Private ruling: GST and reduced input tax credits
Date of advice: 20 March 2015
Published: March 2015

Ruling: Q1: Is AAA Pty Ltd (AAA) making a reduced credit acquisition as mentioned in item 27 in the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) for acquisitions, as specified in its contract with merchants (the Agreement), from merchants where AAA remunerates the merchant for those acquisitions on a transactional basis? | A1: Yes, AAA is making a reduced credit acquisition under item 27 in the table in subregulation 70-5.02(2) for acquisitions, as specified in the Agreement, from merchants.

Relevant facts and circumstances: AAA is registered for GST and carries on an enterprise consisting of the operation of an ATM network in Australia. AAA is not an Australian Authorised Deposit-taking Institution (‘ADl’). AAA enters into an agreement (‘the Agreement’) with a merchant (for example, a convenience store) to place an ATM on the merchant’s premises. AAA owns the ATMs and nothing in the Agreement shall be deemed to confer on the merchant any title to the ATMs installed. When a cardholder makes a withdrawal of a certain amount (the withdrawn amount) from an ATM located on a merchant’s premises, the following occurs: ● the withdrawn amount is debited to the cardholder’s bank account; and a corresponding amount is credited to the merchant’s bank account; and ● the cardholder is charged a fee which is debited to the cardholder’s bank account and a corresponding amount is credited to AAA’s bank account. Under the Agreement the merchant: ● stocks and replenishes the ATM with sufficient Australian currency bank notes from the merchant’s own resources to enable the efficient and proper operation of the ATM. The merchant must place the notes in the cartridges provided for that purpose in the ATM, and the notes must be in such condition as to enable the proper operation of the ATM; ● ensures that each ATM is stocked with sufficient quantities of receipt and journal rolls and ribbons so as to record on those rolls the details of all transactions effected through that ATM; ● is responsible for the security of all bank notes placed in the ATM; ● ensures, at the merchant’s own expense, that the premises are suitable for the installation of the ATM; ● ensures that there is a suitable supply of dedicated electricity for the proper operation of the ATM; ● insures, and keeps insured, the ATM to its full insurable value; ● performs minor non-technical tasks and maintenance (such as problems relating to paper jams and replacing paper rolls located in the top section of the ATMs; ● ensures ATMs are kept clean; ● displays in a prominent manner adjacent to each ATM the names and insignia of all approved cards, as well as other promotional and advertising material relating to the ATM Network; ● notifies AAA as soon as possible if the merchant knows or suspects that an ATM is not operating properly; ● gives AAA an exclusive licence to operate the ATM at the merchant’s premises and covenants that the merchant shall not without the consent of AAA allow any other ATMs to be located at the premises. AAA must use its best endeavours to maintain at its expense each ATM in working order so as to enable its proper use by users and AAA will be responsible for all necessary repairs to and servicing of each ATM. AAA permits the merchant to participate in the ATM Network and to make available the benefits of the ATM Network to cardholders. AAA must pay to the merchant a transaction rebate (inclusive of GST) in respect of each successful transaction on an ATM. The transaction rebate is calculated by reference to the number of transactions made through the relevant ATM. Cardholders that use the ATM will be charged a fee (including GST) and no increase will be implemented without the approval of both AAA and the merchant. The merchant must not charge ATM users any other fees for using an ATM.

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: AAA 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 specified kinds of acquisitions (reduced credit acquisitions) that relate to making financial supplies give rise to an entitlement to a reduced input tax credit. Item 27 in the table in subregulation 70-05.02(2) provides that supplies for which financial supply facilitators are paid commission by financial supply providers are reduced credit acquisitions. AAA will therefore be entitled to a reduced input tax credit under item 27 in the table in subregulation 70-05.02(2) if: ● AAA is the financial supply provider; ● the merchant is a financial supply facilitator; and ● AAA pays the merchant a commission. Financial supply provider If the relevant financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply provider' applies. Therefore, when considering the application of item 27 to an acquisition in relation to a financial supply of ATM services, the term 'financial supply provider' has its ordinary meaning. AAA is the entity that makes financial supplies of ATM services under subregulation 40-5.09(4A) on the basis that: ● AAA 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 AAA through the ATM payment system; ● AAA, through its various contractual arrangements with other entities, is the entity that brings together all the necessary elements to enable the supply of ATM services to a cardholder. Following on from this, AAA is therefore the financial supply provider for the purposes of item 27 in the table in subregulation 70-5.02(2). Financial supply facilitator If the relevant financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply facilitator' applies. Therefore, when considering the application of item 27 to an acquisition in relation to a financial supply of ATM services, the term 'financial supply facilitator' has its ordinary meaning. A financial supply facilitator is the entity that facilitates the financial supply for the entity making the financial supply. Whether the merchant is a financial supply facilitator for the purposes of item 27 of the table in subregulation 70-5.02(2) turns on whether there is a sufficient connection between the merchant’s supplies to AAA and AAA’s financial supplies of ATM services to cardholders. It is the merchant’s performance or observance of the responsibilities listed in the Agreement, along with the implicit permitting of the placement of the ATM at those premises that represents the nature of the merchant’s supply to AAA. When the things that constitute the merchant’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 the merchant as a whole, the supply by the merchant has a sufficient connection with the supply of ATM services and, consequently, the merchant is a financial supply facilitator in relation to that supply. Commission The term ‘commission’ as used in item 27 in the table in subregulation 70-5.02(2) is not defined. Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions notes that a commission is a payment to an agent or similar entity that may be a fixed sum, a fixed percentage or on a sliding scale based on the value of the transaction. The merchant is paid for its supplies to AAA with reference to a set rate multiplied by the number of transactions. This is consistent with a commission payment. Conclusion We consider that in the particular circumstances of the Agreement AAA is making a reduced credit acquisition under item 27 in the table in subregulation 70-05.02(2).