ATO ID 2003/52: GST and fees for storage, cleaning and maintenance, testing and repairs of pawned goods
Date of decision: 24 April 2002
Business line: Indirect Tax

Issue
Is the entity, a pawnbroker, 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 supplies services for the storage, cleaning, maintenance, testing and repairs of pawned goods that are being held as security for a loan provided by the entity to a customer, and a separate fee is charged to the customer for these services?

Decision
No, the entity is not making an input taxed financial supply under subsection 40-5(1) of the GST Act when it supplies services for the storage, cleaning, maintenance, testing and repairs of pawned goods that are being held as security for a loan provided by the entity to a customer, and a separate fee is charged to the customer for these services. The entity is making a taxable supply under section 9-5 of the GST Act.

Facts
The entity is a pawnbroker. The entity supplies services for the storage, cleaning, maintenance, testing and repairs of pawned goods. These pawned goods are being held as security for a loan provided by the entity to its customer. The provision of the loan is an input taxed financial supply under subsection 40-5(1) of the GST Act. The entity charges the customer a fee for the supply of the services separate from the consideration for the loan. The entity is registered for goods and services tax (GST) and the supply satisfies the other positive limbs of section 9-5 of the GST Act.

Reasons for decision
Summary: Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act defines a financial supply as having the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Subregulation 40-5.08(1) provides that a supply is a financial supply if the supply is mentioned as: Under regulation 40-5.09 of the GST Regulations, the first requirement for a financial supply is that the supply must be the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or (4) of the GST Regulations. The entity is supplying services of storage, cleaning, maintenance, testing and repairs. These services are not listed in either subregulation 40-5.09(3) or (4) of the GST Regulations. Therefore, the entity's supply is not a financial supply under regulation 40-5.09 of the GST Regulations. Regulation 40-5.10 of the GST Regulations provides that something: The entity's original financial supply is the supply of the loan secured by pawned goods. The supply of the storage, cleaning, maintenance, testing and repair services is to the same customer that the entity supplied with the loan. Paragraphs 126-132 of Goods and Services Tax Ruling GSTR 2002/2 discuss when something is 'directly in connection with' a financial supply. For a supply to be 'directly in connection with' a financial supply, the supply must have a direct relationship with the financial supply. A supply has a direct relationship with a financial supply where the supply: The supply of the storage, cleaning, maintenance, testing and repair services has occurred because the entity supplied a loan to the customer that was secured by pawned goods. The supply of the services would not have occurred if the entity had not made the financial supply of the loan. Therefore, there is a direct relationship between the services and the financial supply of the loan. As such, the entity's supply of services is 'directly in connection with' a financial supply. As the entity's supply of services is to the same customer and is directly in connection with the entity's financial supply, the services will be an incidental financial supply where the requirements in paragraphs (a) to (c) of regulation 40-5.10 of the GST Regulations are satisfied. Paragraph 40-5.10(b) of the GST Regulations requires that the financial supply and the incidental financial supply must be supplied at or about the same time, but not for separate consideration. The entity's supply of services is at or about the same time as the supply of the loan. However, the services are supplied for a separate fee from the consideration for the loan. Therefore, the requirement in paragraph 40-5.10(b) is not met and the entity is not making an incidental financial supply under regulation 40-5.10 of the GST Regulations. As the entity is not making a financial supply under regulation 40-5.09 of the GST Regulations nor an incidental financial supply under regulation 40-5.10 of the GST Regulations, the entity is not making an input taxed financial supply under subsection 40-5(1) of the GST Act. The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is not GST free under Division 38 of the GST Act or input taxed under Division 40 of the GST Act. Therefore the entity is making a taxable supply under section 9-5 of the GST Act when it supplies services for the storage, administration, cleaning, maintenance, testing and repairs of pawned goods and charges a separate fee for these services.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 Division 40 subsection 40-5(1) subsection 40-5(2)
Related public rulings and determinations: GSTR 2002/2
Subject references: Goods and services tax GST supplies and acquisitions Taxable supply Input taxed supplies GST financial supplies Incidental financial supplies