Private ruling: GST and supply of money offshore
Published: July 2014

Ruling: Q1: Is X's supply of money offshore a GST-free supply pursuant to item 4(a) of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the supply is a supply in relation to rights for use outside Australia? | A1: Yes.

Relevant facts and circumstances: X trades currencies on the foreign exchange market it assists businesses in making single or multiple payments to single or multiple beneficiaries. X also allows customers to manage fluctuations in the foreign exchange market. The various products and services X offers to its customers are: I. Spot trades - an agreement where the customer agrees to buy or sell currency at the current exchange rate, usually settled within two business days. II. Forward Contracts - an agreement where the customer agrees to buy or sell currency in the future at a specific exchange rate. X offers both open and closed forward contracts. Open contracts are contracts to settle the full contract within a specified time frame. Multiple transactions can be conducted during the time frame, with no limit on currency draw-downs. Close contracts are date sensitive and must be completed for the amount of the contract on a specific date. The purpose of this is for the client to manage future exchange rate fluctuations rather than make a profit on the trade. III. Option Contracts - An agreement where the customer has the right, but not the obligation to purchase or sell currency at a specified exchange rate during a specified period. IV. Exchange Rate Bids - A service where the customer indicates the rate at which they want to execute their trades. The Group monitors the foreign currency exchange rates and when the market reaches the specified rate, the transactions are booked. Each of the above products results in an outgoing payment which is settled using the methods below (with the exception of options)- • Wire Transfer - transfer of funds from one bank account to another bank account; the other bank account may be in Australia or offshore. Funds are transferred through either a wire transfer or EFT. Both methods require a valid secure bank account on both ends of the transaction. • Foreign Currency Drafts or Cheques - the drafts can either be delivered to the client or directly to the beneficiary located overseas. Both methods result in settlement of the client's money to the ultimate beneficiary. X's application for a GST Private Binding Ruling is only concerned with outgoing payments to offshore accounts (wire transfers) and payments delivered directly offshore (foreign currency drafts and cheques).

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 38-190

Reasons for decision: Summary: X's supply of money offshore is a GST-free supply pursuant to item 4(a) of subsection 38-190(1) of the GST Act as the supply is a supply in relation to rights for use outside Australia. | Detailed Reasoning - Detailed reasoning: X's dealings in foreign currency products such as spot trades, forward contracts, wire transfers and foreign currency drafts, etc are all input taxed financial supplies as they are either an interest in or under currency, or a derivative. However, the type of financial supply is not determinative in how Item 4 applies; the products need to be assessed on a case by case basis. Both the supply made through wire transfers and foreign currency drafts and cheques are of rights that facilitate the operation of X's cross-border payment and foreign exchange services. Subsection 9-30(3) contemplates that a supply may be both GST free and input taxed and, to the extent that a supply would otherwise have the character of both, provides that the supply is to that extent GST free and not input taxed. Hence, to the extent that the supply of a particular financial product or service has the character of being both GST-free and input taxed, it will be GST-free. | Detailed Reasoning - Wire transfers as rights: The essential character of a supply of a wire transfer is to transfer money to the bank account of an overseas third party (the payee). What is referred to as a 'transfer' from one account to another via the banking system does not involve the actual transfer of physical currency or the transfer or assignment of ownership of a chose in action (a right). Rather it involves the extinguishment (or reduction in value) of one chose in action (the payer's), and the creation (or increase in value) of another (the payee's), represented by the relevant accounting entries. Whilst the rights held by the payer are extinguished during the transfer process, it is accepted there is a dealing in rights, being the effective transfer of the value in the rights from the payer to the payee. Therefore, the essential character of the supply of the wire transfer is to facilitate a dealing in rights. In this context, the relevant right is the chose in action represented by the deposit into the payee's account at an overseas location (rather than the extinguished chose in action of the payer, or the payer's contractual rights under the terms of the underlying agreement. In this instance, as the essential character of the X's wire transfer is the facilitation (or effective transfer) of the rights to an overseas bank account, it is accepted that these rights are for use outside of Australia. Where the payer (the recipient of the wire transfer) nominates that the amount is to be transferred to the account of a payee who is located outside of Australia, the rights are for use outside of Australia and the supply of the wire transfer is GST-free under Item 4. | Detailed Reasoning - Foreign currency drafts and cheques as rights: A foreign currency draft or cheque is commonly used to make a payment to an overseas payee. The essential character of a supply of a foreign currency draft or cheque is that it is a thing that derives its value from the chose in action that requires the financial institution upon which it is drawn bank to provide the funds on presentation of the draft. This is the relevant right to which the supply relates for item 4 purposes. As these rights attach to the physical instrument, they are used when the draft/cheque is delivered by transfer of possession from the recipient of the draft/cheque to the nominated payee. When the recipient intends that the draft/cheque will be delivered to, including posted to, a payee at a location outside of Australia, the rights are for use outside of Australia and the supply of the draft/cheque draft is a GST-free supply under item 4. If the recipient acquires a draft/cheque but intends to use it to pay another entity by delivering the draft to them in Australia, the rights are not for use outside Australia and the supply is not GST-free under Item 4 In the arrangements X has presented, the beneficiaries of the drafts/cheques are in X's words 'offshore'. As such the supply made is a GST-free supply under item 4.