Edited version of your written advice

Authorisation Number: 1013125988711

Date of advice: 23 November 2016

Ruling

Subject: Currency exchange and money transfer

Question 1

Is the supply of an international outbound money transfer, which consists of an electronic money transfer and a currency exchange components, a GST-free supply under Item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes, an international outbound money transfer, which consists of an electronic money transfer and a currency exchange components, is a GST-free supply for the following reasons.

If you make a supply in relation to rights that are to be used outside Australia, that supply is GST-free under subsection 38-190(1) of the GST Act.

Accordingly, in this case, firstly, it needs to be determined whether you supply a right to be used outside Australia.

Goods and Services Tax Ruling GSTR 2003/8, Goods and services tax: supply of rights for use outside Australia - subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2) (GSTR 2003/8), recognises that a supply of foreign currency is a supply that is made in relation to rights because the currency derives its value solely from the rights that attach to it. Where it is evident that the currency is to be used overseas, those rights that attach to the currency are for use outside Australia. Therefore, your agents exchanging Australian Dollars for foreign currency on-behalf of you which you then make available to a recipient in a foreign country constitutes a supply of rights for use outside Australia. It is, therefore, a supply of rights for the purposes of Item 4 in the table in subsection 38-190(1) of the GST Act (Item 4).

Secondly, it needs to be determined whether the supplies you make in relation to those rights come within Item 4. At paragraph 77, GSTR 2003/8 expresses our view that a supply of services is a 'supply that is made in relation to rights' for the purposes of item 4 if the services are directly connected with those rights. A service will be directly connected with rights if the service facilitates a dealing in rights. In your case, the electronic money transfer component which you supply to your customers (for which you receive payment from your customers) facilitates a dealing in rights. It is, therefore, a supply made for the purposes of Item 4.

Accordingly, we are of the view that the supply of foreign currency, facilitated by an electronic money transfer system and settled outside Australia by a cash payout or by crediting foreign bank account, is GST-free pursuant to Item 4 in the Table in subsection 38-190(1) of the GST Act.

Note: contrasting outbound transactions mentioned above, the inbound transactions which may consist of an electronic money transfer and a currency exchange into Australian Dollars components are entirely input taxed according to the logic expressed in Goods and Services Tax Determination GSTD 2012/5, Goods and services tax: are acquisitions related to an entity's retail foreign currency exchange transactions with customers in Australia made solely for a creditable purpose under section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (GSTD 2012/5).

Question 2

Is the following revenue based formula a fair and reasonable methodology for establishing the extent of creditable purpose (ECP) of your acquisitions, where it is based on the percentage split of inbound and outbound transactions?

[ (Foreign exchange margin) + (Certain percentage of outbound transaction fee) ] / [ Total revenue ] x 100

Answer

Given that your range of products is relatively narrow (in that you only make simple inbound and outbound transactions), you do not offer travel cards, cheques, insurance etc, your methodology does not require the adoption of any major assumptions and there appear to be no distortive factors impacting the outcome, we are of the view that the revenue based formula (as stated above) is a fair and reasonable methodology for establishing the ECP of your acquisitions.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

● You are in the business of providing international money transfer and foreign exchange transactions for your customers through a network of local agents.

● You have an ABN and have been registered for GST at all relevant times, and you exceed the financial acquisitions threshold.

● You entered an Agreement a counterparty under which you act as a distribution network for transactions that are initiated or paid out of Australia. You are not acting as an agent for the counterparty.

● Your rights and obligations under the Agreement include, among other, the authority to appoint agents in Australia with whom the general public interact face-to-face, and the use of a software platform which you distribute to agents.

● That software platform is owned by the counterparty and facilitates access to current exchange rates within the counterparty’s network of distributors and agents worldwide. Using the software platform you are able to perform outbound ‘send transactions’ and inbound ‘receive transactions’.

● A send transaction involves local Australian customer requesting the exchange of Australian Dollars into foreign currency and transfer of that foreign currency to a foreign destination. This transaction may be settled by a cash payout or by crediting the recipient’s foreign bank account. Accordingly, your agents make the first leg of a send transaction on behalf of you by exchanging Australian Dollars of a customer into foreign currency. Your agents collect a fixed amount transaction fee from the customer (which is in addition to the foreign exchange margin made on the transaction) on behalf of you. You do not facilitate the purchase of foreign currency for use (payout) in Australia.

● A receive transaction involves local Australian customer collecting Australian Dollars from an agent upon being adequately identified by the agent. This transaction may be settled by a cash payout or by crediting the recipient’s Australian bank account. This transaction is usually initiated by an overseas customer but, less frequently, may be initiated in Australia and destined for collection in Australia.

● You are responsible for collection and settlement of moneys with the counterparty and receiving customers, related to transactions routed through the software platform by you or your agents. You maintain bank accounts in your name and accept all risks associated with collection of funds.

● You are also responsible for your ongoing operational expenses such as: communications, accommodation, rent, utilities, furniture, equipment and personnel expenses.

Transaction fees, commissions and margins

● You shall not initiate an outbound send transaction unless the full amount of funds is received by you from the agent. And when a send transaction is initiated, you shall request electronically of the counterparty to disburse funds, and shall ensure that the correct transfer amount and relevant fees are remitted to the counterparty.

● For each send transaction successfully processed you are entitled to a certain percentage of the transaction fee and a certain percentage of the foreign exchange margin. You remunerate agents by a certain percentage of the transaction fee and a certain percentage of the foreign exchange margin.

● For each receive transaction successfully paid out you are entitled to a certain percentage of the transaction fee but you are not entitled to any share of the foreign exchange margin.

● Your inbound transfers represent an insignificant proportion of the total transactions. Similarly, a revenue based analysis of the same month shows that a significant proportion of revenue comes from foreign transfer fees and foreign exchange margin.

● The formula you propose for calculating the extent of creditable purpose (ECP) is as follows:

[(Foreign exchange margin) + (Certain percentage of outbound transaction fee)] / [ Total revenue ] x 100

● You intend to apply the above calculated ECP to all acquisitions (including your overheads).

● You propose to apply the above revenue based formula because it is the simplest method to calculate the ECP and you feel the costs can be more accurately apportioned.

● You considered the transaction based method and discounted it due to the number of transactions and because the proportion of the split of the transactions did not reflect an appropriate apportionment of the value provided to the customer for each service nor appropriate allocation of the cost structures.

● You intend to review the above ECP calculation annually based on the actual figures for the year in arrears.

Relevant legislative provisions

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