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Edited version of your written advice
Authorisation Number: 1012993610801
Date of advice: 5 April 2016
Ruling
Subject: credit card surcharge
Questions
1 Should GST be charged on a credit card surcharge if the goods or services provided are a taxable supply?
2 Should credit card surcharge be charged on the GST inclusive amount or the GST exclusive amount of a taxable supply?
3 Is the method used by Entity A an acceptable method to calculate credit card surcharge as per the guidelines of the Australian Taxation Office?
Answers
1 Yes, GST should be charged on a credit card surcharge if the goods or services provided are a taxable supply.
2 Credit card surcharge is charged on the GST inclusive amount of a taxable supply.
3 Yes, the method used by Entity A is an acceptable method to calculate credit card surcharge and will produce results consistent with the guidelines of the Australian Taxation Office.
Goods and Services Tax Ruling GSTR 2014/2 Goods and services tax: treatment of ATM service fees, credit card surcharges and debit card surcharges (GSTR 2014/2) provides the ATO's view in relation to credit card surcharge.
Paragraph 8 of GSTR 2014/2 provides that a credit card surcharge imposed by a merchant on a customer for a credit card transaction forms part of the consideration for the supply of the goods or services made by the merchant. There is a sufficient nexus between the surcharge and the supply of the goods or services for the surcharge to be paid for the supply. Therefore, to the extent that the underlying supply is a taxable supply, the credit card surcharge will attract GST.
Example 1 of GSTR 2014/2 provides an example as follows:
Example 1: Credit card surcharge - taxable supply
14. Anna purchases a shirt with a price of $ 55. A sign at the store's counter states that a surcharge of 3 % of the price will be imposed if payment is made by credit card.
15. When Anna pays for the shirt using her credit card, the merchant imposes a surcharge of $ 1.65 on the sale. The price of the shirt is $ 56.65 as the $ 1.65 surcharge forms part of the consideration for the shirt. The surcharge has a sufficient nexus with the supply of the shirt to be regarded as being paid for the supply. The supply of the shirt is a taxable supply under section 9-5. The GST payable in respect of the sale is $ 5.15, being 1/11th of the GST inclusive price of $ 56.65.
As can be seen in Example 1 of GSTR 2014/2, the surcharge is calculated on the GST inclusive price of the supply. As the surcharge will have the same GST treatment as the underlying supply, it will be treated as a taxable supply where the underlying supply is a taxable supply.
Relevant facts and circumstances
You are registered for GST.
You are a wholesale distributor of a wide selection of products. All the goods you supply are taxable supplies and are subject to goods and services tax (GST).
You charge a credit card surcharge to your customers that choose to pay by credit card. You advertise your credit card surcharge rate as being x% plus GST for MasterCard Debit system or VISA Debit system.
You have provided an example of how you calculate the price of your products using x% plus GST as the surcharge rate.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5.