Edited version of private advice

Authorisation Number: 1052188164178

Date of advice: 22 November 2023

Ruling

Subject: GST and taxable supplies

Question

Do you make taxable supplies to the Retail Entities in return for the Subject Amount pursuant to section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you make a taxable supply to the Retail Entities in return for the Subject Amount pursuant to section 9-5 of the GST Act.

This ruling applies for the following periods:

31 January 20XX to 30 June 20XX

The scheme commenced on:

31 January 20XX

Relevant facts and circumstances

You are an Australian resident entity and primarily make supplies to other Australian resident entities or entities relevantly in Australia for GST purposes.

You are registered for goods and services tax (GST).

You have monthly tax periods and account for GST on an accruals basis.

You are not a member of a GST group.

You carry on a financial services enterprise through which you assist retailers to sell their retail products by offering financial assistance to customers.

You primarily provide this assistance where the retail products are sold by Retail Entities. You and the Retail Entities are all part of the same corporate group. The Retail Entities connect customers to you, and customers understand that you are related to the Retail Entities.

While the terms of each of your financial products vary, your financial products may broadly be summarised as:

•                     Operating lease - Under this arrangement you would acquire and take ownership of the retail product and subsequently lease the retail product to the customer. The lessee makes periodic lease payments over the term of the lease. At the end of this lease, ownership of the retail product would not be expected to transfer to the lessee.

•                     Finance lease - Similar to the operating lease arrangement above, you would acquire and take ownership of the retail product and lease the retail product to the customer. The lessee makes periodic lease payments over the term of the lease. At the end of the lease term, the customer may have the option to take ownership of the retail product.

•                     Loan arrangement - The customer acquires the product directly from the Retail Entity, with you pursuant to the loan, providing the Retail Entity with the monetary amount for the product (that is, loan principal amount) on behalf of the customer. This amount would then be repaid by the customer over the term of the loan, with interest charged by you. Under this arrangement you do not take ownership of the retail products at any time.

The Loan arrangement will involve you supplying an interest in a credit arrangement to customers being a loan (that is, a financial supply as defined in the GST Act). Alternatively, the Operating lease arrangement and Finance lease arrangement involves you making a supply to customers that is not a financial supply being a lease.

In all cases, you make payment to the relevant Retail Entity and collect payment over time from the customer.

The Retail Entities and you operate in a competitive market. Retail Entities competitors generally offer products that compete with the retail products. These competitors may also offer financial products on terms that would cause customers to favour competitor products over the retail products. In addition, other finance providers (for example, banks, and buy-now, pay-later operators) may offer financial products that may encourage customers to consider a broader range of competitor products rather than the retail products. In this context, the retail products and your financial products complement each other, and the availability of your financial products on competitive terms help facilitate the sale of the retail products by the Retail Entities.

Where a customer seeks to purchase relevant retail products from the Retail Entities, and they request financial assistance to do so, they are referred by the Retail Entities to you. You offer a tailored financial solution based on your financial products to meet the customer's specific needs.

In regard to your pricing model, you will offer the customer a competitive lease or interest rate via one of the products in your financial product range. In certain cases, you may offer financial products to customers on pricing terms that you would not otherwise normally accept (that is, the rate of return is below a commercially acceptable level).

To encourage you to enter agreements for financial products with customers on terms which may not otherwise be acceptable and facilitate the overall arrangement, you are paid a specific amount by the Retail Entities referred to as the Subject Amount.

You have entered into Agreements with the Retail Entities to formalise the obligations that must be met and circumstances in which these payments are made in return for the services being performed by you.

Despite the Agreements being put in place there has been no change in underlying commercial practices. This is consistent with the Agreements formalising existing arrangements.

The Subject Amount is agreed between the Retail Entity and you in the context of each financial agreement with the customer. The Subject Amount is payable by the Retail Entity to you upon you entering the relevant financial agreement with the customer. The customer is not a party to nor has any knowledge of any agreement between you and the Retail Entity.

