Edited version of private advice

Authorisation Number: 1052307846333

Date of advice: 18 December 2024

Ruling

Subject: Financial supplies

Question 1

Is the supply by you to the buyer a supply being an interest in a 'debt, credit arrangement or right to credit' under table item 2 of subsection 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) and not subject to GST?

Answer 1

Where you are:

•                     not registered or required to be registered for GST, the requirements for a taxable supply are not met and your supply to the buyer is not subject to GST.

•                     registered or required to be registered for GST, your supply to the buyer is input taxed. This is on the basis that the supply is an interest under table item 2 of subsection 40-5.09(3) of the GST Regulations and you meet the other requirements of section 40-5.09.

Question 2

Is the supply of services by you to the seller taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 2

Where you are:

•                     not registered or required to be registered for GST, the requirements for a taxable supply are not met and your supply to the seller is not subject to GST.

•                     registered or required to be registered for GST, your supply to the seller is taxable and subject to GST as the requirements of section 9-5 of the GST Act are satisfied.

This ruling applies for the specified

X September 20YY to X September 20YY

Relevant facts and circumstances

You are an Australian private company.

You are not registered for GST.

You operate an online payment platform that provides flexible payment arrangement terms between sellers and buyers (who transact with the sellers for their services).

You facilitate the provision of payment information from buyers and sellers to mutual third-party payment providers, to enable the immediate payment to sellers and longer duration payment terms for buyers.

All buyers and sellers are required to register to use your platform.

You use a third-party service provider that provides platform payment services which accesses a user's account to initiate the transfer of funds on their behalf with the user's consent and authentication.

Your total annual turnover is currently below $XX. You do not conduct any other business activities.

You will enter into an arrangement, which will result in your annual turnover exceeding the GST turnover threshold and therefore you will be required to register for GST.

Agreement with the seller/buyer

It is a condition of a seller or/and buyer that they accept the applicable terms and conditions of your third party service providers (as amended from time to time), and comply with the requirements of those third party service providers. This may include providing banking details or other identity verification information to such third party service providers. Third party service providers are used for purposes including, verifying the seller and buyer's account and effecting payments to you.

You are appointed as the buyer and/or the seller's agent authorised to deal with the third party service provider in order to operate your platform.

Your responsibility in connection with the transaction is limited to the payment obligations to the seller as described in agreement. You have no responsibility for any other aspect of the transaction.

Subject to a seller default, the seller will receive the service price less the seller fee. You are entitled to retain the seller fee which amounts to x% of the service price.

A seller default occurs when a supply by a seller does not proceed as expected. In such cases a cancellation of the transaction may arise. Where there is a cancellation of the transaction, you will not be required to pay the seller, and the buyer will not be required to pay you. However, if the seller has committed a seller default and has already received the service price then the seller must repay the service price to you.

A buyer must pay you the service price plus the buyer fee which is y% per payment.

The default payment term is by x equal instalments over y weeks from the date of the transaction.

If the buyer fails to pay you an instalment in accordance with the payment schedule late fees will apply.

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 Regulation 40-5.09

Reasons for decision

All references are to the A New Tax System (Goods and Services Tax) Act 1999 unless specifically stated.

Question 1

Is the supply by you to the buyer a supply being an interest in a 'debt, credit arrangement or right to credit' under table item 2 of subsection 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) and not subject to GST?

Summary

Where you are:

•                     not registered or required to be registered for GST, the requirements for a taxable supply are not met and your supply to the buyer is not subject to GST.

•                     registered or required to be registered for GST, your supply to the buyer is input taxed. This is on the basis that the supply is an interest under table item 2 of subsection 40-5.09(3) of the GST Regulations and you meet the other requirements of section 40-5.09.

Detailed reasoning

GST is payable on taxable supplies. Under section 9-5, 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 Australia; 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.

You meet the requirements in paragraphs 9-5(a) to 9-5(c). Where you are not registered or required to registered for GST, the supply by you to the buyer does not satisfy paragraph 9-5(d) and is not subject to GST. As the requirements for a taxable supply are not met, the Commissioner of Taxation (Commissioner) does not need to address whether the supply is input taxed.

You will enter into a contract which will result in your annual turnover exceeding the GST registration threshold. Where you are required to be registered for GST the requirements of paragraph 9-5(d) are met. Therefore, the reasoning that follows is on the basis that your supply to the buyer satisfies paragraphs 9-5(a) to (d).

As explained above a supply is not a taxable supply to the extent it is GST-free or input taxed.

This private ruling has not considered whether the supply is GST-free as it is not relevant to the question asked. Therefore, what remains to be considered is whether your supply is input taxed.

Section 40-5 states that a financial supply, as defined in the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) is input taxed.

Subsection 40-5(2) states that a financial supply has the meaning given by the GST Regulations. Section 40-5.09 of the GST Regulations defines what types of supplies are financial supplies.

