Private ruling: GST and the supply of ATM services
Published: January 2014

Ruling: Q6: Are you entitled to a refund for your overpayment in relation to treating the supply of ATM services as taxable supplies and remitting the amounts to the Australian Taxation Office? Advice/Answers Yes, you are entitled to a refund for your overpayment in relation to treating the supply of ATM services as taxable supplies and remitting the amounts to the Australian Taxation Office.

Relevant facts and circumstances: You operate an ATM business where you purchase ATM's which are then installed in various locations. Your ATMs are connected to the ATM payment system through a third party. The services provided by the third party include: · settlement of transactions; · settlement of interchange fees; · settlement reporting; · transaction reporting; and · switching of transactions. You charge ATM users a fee for the use of the ATMs. You engage a contractor who is registered for GST to assist in the operation of your ATM business. You also conduct another business which makes only taxable supplies. You incur motor vehicle expenses in the course of operating both of your businesses. You are registered for GST. You have previously treated your supplies of ATM services as taxable supplies and have claimed full input tax credits for your acquisitions. Assumptions It is assumed that you are unable to identify the ATM users. It is also assumed that you did not issue a tax invoice and have not charged extra (grossed up) to account for the GST or received any additional payment from the ATM users to cover the cost of the GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 40-5. | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-5.09(4A). | A New Tax System (Goods and Services Tax) Act 1999 section 11-5. | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 70-5.02(2). | Taxation Administration Act 1953 Part IIB. | Taxation Administration Act 1953 Schedule 1 section 105-65.

Reasons for decision: Summary: Section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that financial supplies, as specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) are input taxed. Specifically, subregulation 40-5.09(4A) of the GST Regulations provides that a supply for a fee of not more than $1000 is a financial supply if it is a supply of one or more of following ATM services: · a withdrawal from an account; · a deposit into an account; · an electronic transfer from an account; · advice on the balance of an account. As you charge a fee that is less than $1000 for the supply of the use of your ATM to cardholders, you are making an input taxed financial supply of an ATM service. The purchase of an ATM is a creditable acquisition under section 11-5 of the GST Act if: · it is acquired solely or partly for a creditable purpose; and · the supply of the ATM is a taxable supply; and · the recipient provides (or is liable to provide) consideration for the ATM; and · the purchaser is registered, or required to be registered for GST. Creditable purpose is defined in section 11-15 of the GST Act as an acquisition that is made in carrying on an enterprise. However, paragraph 11-15(2)(a) of the GST Act states that 'you do not acquire the thing for a creditable purpose to the extent that … the acquisition relates to making supplies that would be input taxed … '. The acquisition of an ATM relates to the input taxed financial supply of the ATM services you provide to the ATM users. Consequently, you are not making a creditable acquisition and are not entitled to an input tax credit for the purchase of an ATM. Ordinarily, acquisitions which relate to making input taxed financial supplies are not creditable acquisitions under section 11-5 of the GST Act. However, Division 70 of the GST Act provides that certain acquisitions, specified in the table in subregulation 70-5.02(2) of the GST Regulations are 'reduced credit acquisitions' and the recipient is entitled to a reduced input tax credit in respect of these acquisitions. Item 7(f) in the table in subregulation 70-5.02(2) of the GST Regulations provides that 'processing, settling, clearing and switching' ATM transactions are reduced credit acquisitions. Goods and Services Tax Ruling GSTR 2004/1 provides further explanation of item 7: 256. An acquisition under item 7 is a reduced credit acquisition where it is the acquisition of a service of processing, settling, clearing and/or switching one or more of the transactions in items 7(a) to 7(j). In this context, a relevant acquisition need not include all of the mentioned activities for it to be a reduced credit acquisition under item 7. 257. The scope of item 7 depends on the meaning attributed to the expressions processing, settling, clearing, switching and the transactions described in items 7(a) to 7(j). The glossaries to this ruling and to GSTR 2002/2 explain the meanings of the transactions described in items 7(a) to 7(j). … | Detailed Reasoning - Processing: 261. In this context, the expression processing means a systematic series of actions directed to some end. Item 7 contemplates acquisitions that involve a systematic series of actions that assist the efficient movement of transactions listed in items 7(a) to 7(j) within a payment system. … | Detailed Reasoning - Settling: 264. For the purposes of item 7, the expression settling takes its meaning from the context of payment systems. Settling refers to specific arrangements directed towards discharging obligations owed by a participant in an open loop payment system. In particular, the arrangements relate to the actual exchange of value instructions through accessing accounts and liquid funds maintained for this purpose by the participants in an open loop payment system. 