The customer is not aware that the Subject Amount is paid to you. The customers will only be quoted amounts they are obligated to pay in respect of the relevant financial product.

The Subject Amount is calculated on a transaction-by-transaction basis having regard to the overall capital outlay required by you and the discount provided to the customer. The Subject Amount is therefore reflective of the commercial impact to you associated with entering the financial agreement, offering the financial product and ensuring that the potential sale by the Retail Entity is completed. The Subject Amount is also consequently calculated relative to the value of the retail product.

The Subject Amount is invoiced by you to the Retail Entity following completion of the quarter in which the relevant financial agreement is entered. This is part of a single invoice for the total of Subject Amounts corresponding with financial agreements entered for that quarter.

There is no reference to the Subject Amount on any invoices issued to customers or any other customer documentation.

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 9-10

Reasons for decision

Section 9-5 of the GST Act states as follows:

9-5 Taxable supplies

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 enterprisethat you carry on; and

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

(d)          you are registered, or required to be registered.

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

Section 9-10 of the GST Act defines supply as follows:

9-10 Meaning of supply

(1)          A supply is any form of supply whatsoever.

(2)          Without limiting subsection (1), supply includes any of these:

(a)          a supply of goods;

(b)          a supply of services;

(c)          a provision of advice or information;

(d)          a grant, assignment or surrender of real property;

(e)          a creation, grant, transfer, assignment or surrender of any right;

(f)           a financial supply;

(g)          an entry into, or release from, an obligation:

(i)            to do anything;

(ii)           to refrain from an act;

(iii)         to tolerate an act or situation;

(h)          any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

You are registered for GST, and the transaction between you and the Retail Entities is made for consideration, in the course or furtherance of your enterprise and is connected with the Indirect Tax Zone. However, it remains necessary to determine whether the transaction amounts to a 'supply' as defined in the GST Act.

Under section 9-10 a supply is any form of supply whatsoever, including a supply of services.

Part 3 of Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9) considers 'supply' in the context of a tripartite arrangement. Paragraphs 180, 180B and 222 of GSTR 2006/9 state as follows:

Sufficient nexus

180. In other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' those rulings take the view that:

•                     the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

•                     regard needs to be had to the true character of the transaction; and

•                     an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

180B. Further, in identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

Proposition 16: the total fact situation will determine the nature of a transaction, the entity that makes a supply and the recipient of the supply

222. Where the parties to a transaction have reduced their understanding of the transaction to writing, that documentation is the logical starting point in determining the supplies that have been made. An examination of any relevant documentation and the surrounding circumstances, which together form the total fact situation, is also important in determining whether the documentation captures the nature of a transaction for GST purposes.

Further, paragraphs 71 and 72 of Goods and services tax ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6) states the following in relation to the nexus test in Australia:

71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

72. The test as to whether there is a sufficient nexus is an objective test. The motive of the supplier and the recipient also may be relevant in determining whether the supply was made for consideration, if a reasonable assessment of the evidence supports that motive.

You submit that you make a supply to the Retail Entities for consideration being the Subject Amount.

We agree with this submission. Relevantly based on the circumstances, you have agreed to offer certain financial products on terms that you would not otherwise accept, where the Subject Amount is paid. Accordingly, we consider that you are making a supply of a service to the Retail Entities when you agree to a reduction of your normal rate of interest in respect of your financial products offered to customers, where the goods have been sourced through the Retail Entities.

The supply between you and the Retail Entities is not the actual provision of credit and is therefore not a financial supply that is an input taxed supply under subsection 40-5(1) of the GST Act. In addition, the supply is not input taxed under any of the other provisions in Division 40 of the GST Act nor is it GST-free under Division 38 of the GST Act. Accordingly, all of the requirements in section 9-5 of the GST Act are satisfied and you are making a taxable supply of services to the Retail Entities.