Private ruling: GST and reduced input tax credits for the acquisition of ATM processing, settling and clearing services.
Published: December 2013

Ruling: Q1: Is the entity making a reduced credit acquisition under item 7 in the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 , for the acquisition of services from a service provider? | A1: Yes, the entity is making a reduced credit acquisition for the acquisition of services. | Q2: Can the entity revise earlier activity statements to claim reduced credit acquisition under item 7 in the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 , for the acquisition of services under the agreement? | A2: Yes, the entity can revise earlier activity statements to claim reduced credit acquisitions for the acquisition of services under the agreement for up to a period of four years.

Relevant facts and circumstances: The entity operates an automated teller machine (ATM) business. It owns both mobile and fixed ATMs which are deployed to various sites. The entity is responsible for maintaining the ATMs and restocking them with cash. The entity will engage a service provider to provide a range of services under an agreement which has not yet been executed. The service provider provides access to the ATM payment system. The agreement provides that the service provider shall effect settlement, on behalf of the entity, of all transactions effected through the system via the entity's ATMs. The agreement provides that the core services provided by the service provider are: · settlement of transactions; · settlement of interchange fees; · settlement reporting; · transaction reporting; and · switching of transactions. The service provider has been providing these services in relation to ATMs owned by the entity for many years on the same terms without any written agreement. The entity has not previously claimed the reduced input tax credits in relation to the services provided by the service provider.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 11-5. | A New Tax System (Goods and Services Tax) Act 1999 section 40-5. | A New Tax System (Goods and Services Tax) Act 1999 Division 70. | A New Tax System (Goods and Services Tax) Act 1999 section 70-10. | A New Tax System (Goods and Services Tax) Act 1999 Division 29. | A New Tax System (Goods and Services Tax) Act 1999 section 29-10. | A New Tax System (Goods and Services Tax) Act 1999 subsection 29-10(4). | A New Tax System (Goods and Services Tax) Act 1999 section 93-5. | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 40-5.02(4A). | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 70-5.02(2).

Reasons for decision: Summary: Ordinarily, acquisitions which relate to making input taxed financial supplies are not creditable acquisitions under section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the recipient is not entitled to an input tax credit. Section 40-5 of the GST Act states that financial supplies, as specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) are input taxed. Specifically, subregulation 40-5.09(4A) of the GST Regulations states that a supply of ATM services (ie withdrawal, deposit, transfer, balance enquiry) for a fee of not more than $1000 is a financial supply. However, Division 70 of the GST provides that certain acquisitions, specified in the table in subregulation 70-5.02(2) of the GST Regulations are 'reduced credit acquisitions' and the recipient is entitled to a reduced input tax credit in respect of these acquisitions. Item 7(f) in the table in subregulation 70-5.02(2) of the GST Regulations provides that 'processing, settling, clearing and switching' ATM transactions are reduced credit acquisitions. Goods and Services Tax Ruling GSTR 2004/1 provides further explanation of item 7: 256. An acquisition under item 7 is a reduced credit acquisition where it is the acquisition of a service of processing, settling, clearing and/or switching one or more of the transactions in items 7(a) to 7(j). In this context, a relevant acquisition need not include all of the mentioned activities for it to be a reduced credit acquisition under item 7. 257. The scope of item 7 depends on the meaning attributed to the expressions processing, settling, clearing, switching and the transactions described in items 7(a) to 7(j). The glossaries to this ruling and to GSTR 2002/2 explain the meanings of the transactions described in items 7(a) to 7(j). … | Detailed Reasoning - Processing: 261. In this context, the expression processing means a systematic series of actions directed to some end. Item 7 contemplates acquisitions that involve a systematic series of actions that assist the efficient movement of transactions listed in items 7(a) to 7(j) within a payment system. … | Detailed Reasoning - Settling: 264. For the purposes of item 7, the expression settling takes its meaning from the context of payment systems. Settling refers to specific arrangements directed towards discharging obligations owed by a participant in an open loop payment system. In particular, the arrangements relate to the actual exchange of value instructions through accessing accounts and liquid funds maintained for this purpose by the participants in an open loop payment system. 265. Where a participant in a payment system acquires the services of an entity to carry out its settling obligations in respect of one or more of the transactions listed in items 7(a) to 7(j), the acquisition of the services is a reduced credit acquisition under item 7. | Detailed Reasoning - Clearing: 266. In item 7, the expression clearing takes its meaning from the context of payment systems. Clearing refers to arrangements that facilitate the presentment and exchange of payment instructions and the calculation of claims for settlement between participants in an open loop payment system. 267. Clearing may occur within a participant's enterprise where the accounts to be debited or credited are held within the same financial institution. It may occur directly between participants in a payment system through a bi-lateral clearing arrangement or through a clearing house. Clearing houses are established to manage and administer clearing systems for particular types of payment transactions (multi-lateral clearing arrangement). 268. Where a participant in a payment system acquires the services of an entity to carry out its clearing obligations in respect of one or more of the transactions listed in item 7(a) to 7(j), the acquisition of such services is a reduced credit acquisition under item 7. 269. Services for which fees are paid to an entity that manages and administers a clearing system, are not reduced credit acquisitions under item 7. | Detailed Reasoning - Switching: 273. For the purposes of item 7, the expression switching takes its meaning from the context of a payment system and refers to the routing of payment transactions to a participant in an open loop payment system via a facility. While a facility in this context includes the manual routing of transactions, it is more likely to involve the performance of this task through automated means. Switching, in this context, also includes incidences where authorisations are sought before a transaction is approved and the authorisation request is switched to the relevant participant in a payment system. 274. Where a participant in a payment system acquires the services of an entity to switch one or more of the transactions listed in item 7(a) to 7(j), the acquisition is a reduced credit acquisition under item 7. The acquisition of services from the service provider under the agreement are reduced credit acquisitions under item 7 of the table in subregulation 70-5.02(2) of the GST Regulations. As the services of processing, settling, clearing and switching of ATM transactions undertaken by the service provider are reduced credit acquisitions, the entity is entitled to reduced input tax credits for those acquisitions. Section 70-10 of the GST Act extends the meaning of 'creditable acquisition' to include reduced credit acquisitions which relate to making financial supplies. Therefore, the attribution rules for reduced credit acquisitions is the same for ordinary creditable acquisitions as provided for in Division 29 of the GST Act. Generally, section 29-10 of the GST Act provides that an input tax credit is attributable to the tax period in which any consideration is provided or an invoice is issued for the acquisition. However, subsection 29-10(4) modifies this if a GST Return (Business activity statement) has been provided to the Commissioner and the input tax credit has not been included in that return. The input tax credit ceases to be attributable to that earlier tax period and become attributable to the first tax period in which a BAS is given which includes that input tax credit. However, section 93-5 of the GST Act generally imposes a four year time limit on claiming input tax credits from the day on which the input tax credit first became attributable. It should be noted that the requirement to hold a tax invoice for the acquisition is a pre-requisite to entitlement to the input tax credit. Therefore, the entity can claim the reduced input tax credits for its acquisitions from the service provider over the past four years.