Private ruling: GST and acquisition of ATM services
Published: April 2015

Ruling: Q1: Is Entity A making a reduced credit acquisition under item 27 for its acquisitions from Entity B pursuant to the Agreement, where Entity A remunerates Entity B on a transactional basis? | A1: Yes, Entity A is making a reduced credit acquisition under item 27 for the acquisitions from Entity B to the extent there is a commission paid for the acquisitions. A commission is not paid to Entity B by Entity A so far as Entity A is to supply bulk cash and coin services, foreign currency transportation services and ad hoc services as part of the Turnover Licence Fee.

Relevant facts and circumstances: Entity A owns, operates and maintains ATM's at various locations, including shopping centres, clubs and other retail outlets. Entity A is registered for GST. Entity A is not an Authorised Deposit-taking Institution (ADI). This private ruling concerns the Agreement between Entity A and Entity B which deals with the licence to use and occupy an area for the installation, operation and servicing of ATMs by Entity A (the licensee) at Entity B's premises. Entity A charges a fee directly to the cardholder, referred to as an 'ATM Operator Fee' to effect a transaction through the ATM. Under the Agreement, matters Entity A is responsible for include: • supply, delivery, installation and connection of the ATMs at the premises; • cash servicing of the ATMs using cassettes that have been packed by Entity B in a secure cash area; • modem and security alarm; • keeping the ATMs clean and tidy and in good condition; • branding signage as approved by the licensor; • 'cards accepted' signage mounted on or about the ATM; • all maintenance associated with the function of the ATMs; • forecasting of cash requirements in the ATMs; • provision of two switch service providers to the licensed areas; and • working with the licensor on security and operational efficiency improvements. Entity A is also required to provide additional services to Entity B such as supplying Entity B's bulk cash requirements, removal of surplus currency and mutilated notes using Entity A's secure transportation services, verifying cash collected and depositing in Entity B's account, removal and transportation of foreign currency to a nominated address and ad hoc delivery and collection services. Under the terms of the Agreement Entity B: • licences Entity A to use the areas (licensed areas) presently occupied by XX ATM's in areas as may be approved by Entity B for the purpose of the installation, operation and servicing of ATMs; • will provide (at Entity A's cost) to each new ATM site a telephone cable, single phase GPO, modesty panels if required, modem and security alarm housing; • will pack the ATM cassettes in denominations and values as advised by Entity A within agreed timeframes; • open, count and report the cash in an ATM cassette to Entity A; • work with Entity A on security and operational efficiency improvements; and • use its best endeavours to ensure a continuous supply of electricity to the ATMs. The Agreement provides that Entity A will pay a 'Turnover Licence Fee' each month for each ATM. The Turnover Licence Fee is equal to the Transaction Fee (as specified in the Agreement) multiplied by the number of withdrawal transactions per month. The Agreement provides that the Turnover Licence Fee also includes the provision of the bulk cash and coin services, foreign currency transportation services and ad-hoc services supplied by Entity A to Entity B.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 11 | A New Tax System (Goods and Services Tax) Act 1999 section 70-5 | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-05.09(4A) | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 70-05.02(2)

Reasons for decision: Summary: Entity A is not entitled to full input tax credits under Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to acquisitions that relate to making financial supplies. However, subsection 70-5(1) of the GST Act provides that certain kinds of acquisitions, referred to as 'reduced credit acquisitions' that relate to making financial supplies give rise to an entitlement to a reduced input tax credit. Subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) provides a table of 33 items. The acquisition by an entity of something that is covered by an item in this table is a reduced credit acquisition for which a reduced input tax credit may be available. Item 27 in the table in subregulation 70-5.02(2) (item 27) provides that supplies for which financial supply facilitators are paid commission by financial supply providers are reduced credit acquisitions. Entity A will therefore be entitled to a reduced input tax credit under item 27 if Entity A is the financial supply provider; Entity B is a financial supply facilitator; and Entity A pays Entity B a commission. Financial supply provider and Financial supply facilitator Paragraphs 651A and 651B of Goods and Services Tax GSTR 2004/1 Goods and services tax: reduced credit acquisitions (GSTR 2004/1) explains that when considering the application of item 27 to an acquisition in relation to a financial supply that does not involve the supply of an interest, the terms 'financial supply facilitator' and 'financial supply provider' have their ordinary meanings. Based on the ordinary meaning of the term 'financial supply provider' Entity A is the entity that makes financial supplies of ATM services under subregulation 40-5.09(4A) on the basis that: • Entity A is the entity to which the fee is due for the ATM service provided to the cardholder, notwithstanding how that amount may be paid to Entity A through the ATM payment system; • Entity A is the entity that brings together all the necessary elements to enable the supply of ATM services to a cardholder. Accordingly, it follows that Entity A is the 'financial supply provider' for the purposes of item 27. Further we accept that in this case Entity B is a 'financial supply facilitator' for the purposes of item 27. A financial supply facilitator is the entity that facilitates the financial supply for the entity making the financial supply. Entity B is a financial supply facilitator for the purposes of item 27 when there is a sufficient connection between Entity B's supplies to Entity A and Entity A's financial supplies of ATM services to cardholders. It is Entity B's performance or observance of their obligations set out in the Agreement, along with the granting of the licence to use and occupy the premises (for the installation of the ATMs) under the Agreement that represents the nature of Entity B's supply to Entity A. When the things that constitute Entity B's supply are considered in isolation they may not have a sufficient connection with the supply of ATM services to the cardholder. However, when consideration is given to the things supplied by Entity B as a whole, the supply by Entity B has a sufficient connection with the supply of ATM services and, consequently, Entity B is a financial supply facilitator in relation to that supply. Commission In paragraph 651 of GSTR 2004/1 it explains that the application of item 27 is confined to acquisitions by a financial supply provider that relate to a particular transaction for which they pay commission to a financial supply facilitator. The term 'commission' is not defined in the GST Act or GST Regulations. However, GSTR 2004/1 at paragraph 652 provides that the term commission is defined as a ' payment to an agent or similar entity, or to an employee for particular services rendered. The payment may be made on a fixed sum or fixed percentage basis, or on a sliding scale based on the value of the transaction '. GSTR 2004/1 in paragraph 653 explains that other fees, including those calculated on the value of work done, rather than a per-transaction or percentage of value based calculation, and retainers, are not commissions. In our view the Turnover Licence Fee paid to Entity B is consistent with a commission so far as it is based on the number of successful withdrawal transactions multiplied by the set transaction fee. However, it is not consistent with a commission to the extent that Entity A is to supply bulk cash and coin services, foreign currency transportation services and ad hoc services, as referred to in the Agreement, as part of the Turnover Licence Fee. As item 27 does not contain the phrase 'to the extent', which is commonly used to indicate apportionment, it might be argued that all that is required is for the financial supply facilitator to be paid a commission. On the other hand it might be said that if the financial supply facilitator is not solely remunerated by way of commission there is no reduced credit acquisition at all. In our view it is more consistent with the intent of the provision to accept that Entity A makes a reduced credit acquisition to the extent that Entity B is paid based on the number of successful withdrawal transactions multiplied by the set transaction fee; that is, to the extent that Entity B is paid a commission. | Detailed Reasoning - Conclusion: Entity A is making a reduced credit acquisition under item 27 for the acquisitions from Entity B to the extent there is a commission paid for the acquisitions. However, a commission is not paid to Entity B by Entity A so far as Entity A is to supply bulk cash and coin services, foreign currency transportation services and ad hoc services as part of the Turnover Licence Fee. Therefore to this extent Entity A does not make a reduced credit acquisition.