265. Where a participant in a payment system acquires the services of an entity to carry out its settling obligations in respect of one or more of the transactions listed in items 7(a) to 7(j), the acquisition of the services is a reduced credit acquisition under item 7. | Detailed Reasoning - Clearing: 266. In item 7, the expression clearing takes its meaning from the context of payment systems. Clearing refers to arrangements that facilitate the presentment and exchange of payment instructions and the calculation of claims for settlement between participants in an open loop payment system. 267. Clearing may occur within a participant's enterprise where the accounts to be debited or credited are held within the same financial institution. It may occur directly between participants in a payment system through a bi-lateral clearing arrangement or through a clearing house. Clearing houses are established to manage and administer clearing systems for particular types of payment transactions (multi-lateral clearing arrangement). 268. Where a participant in a payment system acquires the services of an entity to carry out its clearing obligations in respect of one or more of the transactions listed in item 7(a) to 7(j), the acquisition of such services is a reduced credit acquisition under item 7. 269. Services for which fees are paid to an entity that manages and administers a clearing system, are not reduced credit acquisitions under item 7. | Detailed Reasoning - Switching: 273. For the purposes of item 7, the expression switching takes its meaning from the context of a payment system and refers to the routing of payment transactions to a participant in an open loop payment system via a facility. While a facility in this context includes the manual routing of transactions, it is more likely to involve the performance of this task through automated means. Switching, in this context, also includes incidences where authorisations are sought before a transaction is approved and the authorisation request is switched to the relevant participant in a payment system. 274. Where a participant in a payment system acquires the services of an entity to switch one or more of the transactions listed in item 7(a) to 7(j), the acquisition is a reduced credit acquisition under item 7. The acquisition of services from the third party are reduced credit acquisitions under item 7 of the table in subregulation 70-5.02(2) of the GST Regulations. In accordance with regulation 70-5.03 of the GST Regulations, the amount of the reduced input tax credit is 75% of the full input tax credit amount. | Detailed Reasoning - Question 4: As mentioned above, an acquisition which relates to making an input taxed supply is not a creditable acquisition under section 11-5 of the GST Act. Therefore, motor vehicle expenses such as fuel and repairs are not creditable acquisitions to the extent that they relate to your ATM business. As your motor vehicle is used in making both input taxed and taxable supplies (and also presumably for private purposes), you will need to apportion your acquisitions on a fair and reasonable basis between these. Goods and Services Tax Ruling GSTR 2006/4 provides guidance on how to determine the extent of your creditable purpose and provides examples of apportionment methods that you may use. In conjunction with GSTR 2006/4, Goods and Services Tax Bulletin GSTB 2006/1 explains how you can claim an input tax credit for a car expense. In particular, it provides simple methods for calculating your extent of creditable purpose where you use certain methods for income tax purposes. | Detailed Reasoning - Question 5: As mentioned above, an acquisition which relates to making an input taxed supply is not a creditable acquisition under section 11-5 of the GST Act. Furthermore, there are no items in the table in subregulation 70-5.02(2) of the GST Regulations which are relevant to the engagement of a third party to assist in the general operation of the ATM business. Consequently, the acquisition of services from a contractor that relates to the ATM business is not a creditable acquisition, nor is it a reduced credit acquisition. You are not entitled to any input tax credits in relation to the acquisitions. | Detailed Reasoning - Question 6: You have previously treated your supplies of ATM services as taxable supplies and remitted the GST amounts to the ATO (via your activity statements). This has resulted in you making overpayments to the ATO. Generally, the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the Taxation Administration Act 1953 (TAA). However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied. | Detailed Reasoning - SECTION 105-65 RESTRICTION ON GST REFUNDS: 105-65(1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if: (a) you overpaid the amount, or the amount