ATO ID 2007/159: GST and cheques issued by a non-authorised deposit-taking institution
Date of decision: 26 September 2006
Business line: Indirect Tax

Issue
Is a GST registered entity, that is not an authorised deposit-taking institution (ADI), making an input taxed financial supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it issues a cheque to a client in exchange for the same amount of cash, together with a fee for doing so?

Decision
Yes, the entity is making an input taxed financial supply under subsection 40-5(1) of the GST Act when it issues a cheque to a client in exchange for the same amount of cash, together with a fee for doing so.

Facts
The entity is registered for goods and services tax (GST) and operates as a money centre which provides a service of issuing cheques to clients in exchange for cash. The entity is not an ADI. Cheques the entity issues to clients are drawn on a specific account in the entity's name and held with its bank. To acquire a cheque from the entity, a client provides a cash payment equal to the face value of the cheque the client requires. In addition, the client is required to pay the entity a fee.

Reasons for decision
Summary: A cheque is a document that complies with the definition set out in section 10 of the Cheques Act 1986 , as follows: A cheque is a negotiable instrument that is used or intended for use or circulation as money. Subsection 39(1) of the Cheques Act states that every cheque may be transferred by negotiation until it is discharged. A cheque is also a bill of exchange, as defined in subsection 8(1) of the Bills of Exchange Act 1909 . This subsection states: A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to bearer. As a negotiable instrument or bill of exchange, a cheque falls within the definition of 'money' in section 195-1 of the GST Act. Under this definition, money includes: In issuing a cheque in exchange for cash, the entity is providing money, in exchange for money in another form (cash) provided by the client, together with the fee to be paid by the client. Subsection 9-10(4) of the GST Act states: However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money. As each party to the transaction is supplying money to the other, and each supply of money is provided as consideration for the other supply of money, each supply is a 'supply' for GST purposes. Subdivision 40-A of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) is about financial supplies. Central to the operation of this subdivision is the concept of 'an interest', which is defined in 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 states that the provision, acquisition or disposal of an interest mentioned in subrequlation 40-5.09(3) of the GST Regulations is a financial supply if: Subregulation 40-5.09(3) of the GST Regulations lists those interests, the provision, acquisition or disposal of which may be financial supplies. While 'money' is not separately listed here, cash (which includes Australian currency) falls under item 9 in the table in subregulation 40-5.09(3). Item 10 in the table in subregulation 40-5.09(3) of the GST Regulations is about interests in securities. A non-exhaustive list of examples of item 10 interests is set out in Part 8 of Schedule 7 of the GST Regulations. This list includes promissory notes and bills of exchange. It follows that a cheque is a security for the purposes of item 10 in the table in subregulation 40-5.09(3). The provision of the cheque by the registered entity is a financial supply, as the requirements set out above are satisfied in relation to it. The provision of the cash equivalent of the cheque by the client, together with the fee paid, will be a financial supply by the client if the client is registered or required to be registered. Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(4) subsection 40-5(1) section 195-1
Related ATO interpretative decisions: ATO ID 2007/146
Subject references: Cheques GST financial supplies GST money Input taxed supplies