Pursuant to subsection 40-5.09(1) of the GST Regulations, the provision, acquisition, or disposal of an interest in or under the items mentioned in subsection 40-5.09(3) of the GST Regulations is a financial supply if the provision, acquisition or disposal is for consideration, in the course or furtherance of an enterprise, connected with Australia, and the supplier is:

•                     registered or required to be registered; and

•                     a financial supply provider in relation to supply of the interest.

Table item 2 of subsection 40-5.09(3) of the GST Regulations (item 2) lists a debit, credit arrangement or right to credit, including a letter of credit as an interest that is a financial supply. The term "credit arrangement" and "debt" is defined in Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and relates supplies and acquisitions (GSTR 2002/2) as:

Credit Arrangement

An arrangement under which an entity lends money on terms that include deferred repayment, or under which payment of a debt owed by one entity to another is deferred or time is allowed to pay.

In the context of considering whether the supply of a credit card or charge card was a supply of an interest in a credit arrangement or right to credit, the majority of the Full Federal Court stated in American Express at [154]:

...There is a common understanding of the word 'credit', which is broader than this definition and encompasses the examples provided in Part 2 of Schedule 7. As Stone J observing [sic] in considering the Bankruptcy Act 1966 (Cth), in which 'credit' is undefined, '[b]roadly speaking, the term ['credit'] means the provision of funds either directly to the person obtaining the credit or to a third party provider of goods and services to that person subject to the obligation of the person obtaining credit to pay at a later time': see Fitzgibbon v. Inspector General in Bankruptcy (2000) 180 ALR 475 at 479 [15]. This is the interest supplied by Amex Intl to charge card customers.

Debt

An amount due from one entity to another or a presently existing obligation to pay an ascertainable amount at a future time.

GSTR 2002/2 also provides discussion regarding consideration relating to a loan and states at paragraph 37 to 41:

37. When an entity borrows money from a lender on terms that include payment of interest, it creates an interest in a debt that includes the payment of interest. The lender creates and supplies an interest in a credit arrangement. Aside from the operation of subsection 9-10(4) each entity would make a supply of a financial interest (under table item 2 of subsection 40-5.09(3)) to the other, and each supply would be consideration for the other.

38. However, whatever is supplied as payment by way of creation of a debt is money as defined in section 195-1, and by operation of subsection 9-10(4) is not a supply unless supplied as consideration for a supply that is money or digital currency. The supply of an interest in a credit arrangement is not money or digital currency, nor is it a supply of money or digital currency. Where the consideration for the debt is an interest in a credit arrangement, the interest in debt is not a supply (because it is not provided as consideration for a supply that is a supply of money or digital currency).

39. The supply of an interest in a credit arrangement is provided for (monetary) consideration (namely the debt) and is a financial supply.

40. Similarly, where an entity borrows money on terms that do not include payment of interest, the borrower creates and provides an interest in debt that is money as defined in section 195-1. The interest in debt is monetary consideration for the supply of an interest in a credit arrangement by the lender.

41. The lender provides an interest in a credit arrangement and the borrower acquires the interest in the credit arrangement provided by the lender. In acquiring the financial interest, the borrower is a financial supply provider of that interest, and the acquisition-supply is for consideration.

You supply the buyer with an arrangement that allows the buyer to pay for the services it acquires from the seller through deferred repayments made in instalments in accordance with the payment schedule. The buyer is required to repay you the service price plus the buyer fee (and any additional late fees incurred). Consistent with the view in GSTR 2002/2, you supply the buyer with an interest in a credit arrangement. In respect of the supply of the credit arrangement, you receive consideration being the 'interest in the debt' owed to you under the agreement.

As the remaining requirements in subsection 40-5.09(1) of the GST Regulations are satisfied, your supply to the buyer falls within the meaning of a credit arrangement under item 2 and is input taxed.

Question 2

Is the supply of services by you to the seller a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Summary

Where you are:

•                     not registered or required to be registered for GST, the requirements for a taxable supply are not met and your supply to a seller is not subject to GST.

•                     registered or required to be registered for GST, your supply to the seller is a taxable supply and subject to GST as the requirements of section 9-5 of the GST Act are satisfied.

Detailed reasoning

For the supply of services to be a taxable supply, the requirements for a taxable supply as set out in Question 1 above need to be met.

The seller pays you a seller fee (i.e. x% of the service price for each transaction) to use your platform. Your platform enables the seller to receive immediate payment for the provision of its services to the buyer.

You meet the requirements in paragraphs 9-5(a) to 9-5(c). Where you are not registered or required to registered for GST, the supply by you to a seller does not satisfy paragraph 9-5(d) and is not subject to GST.

However, where you are registered or required to be registered for GST the requirements of paragraph 9-5(d) is met. In this case, your supply to the buyer satisfies all the requirements of section 9-5 and is subject to GST.