ATO ID 2004/135: GST and service fee applied to debt acquired from a taxi driver
Date of decision: 12 December 2003
Business line: Indirect Tax

Issue
Is the entity, a business operator that purchases debts from other parties, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when the entity applies a 10% service fee to a debt that it acquires from a taxi driver?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when the entity applies a 10% service fee to a debt that it acquires from a taxi driver.

Facts
The entity is a business operator that purchases debts from other parties (clients). These debts may be purchased for the face value of the debt or at a discount or premium to the face value. A taxi driver is one of the entity's clients. The entity provides the taxi driver with paper dockets to issue to passengers that pay for their fare by using a credit card. The taxi driver subsequently provides the service of taxi travel to a taxi passenger. The taxi passenger (card holder) pays for the taxi fare by way of a credit card. The taxi driver manually processes the fare on one of the paper dockets issued by the entity. The paper docket states that use of the credit card will attract a 10% service fee. This 10% service fee is payable by the cardholder. The taxi driver only writes the price for the taxi fare on the paper docket. The cardholder signs the docket therefore agreeing to pay the fare and the service fee by credit card. The taxi driver then takes this paper docket to the entity and the entity pays the taxi driver the face value on the paper docket, being the price of the taxi fare. In disposing of the paper docket, the taxi driver is supplying, to the entity, an interest in a debt as per item 2 in subregulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). The remaining requirements of subregulation 40-5.09(1) are also satisfied and the disposal of the interest in the debt, by the taxi driver, is an input taxed financial supply. The entity's acquisition of the interest in the debt is also an input taxed financial supply. In accordance with the conditions on the paper docket, the entity grosses up the face value amount by adding the 10% service fee. The entity then electronically processes the charge with the credit card issuer, for the grossed up amount. The credit card issuer pays the entity the grossed up amount, less the credit card issuer's merchant fee. The credit card issuer subsequently provides a statement to the card holder. On this statement, the supply of taxi travel is listed for the grossed up amount processed by the entity. The entity is registered for goods and services tax (GST). The entity makes the supply in the course of conducting its enterprise in Australia.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. To determine whether the entity makes a taxable supply in relation to the 10% service fee it adds to the debt that it acquires from the taxi driver, it is necessary to first determine whether the entity makes a supply. 'Supply' is defined very broadly in section 9-10 of the GST Act and includes a supply of services (paragraph 9-10(2)(b) of the GST Act). As such, a supply of the services offered by the entity is a supply for the purposes of the GST Act. The paper docket states that use of the card will attract a 10% service fee and the card holder, in signing the docket, agrees to pay this fee. In accordance with the conditions on the paper docket, the entity adds the 10% service fee. The entity makes an acquisition-supply of an interest in a debt when it takes receipt of the paper docket from the taxi driver. That supply is an input taxed financial supply. However, that supply is distinguishable from the entity's separate supply of services, for which the 10% service fee represents separate consideration. When the taxi customer signs the docket, agreeing to pay the face value of the taxi fare and the 10% service fee by way of credit card, consideration is provided and received at this point - consistent with paragraph 30 of Goods and Services Tax Ruling GSTR 2003/12. The entity's supply is for consideration and is made in the course of it's enterprise. The supply is connected with Australia and the entity is registered for GST. In addition, the supply is neither input taxed under Division 40 of the GST Act nor GST-free under Division 38 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when, under the terms and conditions of offering its service, the entity applies a 10% service to a debt that it acquires from a taxi driver.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-10 paragraph 9-10(2)(b) subsection 9-15(2) Division 38 Division 40
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2003/12
Subject references: Goods and services tax GST supplies and acquisitions Taxable supply GST financial supplies