Private ruling: GST, financial supplies and refund of excess GST
Date of advice: 5 February 2020
Published: March 2020

Ruling: Q1: Are you entitled to a refund of the GST you accounted for in respect of your trading of 'over-the-counter bonds'? | A1: Yes. You are entitled to a refund of the GST you accounted for in respect of your trading of 'over-the-counter bonds'.

Relevant facts and circumstances: You are registered for GST You operate a business in the financial services industry offering services including private wealth management, corporate advisory and asset management. These services are provided to an array of customer types including private clients, institutions and corporations Your primary activity involves facilitating transactions in foreign currency, interest rate securities, and local and global managed funds In the context of your primary activity, you normally act as a broker, facilitator or similar of the relevant investments in transactions between third party buyers and sellers, rather than directly participating in these transactions as principal By contrast, in the transactions involving 'over-the-counter bonds' (OTC Bonds), which are the subject of this ruling, you transact on your own account Your staff members responsible for preparing your business activity statements (BAS) and authorising payments to the ATO (Back Office Team) are a separate team to those which trade in, and make decisions regarding the pricing of, OTC Bonds transactions (Front Office Team) In preparing your BASs historically, the Back Office Team misunderstood the legal nature of the OTC Bonds arrangements and have incorrectly reported GST payable of 1/11 th of the margin on the OTC Bonds at BAS label 1A You have not issued any tax invoices in respect of the supply of interests in OTC Bonds Contract notes issued in relation to your trading in OTC Bonds do not include an identified GST component and make no reference to GST being payable

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 40-5 | A New Tax System (Goods and Services Tax) Act 1999 section 142-10

Reasons for decision: Summary: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) describes when you make a taxable supply and provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed. Relevantly, section 40-5 of the GST Act provides that a financial supply is input taxed. Financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations). Section 40-5.09 of the GST Regulations describes what supplies are financial supplies. Relevantly, the table in subsection 40-5.09(3) of the GST Regulations lists 'Securities' at Item 10. The GST Regulations listing for Item 10 includes a debenture described in paragraph (a), (b), (c), (e) or (f) of the definition of debenture in section 9 of the Corporations Act 2001 . The OTC Bonds fall within Item 10 in the table in subsection 40-5.09(3) of the GST Regulations. Therefore, when you acquire and dispose of OTC Bonds, each of the transactions is not subject to GST as the supply is an input taxed financial supply. As you have accounted for GST on those supplies in the activity statements you lodged, there is excess GST for each tax period. Under section 142-10 of the GST Act, the amount of excess GST that has been passed on to another entity is taken to have always been payable and on a taxable supply until the supplier reimburses the other entity for the passed-on GST. Where the excess GST has not been passed-on, the amount can be refunded provided the Commissioner is within time to amend the relevant assessment. The object of Division 142 of the GST Act is to ensure that excess GST is not refunded if this would give an entity a windfall gain. Generally, the Division operates so that a supplier is not entitled to a refund of an amount of excess GST where the supplier has passed on the GST to another entity (the recipient), and has not reimbursed that other entity for the passed-on GST. GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 sets out the Commissioner's views on the circumstances when excess GST may or may not have been passed on. While there is a general expectation that, in ordinary circumstances, excess GST has been passed on, the particular facts and circumstances of an individual case may demonstrate that excess GST has not in fact been passed on. [See paragraph 26 of GSTR 2015/1] GSTR 2015/1 lists, at paragraph 28, the following matters to consider when determining whether or not excess GST has been passed-on: (a) the manner in which the excess GST arose (b) the supplier's pricing policy and practice (c) the documentary evidence surrounding the transaction, and (d) any other relevant circumstances. Whether GST is included in the price of a supply may be demonstrated by the documentary evidence surrounding that transaction. This evidence may be in any form, including a tax invoice, a contract of sale, other correspondence between the parties, or internal pricing policy documents and other relevant manuals. [See paragraph 57 of GSTR 2015/1] The documentary evidence you provided does not indicate that GST has been included in the price of the OTC Bonds and makes no reference to GST being payable. In your case, you stated that: · the excess GST arose because your Back Office Team incorrectly treated the margin on the OTC Bonds as a brokerage or facilitation arrangements akin to those adopted for your primary activity · no one in the Front Office Team (which is responsible for trading in the OTC Bonds, including pricing) believed that the transactions were subject to GST, and · your pricing has not reflected GST amounts paid to the ATO. Taking into account the matters listed in paragraph 28 of GSTR 2015/1, the Commissioner accepts that you have not passed on the excess GST included in your activity statements. As such, you are entitled to a refund of those amounts.