Edited version of your written advice

Authorisation Number: 1051469410527

Date of advice: 25 March 2019

Ruling

Subject: Good and services tax (GST) and unclaimed money from the cancellation of lay-by sales.

Question 1

In respect of lay-by sales, does an Australian entity (you) retain ‘unclaimed moneys’ (net of cancellation fee etc.) as defined by the Relevant Unclaimed Money Act 1962?

Answer

No, you do not retain ‘unclaimed money’ (net of cancellation fees etc.) as defined in the Relevant Unclaimed Moneys Act 1962 where you are required to pay unclaimed moneys to State Trustees in Victoria. The same principle will apply in ACT and NSW in respect of similar legislation.

However, in the states where there is no unclaimed moneys legislation, you are considered to have retained the uncollected deposits as consideration for a supply made by you for the purposes of section 102-5 of the GST Act.

Question 2

What point in time during the lay-by sale process does Division 102 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) have any application?

Answer

Section 102-5 of the GST Act will apply when the unclaimed money will be taken to revenue at the point of the purging the lay-by system by you and the amount will be treated as consideration for the supply made by you.

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 a State A incorporated company which is registered for GST. You are a representative member of GST group.

Your customers are able to participate in a lay-by system at your stores only. Lay-by is not available to online customers.

Customers are required to pay an initial deposit of 10% or more of the purchase price. Customers then have a maximum period of 8 weeks within which to finalise payment and collect their items. Over the term of the lay-by, customers may choose to make payments through interim payments culminating in a final payment due before the end of the 8 week period.

The minimum lay-by amount is $20.00.

A non-refundable service fee is charged to the customer for each lay-by.

Where customers cancel the lay-by, all monies except for the service fee are refunded to the customer.

If a customer has not made a lay-by payment or finalised their lay-by within the 8 week timeframe, an Overdue Letter automatically generates and is mailed to the customer.

If a customer has not made a lay-by payment on a no-deposit lay-by, a No Payment Letter is issued to them at four weeks.

Where customers do not make scheduled repayments or do not collect the lay-by, the lay-by is cancelled and a cancellation fee is retained to cover administration costs. As part of ordinary store processes a report is run periodically to determine where lay-bys have not had a scheduled payment or have not been picked up.

A lay-by is cancelled by you if the customer has not:

● Finalised payment within the 8-week period;

● Notified the store to ask for extra time and the charge is overdue;

● Finalised payment after the store has given the customer notice of its intention to cancel the lay-by and the charge remains overdue.

Where a lay-by is cancelled by you and the customer has not then returned to store to collect the refund of monies paid the funds are retained until required to be paid to the State Revenue Office of State A pursuant to the Relevant Unclaimed Money Act 1962. On the basis that you are a State A incorporated Company all unclaimed monies are paid to the Relevant State Revenue Office. You effectively act as trustee for the State Trustees until the time when the money is physically passed over to the State Trustees.

A payment of unclaimed money to the State Trustee is made on or around May each year.

All unclaimed money is paid to the Relevant State Revenue Office on the basis that you are a Relevant incorporated company in accordance with the Relevant Unclaimed Money Act 1962.

Money from lay-by sales cancelled by you are retained for one day less than the relevant period required under the Relevant Unclaimed Money Act 1962 at which time it is then physically passed to the State Trustee. This is on the basis that up until that time a customer may come into your store to claim their unclaimed money.

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 102-5

A New Tax System (Goods and Services Tax) Act 1999, Section 102-10

Reasons for decision

These reasons for decision accompany the Notice of private ruling for You Australia Limited.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Detailed reasoning

Section 102-5 of the GST Act deals with cancelled lay-by ales. It states:

1) If a supply by way of lay-by sale is cancelled:

(a) any amount already paid by the recipient that the supplier retains because of the cancellation; and

(b) any amount the supplier recovers from the recipient because of the cancellation;

is treated as consideration for a supply made by the supplier and as consideration for an acquisition made by the recipient.

(2) This section has effect despite section 9-15 (which is about what is consideration).

Under section 102-5 of the GST Act, for there to be a GST liability, there must be actually amount retained because of the cancellation of lay-by sale.

The word ‘retains’ is not defined in section 102-5 of the GST Act. Generally, where a word is not defined in the relevant Act or regulations, it is usually interpreted in accordance with its ordinary meaning, unless it has a special or technical meaning.

The Concise Macquarie Dictionary defines the word ‘retain’ as

1. To keep possession of.

2. To continue to use practice, etc.

3. To continue to hold or have…..‘

Under the Relevant Unclaimed Moneys Act 1962 (similar arrangements are in place in some other states)any moneys collected by a supplier on cancelled lay-by sales are unclaimed money and are forwarded to State Trustees within a year on the lay-by sale being cancelled. The effect of the legislation is that the supplier holds the forfeited amount for a period until it is passed to State Trustees. During that time, the supplier holds the money on behalf of the customer until such time that the customer claims the money.

Based on the information provided, although you have the customer's initial payment, you are holding this money for the customer to collect. If it remains unclaimed for 12 months or more it becomes 'unclaimed moneys' under the Unclaimed Moneys Act and you will be required to forward the money to State Trustee. You do not have any right to take the money into its revenue and use it for its own purposes. You are holding the money on trust for State Trustees until the money is physically passed on the State Trustees. You do not retain the money for the purposes of section 102-5 of the GST Act in the States in which there is Unclaimed Moneys legislation in place. This means the money is not treated as consideration for a supply under section 102-5 of the GST Act.

If you retain any of the payments or obtain any further payment on cancellation of the lay-by sale, the money is treated as consideration for a supply made by you under section 102-5 of the GST Act.

In the States where there is no Unclaimed Moneys legislation, the money will be taken to revenue at the point of the purging the lay-by system by you. Therefore, in those cases, you are considered to have retained money as consideration for a supply made by you for the purposes of section 102-5 of the GST Act.

Issue 2

Under subsection 102-10(1) of the GST Act, if you, a supplier retain any of the payments or obtain any further payment on cancellation of the lay-by sale, GST payable on the supply is attributable to the tax period in which the amount is retained.

The Tax Office has issued Goods and Services Tax Ruling GSTR 2000/12 which provides guidance on attributing GST payable and input tax credits for supplies and acquisitions under lay-by sale agreements. It states at paragraph 69:

69. If you, a supplier, retain any of the payments or obtain any further payment on cancellation of the lay-by sale, that amount is treated as consideration for a supply. You attribute the GST payable on the supply to the tax period in which the amount is retained or recovered. This is the way you account for any amount retained or received on cancellation of a lay-by sale whether you account for GST on a cash basis or not.

Based on the information provided, the money from lay-by sales cancelled by you are retained for one day less than the relevant period required under the Relevant Unclaimed Money Act 1962 at which time it is then physically passed to the State Trustee. We consider that up until the time the money is physically passed to the State Trustee, the money is not retained for the purposes of section 102-5 of the GST Act because it is held awaiting a customer to claim the refund. Therefore section 102-5 of the GST Act will apply when the unclaimed money will be taken to revenue at the point of the purging the lay-by system by you and the money will be treated as consideration for the supply made by you.