Edited version of your written advice

Authorisation Number: 1012797119701

Ruling

Subject: ATMs and reduced input tax credits

Question

Is Entity A making a reduced credit acquisition as mentioned in item 27 in the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) for acquisitions from Entity B under agreement where Entity A remunerates Entity B on a transactional basis?

Answer

Yes, Entity A is making a reduced credit acquisition under item 27 in the table in subregulation 70-5.02(2) of the GST Regulations for the acquisitions but only to the extent there is a commission paid for the acquisitions.

Relevant facts and circumstances

Entity A owns, operates and maintains ATM's at various locations, including shopping centres, clubs, casinos and other retail outlets.

Entity A charges a fee directly to the cardholder, referred to as an 'ATM Operator Fee' to effect a transaction through an ATM.

Entity A is registered for GST.

Entity A is not an authorised deposit-taking institution (ADI).

The agreement between Entity A and Entity B grants Entity A an exclusive licence to operate and maintain ATMs in licenced areas during the term of the agreement and a licence to enter premises for the purposes of performing its obligations under the agreement.

Under the agreement things Entity A is responsible for that relate to ATM services include:

• supply, delivery, installation and connection of the ATMs at the premises;

• cash servicing of the ATMs;

• all maintenance and faults associated with the function of the ATMs;

• reconciliation and administration work associated with the ATMs;

• illuminated branding signage of the ATMs and 'cards accepted' signage mounted on or near the ATMs;

• providing a 24 hour help desk facility.

Entity A:

• will pay a lump sum payment to Entity B once all ATMs at Location 1 are transitioned to Entity A;

• will pay Entity B a licence fee per ATM based on an ATM rebate fee multiplied by the number of transactions; the licence fee is paid each month in arrears.

Entity A is also required to provide additional services being cash collection, cash delivery and storage and cage facility services as included in the agreement.

Any other services identified by the parties after the date of the agreement that the parties consider incidental will be performed by Entity A at no additional charges and will be added to the list of services in the schedules to the agreement.

Under the terms of the agreement, Entity B:

• licences Entity A to:

• operate and maintain a minimum number of ATMs in the licensed areas during the term of the agreement;

• enter the premises for the purposes of performing its obligations under the agreement.

• will provide (at Entity A's cost) the following to each new ATM site:

• single phase GPO;

• modesty panels if required;

• modem and security alarm housing.

• will also:

• appoint a person to act as its representative and manager;

• make timely arrangements to enable Entity A to enter and have safe access to its premises;

• ensure a continuous supply of electricity to the ATMs (although are not liable for any interruption or discontinuance);

• co-operate with and allow Entity A to consult with nominated Entity B personnel.

• is to pay a fee (based on pricing per the agreement) for the cash collection and delivery services provided at Location 1 until all existing ATMs at Location 1 are transitioned to Entity A. No amount is otherwise paid to Entity A for cash collection and delivery services provided by Entity A to Entity B.

Scope of ruling

This ruling does not consider any GST implications in relation to the lump sum payment to be made by Entity A once all the ATMs at Location 1 are transitioned to Entity A.

It also does not consider the GST implications in relation to the additional services Entity A is required to provide being cash collection, cash delivery and other services specified in a separate schedule to the agreement.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-05.09(4A)

A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 70-05.02(2)

Reasons for decision

Entity A is not entitled to full input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to acquisitions that relate to making financial supplies. However, subsection 70-5(1) of the GST Act provides that certain specified kinds of acquisitions, referred to as 'reduced credit acquisitions', that relate to making financial supplies give rise to an entitlement to a reduced input tax credit.

Item 27 in the table in subregulation 70-5.02(2) (item 27) 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 if Entity A is the financial supply provider; Entity B is a financial supply facilitator; and Entity A pays Entity B a commission.

Financial supply provider and financial supply facilitator

Paragraphs 651A and 651B of Goods and Services Tax GSTR 2004/1 Goods and services tax: reduced credit acquisitions (GSTR 2004/1) explain that when considering the application of item 27 to an acquisition in relation to a financial supply that does not involve the supply of an interest, the terms 'financial supply facilitator' and 'financial supply provider' have their ordinary meanings.

Based on the ordinary meaning of the term 'financial supply provider' 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 is the entity that brings together all the necessary elements to enable the supply of ATM services to a cardholder.

Accordingly, it follows that Entity A is the 'financial supply provider' for the purposes of item 27. Further we accept that in this case Entity B is a 'financial supply facilitator' for the purposes of item 27.

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

Entity B is a financial supply facilitator for the purposes of item 27 if there is a sufficient connection between Entity B's supplies to Entity A and Entity A's financial supplies of ATM services to cardholders.

It is Entity B's performance or observance of their obligations set out in the agreement, along with the granting of the licence to use and occupy the premises (for the installation of the ATMs) under the agreement that represents the nature of Entity B's supply to Entity A.

When the things that constitute Entity B'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 Entity B as a whole, the supply by Entity B has a sufficient connection with the supply of ATM services and, consequently, Entity B is a financial supply facilitator in relation to that supply.

Commission

In paragraph 651 of GSTR 2004/1 it explains that the application of item 27 is confined to acquisitions by a financial supply provider that relate to a particular transaction for which they pay commission to a financial supply facilitator. The term 'commission' is not defined in the GST Act or GST Regulations.

However, GSTR 2004/1 at paragraph 652 adopts the definition of commission from GSTR 2002/2 being a 'payment to an agent or similar entity, or to an employee for particular services rendered. The payment may be made on a fixed sum or fixed percentage basis, or on a sliding scale based on the value of the transaction'.

GSTR 2004/1 in paragraph 653 explains that other fees, including those calculated on the value of work done, rather than a per-transaction or percentage of value based calculation, and retainers, are not commissions.

In our view, the licence fee paid by Entity A to Entity B is consistent with a commission insofar as it is based on the number of successful withdrawal transactions multiplied by the set transaction fee. However, it is not consistent with a commission to the extent that Entity A supplies additional services being cash collection, cash delivery and storage services as included in a separate schedule to the agreement.

Conclusion

Based on the above, Entity A makes a reduced credit acquisition under item 27 for the acquisitions from Entity B to the extent Entity A pays a commission for the acquisitions.