Edited version of your written advice

Authorisation Number: 1012781657201

Ruling

Subject: ATM services

Question 1

Is Entity A making a reduced credit acquisition (RCA) under item 7(f) in the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) for the acquisition of Primary Services from Entity B under the Facility Agreement?

Answer

Yes.

Question 2

Is Entity A making a RCA under item 27 in the table in subregulation 70-5.02(2) of the GST Regulations (item 27), when it makes a payment of the ATM Cash Services Rebate to merchants for services (Merchant Services) under the Services Agreement?

Answer

Yes.

Question 3

Is Entity A making a partly creditable acquisition from Entity C under the Sub-contractor Agreement?

Answer

Yes. As the acquisitions from Entity C are considered to be enterprise costs, Entity A makes a partly creditable acquisition.

Relevant facts and circumstances

Entity A is registered for goods and services tax (GST) and carries on an enterprise consisting of the provision of ATM's and related services to a number of retail clients, particularly within the hospitality industry.

From a GST perspective, Entity A's enterprise makes predominately input taxed supplies. These consist of supplies for a fee not exceeding $1,000 of ATM services listed in subregulation 40-5.09(4A) of the GST Regulations. However Entity A also makes some taxable supplies.

The taxable supplies made by Entity A include but are not limited to engaging security guards for major events and the sale of security related equipment such as safes.

Although Entity A's enterprise makes various supplies involving ATMs, Entity A is not an Australian Authorised Deposit-taking Institution (ADI), as Entity A are not authorised by the Australian Prudential and Regulatory Authority (APRA) to carry on a banking business.

The ATMs that Entity A use to make input taxed financial supplies are located in a variety of locations such as hotels, cafes, sporting clubs, sports stadiums, and convenience stores. None of Entity A's ATM's are located on premises that constitute a branch of an ADI.

This ruling request is in respect of ATMs that are "Self Cashing ATM's". A Self Cashing ATM is an ATM that is stocked with cash belonging to the merchant on whose premises the ATM is located, and the merchant is responsible for ensuring adequate cash is placed in the relevant ATM.

To provide the ATM service to an ATM user (Cardholder) Entity A enters into agreements with:

• a merchant, which is the entity on whose premises the ATM is located

• Entity B, which is the entity that:

• supplies/sells the ATM to Entity A; and

• is engaged to allow Entity A to carry out EFT transactions, and facilitate settlement of all obligations created by transactions performed at an ATM.

• Entity C that is engaged to perform services for Entity A.

These relevant services and terms in respect of each of the abovementioned agreements are set out below.

Agreement between Entity A and a merchant

Entity A enters into arrangements with merchants that run businesses (such as hotels) that require ATM and/or cash services. In such arrangements the merchant engage Entity A to provide services under the "Services Agreement". A copy of the Services Agreement has been provided as part of this request.

Under the terms of the Services Agreement the merchant has the obligation, amongst other things to provide the following services (Merchant Services) in respect of Entity A's ATM:

• depositing cash (belonging to the merchant) into the ATMs such that patrons are able to effectively make ATM withdrawals;

• enabling the connection of ATMs to the premises electricity supply and ensuring that ATMs are switched on and functioning;

• acting as the first point of contact in the case that patrons require assistance with using an ATM

• liaising with Entity A's support staff to keep them informed of issues affecting Entity A's ATMs;

• attempting to resolve technical issues affecting Entity A's ATMs with guidance of Entity A's help desk support and keeping Entity A appraised of any ongoing technical issues;

• immediately notifying Entity A of damage to any of their ATM's;

• providing a well-lit, visible and secure-feeling environment, in which patrons will be inclined to attend in order to make use of an ATM;

• cleaning the ATMs

The Services Agreement also provides that:

• Entity A will pay an ATM Cash Services Rebate for each ATM Withdrawal.

• if the merchant is required to fund the ATM with cash, then Entity A will reimburse the merchant for the total amount of Cash successfully withdrawn from the ATM.

• at any time during the term, Entity A may increase the ATM withdrawal Fee. However Entity A must give 30 days' notice to the merchant and also agree to discuss any proposed increase with the merchant to come to an agreed position.

