of section 100-5. Therefore, the GST treatment in relation to the voucher is to be determined in accordance with Division 100. This is the factual situation with the vouchers supplied by X as discussed above.

This is consistent with the fact that sections 100-5 and 100-25 do not provide for a voucher to be partly a Division 100 voucher and partly a voucher treated under the GST basic rules.

Furthermore, subsection 100-5(3) notes that the section has effect despite section

9-5 and section 9-15. Accordingly, we consider that X's vouchers that are FVVs are subject to the operation of section 100-15 in their entirety.

Increasing adjustment under section 100-15

Section 100-15 is clear and provides for no apportionment, including any apportionment on the basis of an expectation that the voucher may have been redeemed only partly for taxable supplies.

As all of the other requirements of subsection 100-15(1) are met, X has an increasing adjustment for the amount of 1/11 of the stated monetary value of a voucher to the extent that it is not redeemed.

The prediction approach adopted in GSTR 2012/1 cannot be applied to the vouchers that are covered by Division 100. GSTR 2012/1 expressly states that the ruling does not address or apply directly to the treatment of vouchers under Division 100. The GST Act provides special rules contained in Division 100 that are specifically to deal with the GST implications of certain vouchers, but the GST implications of loyalty points, as well as other rights, are governed by the basic rules in Chapter 2.

The view that a supply of rights requires a prediction about future use for the purpose of applying section 9-30 does not necessarily lead to a result that a voucher can be partly treated under the core rules and partly treated under Division 100.