ATO ID 2006/203: GST and foreign currency export
Date of decision: 27 July 2006
Business line: Indirect Tax

Issue
Is the supply of foreign currency banknotes by an entity to a wholesale customer in another country a GST-free supply pursuant to subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Decision
Yes, the supply of foreign currency banknotes by an entity to a wholesale customer in another country is a GST-free supply pursuant to subsection 38-190(1) of the GST Act.

Facts
The entity is a financial institution that provides wholesale currency services to customers including major banks, financial institutions and commercial businesses, both in Australia and overseas. These services include the supply of foreign currency bank notes to a wholesale customer in another country. The customer has no presence in Australia. The agreement under which the entity supplies these banknotes to the customer does not require the entity to provide them to another entity in Australia, and it does not do so. The foreign currency banknotes supplied to the customer are physically packed for shipment and sent overseas. An invoice is raised in respect of this supply. The consideration for the supply is paid to the entity when the currency is delivered to the customer. The customer is not registered, or required to be registered for GST.

Reasons for decision
Summary: As defined in section 195-1 of the GST Act, 'money includes (a) currency (whether of Australia or of any other country...' (other than currency the market value of which exceeds its stated value as legal tender in the country of issue). Subsection 9-10(4) of the GST Act states that, however, supply does not include a supply of money or digital currency unless the money or digital currency is provided as consideration for a supply that is a supply of money or digital currency. Provided the market value of the foreign currency does not exceed its face value in the country of issue, the foreign currency is money that is supplied as consideration for a supply that is a supply of money (and vice versa), meaning each is a supply for the purposes of the GST Act, in accordance with subsection 9-10(4) of the GST Act. Subdivision 40-A of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) is about financial supplies. Central to the scheme of GST financial supplies is the concept of an 'interest', which is defined at regulation 40-5.02 of the GST Regulations as anything that is recognised at law or in equity as property in any form. Subregulation 40-5.09(1) of the GST Regulations sets the requirements for a supply to be a financial supply. It states: The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if: The interests itemised at subregulation 40-5.09(3) of the GST Regulations (in Goods and Services Tax Ruling GSTR 2002/2, the Tax Office calls these 'financial interests'), include, at item 9, 'an interest in or under Australian currency, the currency of a foreign country, digital currency or an agreement to sell any of these 3 things'. Part 7 of Schedule 8 of the GST Regulations contains examples of the kinds of interests intended to be covered by item 9. The first example in the table at Part 7 is 'foreign currency in cash form'. The Tax Office considers that the GST regulations are clear in the way they intend a transaction involving the exchange of foreign currency banknotes for money in another form to be characterised for GST purposes. Provided the foreign currency banknotes have a market value that does not exceed their stated value as legal tender, such a transaction involves the provision, acquisition and/or disposal of an interest in foreign currency and is a financial supply by the entity where the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied. Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed. However, the supply of the financial interest also has the character of a GST-free supply where the requirements of subsection 38-190(1) of the GST Act are satisfied. The Tax Office considers that section 38-190 of the GST Act, which is about supplies of things other than goods or real property, may apply to supplies of financial interests, including an interest in foreign currency banknotes. Item 2 in the table in subsection 38-190(1) of the GST Act (Item 2) may apply to make the supply of a financial interest GST-free, provided the requirements of Item 2 are satisfied. These requirements are satisfied where the supply of the financial interest is a supply made to a non-resident who is not in Australia when the thing supplied is done, and: Both of these requirements are satisfied in this case. However, such a supply may still be denied GST-free status where it is a supply of a right or option to acquire something, the supply of which would not be GST-free. That exclusion does not apply in this case. As the entity does not supply the banknotes to another entity in Australia (and the agreements under which it makes the supplies do not require it to do so), Item 2 applies to the supply. The supply is therefore input taxed under subsection 40-5(1) and GST-free under subsection 38-190(1) of the GST Act. This situation requires consideration to be given to the operation of subsection 9-30(3) of the GST Act. Paragraph 9-30(3)(a) of the GST Act provides that to the extent that a supply would (apart from this subsection) be both GST-free and input taxed, the supply is GST-free and not input taxed unless the provision under which it is input taxed requires the supplier to have chosen for its supplies of that kind to be input taxed. As subsection 40-5(1) of the GST Act and regulation 40-5.09 of the GST Regulations do not require the entity to have chosen for its supplies of foreign currency banknotes to be input taxed, the supply of the banknotes to a wholesale customer in another country is GST-free in accordance with the application of subsection 9-30(3) of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(4) subsection 9-30(3) paragraph 9-30(3)(a) section 38-190 subsection 38-190(1) subsection 38-190(1) table item 2 subsection 40-5(1) section 195-1
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2002/2
Related ATO interpretative decisions: ATO ID 2006/65
Subject references: Foreign currency Goods and services tax GST free GST money Input taxed supplies