Private ruling: GST and reduced input tax credits in relation to ATM services
Published: March 2015

Ruling: Q1: Is the company making a reduced credit acquisition under section 70-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it makes acquisitions specified in the contract from a merchant which does not stock the ATM with cash? | A1: Yes, the company is making a reduced credit acquisition. | Q2: Is the company making a reduced credit acquisition under section 70-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it makes acquisitions specified in the contract from a merchant which stocks the ATM with its own cash? | A2: Yes, the company is making a reduced credit acquisition.

Relevant facts and circumstances: The company is registered for GST and owns and operates automatic teller machines (ATMs). The company ATM users (cardholders) a fee for using the ATM. Legal entitlement to this fee is with the company, although the fee charged to the cardholder is subject to approval by the merchant. The company enters into contracts with retail merchants to have the ATMs placed within the merchant's premises. The company is responsible for the operation of the ATM including processing and settling transactions. The company pays an amount per withdrawal to the merchant. Under the terms of the contract the merchant: • allows the company to supply an ATM to the premises; • provides a dedicated power point (with ongoing power supply); • either provides a telecommunications line or allows the company to install one; • provides 'first line maintenance' which includes: • replacing receipt paper; • fixing receipt paper jams; • fixing cash jams; and • cleaning the ATM; • allows the company access to the premises; • will not allow other ATMs to be installed on the premises; and • must notify the company if the ATM is lost, stolen or damaged. The merchant may choose to stock the ATM with its own cash. The merchant is responsible for obtaining the cash and securing and insuring the cash. Although the contract provides for the merchant to liable to pay rental, maintenance, telecommunications and shortfall fees, no such fees are payable by the merchant to the company . The company is not entitled to full input tax credits for acquisitions from merchants.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 70-5. | A New Tax System (Goods and Services Tax) Regulations 1999 subregulation 70-5.02(2)

Reasons for decision: Summary: The table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999 provides a list of reduced credit acquisitions. Item 27 in the table in subregulation 70-05.02(2) (item 27) states that 'supplies for which financial supply facilitators are paid commission by financial supply providers' are reduced credit acquisitions. In this case the company will make a reduced credit acquisition under item 27 if the company is the 'financial supply provider', the merchant is a 'financial supply facilitator' and the company pays the merchant a 'commission'. 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. In this case the company is the entity that makes the financial supplies of ATM services under subregulation 40-5.09(4A) on the basis that: • the company 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 the company through the ATM payment system; and • the company, through its various contractual arrangements with other entities, is the entity that brings together all the necessary elements to enable the supply of the ATM service to a cardholder. Accordingly it follows that the company is the financial supply provider for the purposes of item 27. Further we accept that in this case the merchant is a 'financial supply facilitator'. The merchant is a financial supply facilitator when there is a sufficient connection between the merchant's supplies to the company and the companies financial supplies of ATM services to cardholders. It is the merchant's adherence to the terms and conditions of the contract (including permitting the ATM to be placed on the premises) that is taken to represent the nature of the merchant's supply to the company. 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 all of the things supplied by the merchant as a whole, the supply by the merchant has a sufficient connection with the companies supply of ATM services and, consequently, the merchant is a financial supply facilitator in relation to that supply. 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 '. In this case the merchant is paid for its supplies to the company with reference to the number of withdrawals 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 company under the terms of the contract and the merchant is paid on a commission basis, the company is making a reduced credit acquisition under section 70-5 of the GST Act.