Private ruling: GST and automated teller machines
Date of advice: 24 August 2016
Published: September 2016

Ruling: Q1: Is the entity making an input taxed financial supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it provides an ATM for use and charges a fee to the cardholder? | A1: Yes, the entity is making an input taxed supply of an ATM service to the cardholder. | Q2: Is the entity entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it purchases an ATM? | A2: No, as the purchase of the ATM relates to making an input taxed supply, the entity is not entitled to an input tax credit. | Q3: Is the entity entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it acquires services from a third party? | A3: No, the entity is not entitled to input tax credits. However, it is entitled to, reduced input tax credits under section 70-5 of the A New Tax System (Goods and Services Tax) Act 1999 . | Q4: Is the entity entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it incurs motor vehicle expenses? | A4: No, the entity is not entitled to input tax credits. However, it is entitled to, reduced input tax credits under section 70-5 of the A New Tax System (Goods and Services Tax) Act 1999 . | Q5: Is the entity entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it engages contractors to assist in the operation of the ATM business? | A5: No, the entity is not entitled to input tax credits. | Q6: Is the entity entitled to an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 when it pays merchants a share of the ATM income as per agreed contract? | A6: No, the entity is not entitled to input tax credits. However, it is entitled to, reduced input tax credits under section 70-5 of the A New Tax System (Goods and Services Tax) Act 1999 . | Q7: Is the entity entitled to credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 retrospectively for acquisitions? | A7: Yes, the entity is entitled to claim credits subject to the four-year limit in section 93-5 of the A New Tax System (Goods and Services Tax) Act 1999 .

Relevant facts and circumstances: The relevant facts include all documents and materials provided in the private ruling application. The entity owns and operates a number of automated teller machines (ATMs) located in Australia. The entity has entered into agreements with retailer merchants to place ATMs at the merchant's premises. All installed ATMs are self-cashing. That is, the merchants place their own cash in the ATMs and are responsible for ensuring there are sufficient funds in the respective ATM. Under the agreements, the entity pays the merchants an amount per transaction (known as a rebate), however, the amounts payable by the entity are reduced by two amounts, one is a flat amount (known as a communication fee) and the other is per transaction (known as a reporting fee). Generally, the entity undertakes the services and repairs of the ATMs as a part of the agreement with the merchants. However, as some merchant's sites are located in remote areas, the entity may engage a contractor to perform any service and repairs required. The entity has entered into an agreement with third parties for the acquisition of processing ATM transactions and the purchase of ATMs. Under the agreement: • the entity: • purchases ATMs ; • sources the locations for the ATMs to be placed; • is responsible for installation of the ATMs; • is responsible for maintaining the ATMs; • ensures that each installed ATM is loaded with cash; • is entitled to set amount of and receive the direct charge fee charged to ATM users; • the third party: • provides the software to allow transactions to be performed on the ATMs; • processes the transactions performed on the ATMs; • arranges switching, clearing and (acquiring) settlement services; • collects the amounts due to the entity; • is paid an amount per transaction plus other amounts The entity is registered for GST, all acquisitions and ATMs are located within Australia and the entity exceeds the financial acquisitions threshold (because more than 10% of its acquisitions relate to making financial supplies).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 11-20. | A New Tax System (Goods and Services Tax) Act 1999 section 11-15. | A New Tax System (Goods and Services Tax) Act 1999 section 70-5. | A New Tax System (Goods and Services Tax) Act 1999 section 93-5. | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-5.09(4A). | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 70-5.02(2).

