Edited version of private advice

Authorisation Number: 1052096408034

Date of advice: 17 April 2023

Ruling

Subject: GST fees - financial supply

Question

Are each of the fees listed in the ruling application and detailed in the agreements which the taxpayer enters into with a client, consideration for a financial supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The Commissioner ruled that some of the fees were consideration for an input taxed financial supply under section 40-5 of the GST Act.

Some of the fees were consideration for a taxable supply that the taxpayer makes, because all of the elements of section 9-5 of the GST Act are satisfied:

Payment of one fee made to the taxpayer by the client, was not consideration for either a taxable supply made by the taxpayer under section 9-5 of the GST Act, or for an input taxed financial supply under section 40-5 of the GST Act. The payments were not consideration for a supply.

Relevant facts and circumstances

The taxpayer is registered for goods and services tax (GST).

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 40-5

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

A New Tax System (Goods and Services Tax) Regulations 2019 subsection 40-5.10

A New Tax System (Goods and Services Tax) Regulations 2019 subsection 40-5.12

Reasons for decision

What is a taxable supply?

Section 9-5 of the GST Act provides that you make a taxable supply if:

a)    you make the supply for consideration; and

b)    the supply is made in the course or furtherance of an enterprise that you carry on; and

c)    the supply is connected with the indirect tax zone; and

d)    you are registered, or required to be registered, for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

What is a financial supply?

Section 40-5 of the GST Act provides that a financial supply, which has the meaning given by the regulations, is input taxed.

Subsection 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) provides that the provision, acquisition or disposal of an interest mentioned in the table subsection 40-5.09(3) of the GST Regulations is a financial supply if:

a)    the provision, acquisition or disposal is:

(i)            for consideration; and

(ii)           in the course or furtherance of an enterprise; and

(iii)          connected with the indirect tax zone; and

b)    the supplier is:

(i)            registered or required to be registered for GST; and

(ii)           a financial provider in relation to the supply of the interest.

The table in subsection 40-5.09(3) mentions 'a debt, credit arrangement or right to credit, including a letter of credit' at item 2.

Paragraph 19 of Goods and Services Tax Ruling 2004/4 Goods and services tax: assignment of payment streams including under a typical securitisation arrangement (GSTR 2004/4) states that, provided the requirements of subsection 40-5.09(1) of the GST Regulations are satisfied, the supply of the right to a payment stream by way of assignment is a financial supply as it is the provision, acquisition, or disposal of an interest in a debt.

Section 40-5.10 of the GST Regulations provides that if something is supplied by an entity to a recipient directly in connection with a financial supply to the recipient by the entity, the thing is an incidental financial supply if:

a)    it is incidental to the financial supply; and

b)    it and the financial supply are supplied, at or about the same time, but not for separate consideration; and

c)    it is the usual practice of the entity to supply the thing, or similar things, and the financial supply together in the ordinary course of the entity's enterprise.

Paragraph 118 of Goods and Services Tax Ruling 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) states that something is an incidental financial supply if it is:

•         supplied by the same supplier to the same recipient as the original financial supply; and

•         supplied directly in connection with a financial supply.

Subsection 40-5.10 of the GST Regulations contemplates the supply of two things, one of which is a financial supply, for a single consideration.

In making something an incidental financial supply, section 40-5.10 of the GST Regulations has the effect of treating something that is the supply of more than one thing as a composite supply. However, even if the conditions in subsection 40-5.10 of the GST Regulations are not met, the supply may still be a composite supply if, applying the principles in Goods and Services Tax Ruling GSTR 2001/8 Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), it would be one. (Paragraphs 119 and 125 of GSTR 2002/2)

A composite supply is essentially the supply of a single thing. Composite supplies contain one dominant part and also include something that is integral, ancillary, or incidental to that dominant part.

In contrast, a supply may contain separately identifiable taxable and non-taxable parts that need to be individually recognised. This type of supply is described as a 'mixed supply'. (Paragraph 16 of GSTR 2001/8)

In determining whether a supply is a composite supply or a mixed supply, one needs to have regard to the essential character or features of the transactions (paragraphs 19A and 19B of GSTR 2001/8).

Per paragraph 42 of GSTR 2001/8, the Commissioner's view is that a supply has separately identifiable parts where the parts require individual recognition and retention as separate parts, due to their relative significance in the supply.

Paragraph 59 of GSTR 2001/8 states that having regard to all the circumstances, and taking a common-sense and practical approach, indicators that a part may be integral, ancillary, or incidental include where:

•         you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

•         it represents a marginal proportion of the total value of the package compared to the dominant part; or

•         it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

•         it contributes to the proper performance of the contract to supply the dominant part.

What is not a financial supply?

Section 40-5.12 of the GST Regulations provides that the supply of something, or an interest in or under something, that is mentioned in an item in the table in the regulation is not a financial supply.