ATO ID 2002/907: GST and the treatment of surcharge levied by taxi company for the provision of a credit facility
Date of decision: 15 January 2002
Business line: Indirect Tax

Issue
Is the entity, a taxi network company, making a financial supply that is input taxed under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it provides a credit facility to its customers and levies a surcharge for that facility?

Decision
Yes, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it provides a credit facility to its customers and levies a surcharge for that facility.

Facts
The entity is a taxi network company in Australia that provides network services to the owners of taxi-cabs who are affiliated with it. The entity also provides a credit facility to customers who hire taxis on account (account holders). The account holders sign account vouchers whenever they use a taxi. The entity collects the vouchers from the taxi-cab owners/drivers who are required to lodge the vouchers by a specified day of the month for payment by the entity, on a specified day of the month. In some cases the entity will immediately pay out the face value of the voucher upon its lodgement, or will credit the amount of the voucher against network fees owed to it by the taxi-cab owner. Upon receipt of the voucher, the entity adds a surcharge, calculated on the value of the taxi service, and charges the account holders the total amount. The entity is registered for goods and services tax (GST). The supply is in the course or furtherance of the entity's enterprise.

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 provides that a financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if: Firstly, it is necessary to determine whether the entity is providing, acquiring or disposing of an interest in or under an item mentioned in subregulation 40-5.09(3) or (4) of the GST Regulations. 'Interests' are mentioned in the table in subregulation 40-5.09(3) of the GST Regulations and Item 2 in the table (Item 2) lists 'a debt, credit arrangement or right to credit, including a letter of credit'. As the entity provides a credit facility, it is providing an interest under a credit arrangement and the surcharge that it levies represents consideration for this interest. The entity's supply of the interest is in the course or furtherance of the enterprise that it carries on in Australia, the entity is registered for GST and charges a surcharge to its customers for the provision of the credit facility which amounts to consideration. The final requirement is that the supplier is a financial supply provider in relation to the supply of the interest. 'Financial supply provider' is defined in subregulation 40-5.06(1) of the GST Regulations: 'An entity, in relation to the supply of an interest that was: (a) immediately before the supply, the property of the entity; or (b) created by the entity in making the supply; As the interest (the credit arrangement) was created by the entity in making the supply, the entity is a financial supply provider in relation to that interest. Therefore, all the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied. As such, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it provides a credit facility to its customers and levies a surcharge for that facility.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 subsection 40-5(1) subsection 40-5(2)
Subject references: Goods & services tax Input taxed supplies GST financial supplies