• Entity A is entitled to retain all revenue generated by the increase to the ATM Withdrawal Fee less the Increase percentage which will be paid to the merchant as an increase to the ATM Cash Services Rebate.

Under the Services Agreement the ATM Cash Services Rebate is payable by Entity A to a merchant. This payment by Entity A is always and entirely in consideration for the merchants commitments. For the purposes of this ruling request we refer to the merchants commitments as the Merchant Services.

The Merchant Services relate to ensuring the ongoing operability of Entity A's ATMs located on the merchants' premises pursuant to the terms of the Services Agreement.

Agreement between Entity A and Entity B (Facility Agreement)

Entity A engages Entity B, which is an APRA regulated company, to service the management of ATM's. This includes ATM transaction monitoring, reporting, payment and income allocations. Relevantly the Facility Agreement identifies the following 'Primary Services':

• Settlement of transactions;

• Settlement of interchange fees;

• Settlement reporting;

• Transaction reporting; and

• Switching of transactions.

Fees are charged monthly by Entity B and include:

• Processing - Entity B manages and charges a processing fee for the efficient movement of transactions

• Settling - Entity B manages and charges a settling fee towards discharging obligations owed by a participant in an open loop payment system.

• Clearing - Entity B manages and charges a clearing fee where they facilitate the presentment and exchange of payment instructions and the calculation of claims for settlement between participants in an open loop payment system.

• Switching - Entity B manages and charges a switching fee in relation to the routing of payment transactions to a participant in an open loop payment system.

Sub-Contractor Agreement

Entity A has also entered into a Sub-Contract agreement with Entity C. Under the terms of the Sub-Contract agreement, Entity C is engaged to provide services to Entity A as a Consultant.

Entity A has advised that under the Sub-Contractor agreement the activities (Sub-Contractor Services) performed by Entity C consist of the following:

• 'Strategy' - this consists of overseeing the strategic direction of Entity A.

• 'Operational management' - this consists of managing third party operators that service Entity A's ATM network.

• 'Business relationships' - this consists of managing relationships with industry associations, suppliers, commercial relationships, investors and financial institutions.

• 'Financial accountability' - this consists of overseeing set of accounts, signoff on ATO submissions, following up on debtors and managing leasing obligations.

• 'Business development' - this consists of building a sales team, delivering on new sales opportunities, targeting larger/national opportunities and managing key accounts.

In consideration for the Sub-Contractor Services Entity C is paid a consultancy fee.

Entity C is registered for GST and the consultancy fee, which is charged monthly includes an amount of GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 11-5

A New Tax System (Goods and Services Tax) Act 1999 11-15

A New Tax System (Goods and Services Tax) Act 1999 70-5

A New Tax System (Goods and Services Tax) Regulations 40-5.09(4A)

A New Tax System (Goods and Services Tax) Regulations 70-5.02(2)

Reasons for decision

Question 1

Division 11 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the basic rules for claiming an input tax credit. Section 11-20 of the GST Act states that an entity is entitled to a full input tax credit where it makes a creditable acquisition. An entity makes a creditable acquisition where the requirements under section 11-5 of the GST Act are satisfied. For an acquisition to be a creditable acquisition, amongst other things, it must be made solely or partly for a creditable purpose. 

As a general rule, section 11-15 of the GST Act establishes that an entity acquires a thing for a creditable purpose to the extent that it acquires the thing in carrying on its enterprise. However, paragraph 11-15(2)(a) of the GST Act provides that an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.  

Under section 40-5 of the GST Act, a financial supply (having the meaning given by the GST Regulations) is input taxed and no GST is payable on the supply. Pursuant to paragraph 11-15(2)(a) of the GST Act an acquisition that relates to making an input taxed supply is not made for a creditable purpose and thus, there is no entitlement to an input tax credit for anything acquired to make that supply.

Subregulation 40-5.09(4A) of the GST Regulations provides that a supply by an entity for a fee of not more than $1,000 is a financial supply if it is a supply of one or more of the following ATM services:

(a) a withdrawal from an account;

(b) a deposit into an account;

(c) an electronic transfer from an account;

(d) advice on the balance of an account.