was not refunded to you, because a supply was treated as a taxable supply, or an arrangement was treated as giving rise to a taxable supply, to any extent; and (b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is GST-free); and (c) one of the following applies: (i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient; (ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is registered or required to be registered. Miscellaneous Taxation Ruling MT 2010/1 explains the Commissioner's views on those situations where section 105-65 of Schedule 1 to the TAA applies to restrict refunds. Generally, the Commissioner is not required to give a refund if the supplier has not reimbursed the corresponding amount to the recipient of the supply. This is explained in paragraph 115 of MT 2010/1: 115. … if the supplier satisfies the Commissioner that it has reimbursed the recipient of the supply and the recipient of the supply is not registered or required to be registered the Commissioner has a prima facie obligation to pay the refund of overpaid GST … provided the supplier satisfies any other legislative conditions (for instance, the time limits contained in section 105-55). In all other cases section 105-65 provides that the Commissioner 'need not' give a refund. However, as stated in paragraph 117 of MT 2010/1, the Commissioner may, in certain circumstances give a refund where it is fair and reasonable to do so. Paragraph 128 of MT 2010/1 provides some guiding principles to consider when exercising the discretion. It states: 128. Section 105-65 does not specify what factors are relevant to the exercise of this discretion. In exercising the discretion, the Commissioner will have regard to the following guiding principles: (a) The Commissioner must consider each case based on all the relevant facts and circumstances. (b) The Commissioner needs to follow administrative law principles such as not fettering the discretion or taking into account irrelevant considerations. (c) The Commissioner must have regard to the subject matter, scope and purpose of section 105-65. As explained in paragraph 127 of this Ruling, it clear from the scope and purpose that section 105-65 is designed to prevent windfall gains to suppliers and to maintain the inherent symmetry in the GST system and is based on the underlying design feature and presumption of the GST system that the cost of the GST is ultimately borne by the non registered end consumer. (d) The discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily.. Paragraph 127 of MT 2010/1 further elaborates on the importance that there is no windfall gain to the supplier: 127. It is clear from the scope and purpose of section 105-65 that the provision is designed to prevent windfall gains to suppliers and to require the supplier to ensure that any refund ultimately compensates the person or entity who ultimately bore the cost. In relation to a refund of overpaid GST, the potential or otherwise for a windfall gain, the requirement to ensure the refund compensates the person or entity that ultimately bore the cost and the potential to disturb the symmetry envisaged by the GST system, are factors that must be taken into account in relation to the exercise of the discretion. In your circumstances, it is assumed that you have not charged ATM users a higher fee to account for the 'GST' amount you previously believed applied. Furthermore, it is assumed that you did not issue tax invoices to ATM users. As such, the ATM users did not pay any GST on the fee. The 'error' was made because of the mischaracterisation of the payments in your activity statements. Because of the error, you are the entity who ultimately has borne the GST. You have not passed on the GST to the ATM users and would not receive any windfall gain following the refund. The refund of the overpaid GST is fair and reasonable in the circumstances. Consequently the Commissioner will exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST by you.

Question 1: Are you making an input taxed financial supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you provide an ATM for use and charge a fee to the cardholder? | Yes, the supply of ATM services is an input taxed financial supply. | Question 2: Are you making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you purchases an ATM? | No, an acquisition that relates to making an input taxed supplied is not a creditable acquisition. | Question 3: Are you making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you acquire services from the third party? | No, the acquisition is not a creditable acquisition. However, as the acquisition is a reduced credit acquisition and you are entitled to reduced input tax credits. | Are you making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you incur motor vehicle expenses? | Acquisitions of motor vehicle expenses are partly creditable acquisitions as they relate to making input taxed supplies in relation to the ATM business as well as supplies made in other business ventures. | Are you making a creditable acquisition under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you engage contractors to assist in the operation of the ATM business? | No, acquisitions which relate to making input taxed supplies are not creditable acquisitions.