Reasons for decision: Summary: The supply of an ATM service that is a withdrawal, deposit, transfer or balance enquiry for a fee of not more than $1000 is input taxed under subregulation 40-5.09(4A) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). This fee is generally known as a direct charge fee. The direct charge fee paid by cardholders is consideration for the entity's input taxed supply of an ATM service. This means that there is no GST payable on the supply made to cardholders. Generally, section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make. An entity makes a creditable acquisition where: • the acquisition is made for a 'creditable purpose'; and • the supply is a taxable supply; and • the entity provides, or is liable to provide consideration; and • the entity is registered, or required to be registered for GST. Section 11-15 of the GST Act states that you make an acquisition for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) of the GST Act states that you do not make an acquisition for a creditable purpose to the extent that the acquisition 'relates to making supplies that would be input taxed'. As the purchase of an ATM directly relates to the supply of ATM services by the entity, the entity is not entitled to input tax credits in relation to the purchase of that ATM. As discussed above at Question 2, an entity is not entitled to input tax credits that relate to input taxed supplies. However, section 70-5 of the GST Act provides that certain kinds of acquisitions that are specified in the GST Regulations are reduced credit acquisitions and give rise to an entitlement to a reduced input tax credit. The table in subregulation 70-5.02(2) of the GST Regulations provides a list of 33 kinds of reduced credit acquisitions. Item 27 of the list states that 'supplies for which financial supply facilitators are paid commission by financial supply providers' are reduced credit acquisitions. The Goods and Services Tax Ruling, Goods and services tax: reduced credit acquisitions (GSTR 2004/1) provides detailed explanations of each item in the table in subregulation 70-5.02(2) of the GST Regulations. GSTR 2004/1 also explains what is meant by the term 'financial supply facilitator' and, at paragraph 31 states: 31. A financial supply facilitator, in relation to a supply of an interest, is defined in regulation 40-5.07 to be an entity facilitating the supply of an interest for a financial supply provider. The facilitating of a supply refers to activities that help forward (assist) the supply, rather than those that simply assist the financial supply provider. An entity facilitates the supply of an interest where its activities have the effect of helping forward or assisting the supply, therefore, the activities must have a sufficient nexus with the supply of an interest by a financial supply provider. Specifically in relation to item 27 of the table in subregulation 70-5.02(2) of the GST Regulations, GSTR 2004/1 states at paragraph 651B: … in the context of item 27, an entity that is facilitating a financial supply of ATM services is a financial supply facilitator, and the entity that is making the supply of ATM services is a financial supply provider. Under the third party agreement, the third party is facilitating the entity's supply of the ATM services to the cardholders. That is, it provides services, in the form of processing, settlement and clearing etc that is vital to entity's input taxed supply. As the third party is paid on a commission basis (ie per transaction), the entity's acquisitions from the third party are reduced credit acquisitions. The amount of input tax credit to which the entity is entitled for these acquisitions is 75% of the GST payable on the supply. As discussed above at Question 2, an entity is not entitled to input tax credits that relate to input taxed supplies. Therefore acquisitions that are motor vehicle costs do not give rise to an input tax credit entitlement. Furthermore, there is no item in the table in subregulation 70-5.02(2) of the GST Regulations that could apply to motor vehicle expenses. Therefore, the entity is not entitled to any input tax credit when it incurs motor vehicle expenses. As discussed above at Question 2, an entity is not entitled to input tax credits that relate to input taxed supplies. Therefore the entity's acquisition of services provided by contractors for the service or repair of an ATM does not give rise to an input tax credit entitlement. The acquisition of services performed by a contractor is not a supply by a financial supply facilitator because the contractor is not involved in the supply of the ATM service to the cardholder. Although the services provided by the contractor enable the ATM to function properly, the services are not directly connected to the supply of the ATM service that is a withdrawal (or balance enquiry or transfer) from an account. The need for a close connection is explained in GSTR 2004/1 at paragraph 32: 32. To have a sufficient nexus, the activities of the entity must have an identifiable association with the supply that goes beyond a mere general association. An identifiable association does not mean that the activities have to be directly linked to the supply, however it does require that there be a substantial connection so as to exclude activities that are only generally related (for example, promotion, advertising, product design, market research or similar types of activities). The activities must relate to and assist a particular supply, not merely contemplated supplies. In the absence of this identifiable association, an entity will not be a financial supply facilitator of the supply of an interest Although the services provided by a contractor assist the entity by ensuring that the ATMs are operational, the contractors are not involved in the specific supplies of ATM services and therefore, are not financial supply facilitators for the purposes of the GST Regulations. Consequently, acquisitions of services from contractors do not give rise to an entitlement to reduced input tax credits. As discussed at Question 3 above, although the entity is not entitled to an input tax credit for the acquisitions it makes from merchants in connection with the payment of the rebate amount and other fees, It will be entitled to a reduced input tax credit if the merchants are providing 'supplies for which financial supply facilitators are paid commission by financial supply providers' within item 27 of the table in subregulation 70-5.02(2) of the GST Regulations. As discussed at Question 3 above, the merchant will be considered a financial supply facilitator when there is a sufficient connection between the merchant's supplies to the entity and the entity's financial supplies of ATM services to cardholders. The entity is paying the rebate to the merchant in return for the merchant agreeing to perform its obligations under the agreement. This includes ensuring that the ATM is stocked with sufficient cash. By using its own money in the ATM transaction, the merchant is an integral part of the ATM service provided to the cardholder. Consequently, the merchant is a financial supply facilitator in relation to the ATM service. In this case the merchant is paid for its supplies to the entity with reference to the number of transaction performed using the ATM. Accordingly this is consistent with the meaning of a commission payment. As the merchant is acting as a financial supply facilitator in relation to the supplies it makes to the entity under the terms of the contract and the merchant is paid on a commission basis, the supply is a reduced credit acquisition giving rise to an entitlement to a reduced input tax credit for the entity. The amount of the reduced input tax credit is 75% of the GST payable on the supply. The amount of GST on the supply by the merchant is determined with reference to the amount paid for that supply. The entity pays the rebate amount to the merchant however this amount is reduced by the amount of the 'communication fee' and the 'reporting fee'. In the context of the merchant agreements and the manner in which the merchants are paid for their services, it is reasonable to conclude that the consideration provided to the merchants is the net amount payable by the entity. That is, the rebate amount less the communications fee and the reporting fee. Therefore, the entity is entitled to a reduced input tax credit on its acquisitions from merchants for 75% of 1/11 th of the amount net payable to the merchant. Generally, you are entitled to include amounts for input tax credits and reduced input tax credits in a business activity statement (BAS) in the tax period in which you pay any of the consideration provided that you hold a tax invoice for the acquisition. Section 93-5 of the GST Act imposes a four-year time limit on claiming input tax credits. That is, an entity must claim any credits to which it is entitled within four years. If it doesn't claim credits within the four-year limit, it ceases to be entitled to the credits. As the entity is entitled to input tax credits and reduced input tax credits on its acquisitions from the third party and the merchants, it can amend previous activity statements that have been lodged to include these unclaimed amounts. Alternatively, the entity can include all unclaimed credits in its next activity statement.