Entity A has advised that they provide one or more of the above services for a fee of not more than $1,000 to Cardholders in respect of ATMs located in a merchant's premises. Therefore Entity A makes a financial supply to Cardholders and pursuant to subsection 40-5(1) of the GST Act, these supplies are input taxed.

Accordingly when Entity A makes an acquisition from Entity B under the Facility Agreement relating to the supply of ATM services to Cardholders, it is denied any input tax credit for these acquisitions.

However, certain acquisitions that relate to making financial supplies may entitle you to reduced input tax credits. Section 70-5 of the GST Act refers to these acquisitions and states:

(1) The regulations may provide that acquisitions of a specified kind that relate to making *financial supplies can give rise to an entitlement to a reduced input tax credit. These are reduced credit acquisitions.

(2) ……

Regulation 70-5.02 of the GST Regulations refers to acquisitions that attract reduced input tax credits and states:

(1) For subsection 70-5(1) of the Act, an acquisition mentioned in subregulation (2) that relates to making financial supplies gives rise to an entitlement to a reduced input tax credit.

(2) The following acquisitions (within the meaning of subsection 70-5(1) of the Act) are reduced credit acquisitions.

Entity A submits that they are entitled to a RITC for their acquisition of Primary Services acquired from Entity B under the Facility Agreement, under item 7(f) in the table in subregulation 70-5.02(2) of the GST Regulations (Item 7(f)).

Item 7 reduced credit acquisition

Item 7 provides that processing, settling, clearing and switching transactions of one or more of the kinds of transactions in items 7(a) to 7(j) are reduced credit acquisition. Specifically item 7(f) deals with processing, settling, clearing and switching transactions of ATMs.

GSTR 2004/1 provides the Commissioner's view regarding whether an acquisition is a reduced credit acquisition under item 7. In particular paragraphs 258 and 259 state:

258. Item 7 deals with the acquisition of specialised services that facilitate the transfer of funds within a particular payment system. The acquirer of such services is usually an entity that offers payment services to its customers. The means by which a relevant service is performed has no effect on whether the acquisition is a reduced credit acquisition under item 7.

259. However, the acquisition of the means by which processing, settling, clearing or switching occurs is not a reduced credit acquisition under item 7. For example, the purchase of a software licence (and related support services) that provides a credit union the means to process direct entry transactions is beyond the scope of item 7.

In relation to processing paragraphs 261 to 263 of GSTR 2004/1 state:

261. In this context, the expression processing means a systematic series of actions directed to some end. Item 7 contemplates acquisitions that involve a systematic series of actions that assist the efficient movement of transactions listed in items 7(a) to 7(j) within a payment system.

Example 33 - processing services

262. FareCharge pays Dixieland Cabs a fee for sorting, collating and batching Farecharge charge-card vouchers that are collected from taxi companies that participate in the Dixieland network. The taxi companies receive the vouchers as payment for taxi services. Farecharge requires Dixieland to provide these services so that its clearing and settlement functions can operate efficiently.

263. In this instance, Farecharge has made an acquisition of a service of processing of charge card transactions, which is a reduced credit acquisition under item 7.

Further, in respect of switching paragraph 273 of GSTR 2004/1 states:

Switching

273. For the purposes of item 7, the expression switching takes its meaning from the context of a payment system and refers to the routing of payment transactions to a participant in an open loop payment system via a facility. While a facility in this context includes the manual routing of transactions, it is more likely to involve the performance of this task through automated means. Switching, in this context, also includes incidences where authorisations are sought before a transaction is approved and the authorisation request is switched to the relevant participant in a payment system.

In this case the acquisition made by Entity A of the Primary Services consists of processing, settling, clearing and switching. Accordingly, we accept that the acquisition of these services falls within the scope of the services described in paragraphs 261 and 273 of GSTR 2004/1.

On this basis, Entity A makes a reduced credit acquisition under item 7(f) to the extent that the acquisition is transactional processing, settling, clearing and switching in relation to the ATM transactions. To this extent the acquisition by Entity A from Entity B falls within the scope of item 7(f), Entity A will be entitled to a RITC.

Note: our response to this question does not consider any other acquisition made by Entity A from Entity B that arises under the Facility Agreement.

Question 2

Item 27 in the table in subregulation 70-05.02(2) provides that supplies for which financial supply facilitators are paid commission by financial supply providers are reduced credit acquisitions.

