Edited version of private advice

Authorisation Number: 1052004067370

Date of advice: 7 July 2022

Ruling

Subject: Foreign exchange

Question 1

Are outbound foreign exchange (Fx) transactions GST-free?

Answer

Yes.

Question 2

Does the Commissioner agree with your method of identifying outbound Fx transactions?

Answer

Yes.

Question 3

Can acquisitions made in the course or furtherance of your activities (i.e., indirectly in relation to outbound Fx transactions) be acquired for a partly creditable purpose?

Answer

Yes.

Question 4

Does the Commissioner agree with your method of determining the extent of creditable purpose for your acquisitions made in the course or furtherance of your activities?

Answer 4

Yes.

This ruling applies for the following period:

April 20XX - April 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

You provide retail foreign currency exchange (Fx) services (targeted at the general public).

You will survey your customers to determine where they will spend the currency they purchase. You are only going to treat transactions where the customer purchases foreign currency, that they intend to spend outside of Australia, as GST-free.

Given the nature of the services you provide, you are unable to identify any acquisitions that will solely relate to GST-free supplies (outbound Fx transactions) as you will be making both input taxed and GST-free supplies in the course of your activities.

You will use an indirect estimation method, specifically one based on the transaction count, in order to determine the extent of creditable purpose. You will conduct this estimation on a periodic in arrears basis and do so at a minimum annually i.e. you will apply last year's transactions to calculate this year's extent of creditable purpose.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section11-25

A New Tax System (Goods and Services Tax) Act 1999 Section11-30

A New Tax System (Goods and Services Tax) Act 1999 Section40-5

A New Tax System (Goods and Services Tax) Regulations 2019 Section 40-5.09

Reasons for decision

Question 1

Section 38-190 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that supplies of things other than goods or real property for consumption outside the indirect tax zone are GST-free. Item 4(a) contained within the table in subsection 38-190(1) of the GST Act provides that a supply made in relation to rights is GST-free if the rights are for use outside the indirect tax zone.

In Travelex Ltd v Commissioner of Taxation [2010] HCA 33, the High Court determined that the supply of a banknote is a supply that is made in relation to rights because the banknote has value only because of the rights attached to it as a currency in the country of issue.

Where it is evident that the currency is to be used overseas, the rights attached to the currency are for use outside the indirect tax zone. This means that the supply will be GST-free supply under item 4(a) of the table in section 38-190 of the GST Act.

Question 2

Paragraph 124 of 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) provides that, when it comes to determining whether the rights are for use outside of Australia, it is not how they are ultimately used but rather that they were intended, at the time that they were created/granted/transferred, to be used outside of Australia.

Paragraph 128 of GSTR 2003/8 acknowledges that the supplier doesn't necessarily always have the information to determine the extent to which the rights are for use outside of Australia, the recipient does. In these cases, the supplier is expected to consult with the recipient to obtain that information.

Additionally, paragraph 129 of GSTR 2003/8 lists a number of factors to be considered when determining the extent of the intended use of rights.

Considering your circumstances against these factors, your method for identifying outbound FX transactions is reasonable.

Question 3

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is entitled to an input tax credit for any creditable acquisition it makes.

Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if:

a)    the entity acquires the thing solely or partly for a creditable purpose

b)    the supply of the thing to the entity is a taxable supply

c)    the entity provides, or is liable to provide, consideration for the supply, and

d)    the entity is registered, or required to be registered, for GST.

Section 11-15 of the GST Act provides that an entity acquires a thing for creditable purpose to the extent that the entity acquires it in carrying on its enterprise. However, the acquisition is not for a creditable purpose to the extent that the acquisition:

a)    relates to making supplies that would be input taxed or

b)    is of a private or domestic nature.

Section 11-25 of the GST Act provides that the amount of input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount is reduced if the acquisition is only partly creditable.

Section 11-30 of the GST Act provides that an acquisition is partly creditable if one or both of the following applies:

a)    the entity acquires the thing only partly for a creditable purpose

b)    the entity provides, or is liable to provide, only part of the consideration for the acquisition

An acquisition that relates to making both input taxed and non-input taxed supplies will only be partly for creditable purpose, to the extent that it relates to making non-input taxed supplies.

Question 4

Paragraph 42 of GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies states that if an acquisition made in carrying on an enterprise relates partly to the making of an input taxed supply, apportionment is required.

Paragraph 26 of GSTR 2006/3 fundamental requirement in whatever apportionment method is used to calculate the input tax credit entitlement is that the method must be fair and reasonable, and appropriately reflect the intended use of the acquisitions.

Although a direct method of allocating or apportioning the intended use of acquisitions is preferable, where it is not possible or practical to do so, an indirect method may be used provided that it is fair and reasonable in the circumstances of the conduct of your enterprise.

Paragraph 104 of GSTR 2006/3 lists a number of indirect estimation methods that could be considered fair and reasonable, including:

•         an overall, Entity-based general formula, based on the proportion of input taxed and non-input taxed revenues of the entity as a whole;

•         Revenue-based formulas which are more narrowly targeted than the entity-based general formula;

•         a combination of revenue-based formulas with direct methods; and

•         non-revenue-based indirect estimation methods.

As outlined in the facts, an entity-based general formula is not suited to your circumstances nor is a revenue based formula as the cost of a retail, foreign exchange transaction is not tied to the value of the transaction. In circumstances such as these, paragraph 119 of GSTR 2006/3 acknowledges that other indirect estimation methods (including the number of transactions) may also provide a fair and reasonable outcome.

Paragraph 88A of GSTR 2006/3 provides that, when the method you use includes factors or characteristics that change over time, those factors or characteristics must be periodically updated and applied to the method to determine intended use. If a method uses an input where updated data is readily available on an annual basis (such as transaction count data) it is expected that it is applied to the method annually.

Based on the information provided in this ruling and the specific circumstances of your business we accept that using the number of qualifying transactions for the previous financial year (with the number of qualifying transactions being determined using a percentage derived from a survey) is a fair and reasonable basis for estimating your input tax credit entitlement.