Entity A will therefore be entitled to a reduced input tax credit under item 27 in the table in subregulation 70-05.02(2) if:

• Entity A is the financial supply provider;

• the merchant is a financial supply facilitator; and

• Entity A pays the merchant a commission.

Financial supply provider

If the relevant financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply provider' applies. Therefore, when considering the application of item 27 to an acquisition in relation to a financial supply of ATM services, the term 'financial supply provider' has its ordinary meaning.

Entity A is the entity that makes financial supplies of ATM services under subregulation 40-5.09(4A) on the basis that:

• Entity A is the entity to which the fee is due for the ATM service provided to the Cardholder, notwithstanding how that amount may be paid to Entity A through the ATM payment system;

• Entity A, through its various contractual arrangements with other entities, is the entity that brings together all the necessary elements to enable the supply of ATM services to a Cardholder.

Following on from this, Entity A is therefore the financial supply provider for the purposes of item 27 in the table in subregulation 70-5.02(2).

Financial supply facilitator

If the relevant financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply facilitator' applies. Therefore, when considering the application of item 27 to an acquisition in relation to a financial supply of ATM services, the term 'financial supply facilitator' has its ordinary meaning.

A financial supply facilitator is the entity that facilitates the financial supply for the entity making the financial supply.

Whether the merchant is a financial supply facilitator for the purposes of item 27 of the table in subregulation 70-5.02(2) turns on whether there is a sufficient connection between the merchant's supplies to Entity A and Entity A's financial supplies of ATM services to Cardholders.

It is the merchant's adherence to the terms and conditions of the Services Agreement that is taken to represent the nature of the merchant's supply to Entity A.

When the things that constitute the merchant's supply are considered in isolation they may not have a sufficient connection with the supply of ATM services to the Cardholder. However, when consideration is given to the things supplied by the merchant as a whole, the supply by the merchant has a sufficient connection with Entity A's supply of ATM services and, consequently, the merchant is a financial supply facilitator in relation to that supply.

Commission

The term 'commission' as used in item 27 in the table in subregulation 70-5.02(2) is not defined. Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions notes that a commission is a payment to an agent or similar entity that may be a fixed sum, a fixed percentage or on a sliding scale based on the value of the transaction.

The merchant is paid for its supplies to Entity A with reference to the number of withdrawals performed using the ATM. This is consistent with a commission payment.

Conclusion

We consider in the particular circumstances of the Services Agreement Entity A is making a reduced credit acquisition under item 27.

Question 3

Entity A acquires services under the Sub-contract agreement from Entity C. From the description provided this acquisition of services do not appear to directly relate to the making of a particular supply.

Goods and services tax ruling GSTR 2006/3 consider situations where an acquisition does not directly relate to a particular supply and states:

Acquisitions made in carrying on an enterprise, but not directly linked to making particular supplies

53. Carrying on an enterprise includes those activities that you undertake in actually managing or conducting that enterprise. Certain acquisitions or importations relate to the carrying on of the enterprise as a whole and are not directly linked to the making of supplies but nonetheless they relate indirectly to all activities of the enterprise. These may be referred to as enterprise costs and may include costs such as compliance costs for meeting Australian Securities and Investments Commission (ASIC), GST or income tax obligations, directors' fees or maintaining a register of shareholders. These may still be creditable acquisitions provided you made them in carrying on your enterprise. However, if you make input taxed supplies as well as taxable supplies or GST-free supplies, you will still need to establish the extent of creditable purpose relating to these acquisitions and importations.

In this case we consider that the acquisition by Entity A under the Sub-contract agreement falls within the scope of an enterprise cost. Accordingly as Entity A's enterprise consists of making both input taxed and taxable supplies Entity A will only be entitled to a proportion of input tax credits in relation to the acquisition of services under the Sub-contract agreement. In order to determine the relevant proportion, Entity A will need to determine the extent of their creditable purpose and use this percentage to determine their input tax credits.

Entity A will need to use a fair and reasonable apportionment method, in accordance with the principles which are set out in Goods and services tax ruling GSTR 2006/3, to determine the extent that the acquisition relates to Entity A making taxable supplies.