Private ruling: Supply of SIM card and recharge vouchers
Published: June 2012

Ruling: Q1: Do you make a taxable supply when you sell the pre-paid SIM packs and electronic recharge vouchers to Australian customers? | A1: Your supply of the SIM packs to the customers is a taxable supply to the extent where the consideration for the supply exceeds the monetary value stated on the SIM packs. Your supply of the recharge vouchers to the customers is not a taxable supply.

Relevant facts and circumstances: You are a retailer and registered for GST in Australia. C is a telecommunication carrier from overseas and provides mobile telecommunication services in various countries throughout the world. The Draft Agreement between you and C (the agreement) states that you grant to C a license to use your Trade Mark in connection with the Products; and C appoints you as its agent to promote the sale of the Products. The Products are imported from overseas into Australia by you. The Products refer to C's pre-paid mobile SIM packs and electronic recharge vouchers designed for use by travellers. a) The pre-paid mobile SIM packs The SIM packs will retail for $X. The SIM is designed for international travellers. A customer purchasing the pre-paid mobile SIM pack acquires the right or entitlement to be provided with telecommunication services to the value of $Y. The SIM pack is marketed for international travellers: the title of the packaging of the SIM pack is "global roaming" and it is marketed to save when travelling and "for use overseas". b) The Electronic Recharge Voucher is the electronic recharge of a SIM Pack by a customer using an e-voucher purchased at your retail outlet or an online recharge purchased at your online outlet. The consideration for the recharge vouchers equal the stated monetary credit value on said vouchers. The term of the agreement C appoints you as its agent to promote the sale of the Products through your network of retail outlets and online outlets in Australia. All contracts for the sale of the Products will be directly between C and the customers. You will not enter into any direct contractual relationships with a customer for the sale of the Products. Title to the Products remains with C at all times. The risk of loss or damage to each Branded SIM packs remains with C until each pack is sold to a customer. C handles and resolves customer Issues, including a contact centre and Customer Help line for the Products. You will refer all customer issues made by customers to you to C for resolution. You are responsible for collecting all payments made from customers for the purchase of the Products and remitting them to C. You may retain some fees for selling the Products.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5(a) | A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 (c) | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(b) | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d) | A New Tax System (Goods and Services Tax) Act 1999 Section 9-25 | A New Tax System (Goods and Services Tax) Act 1999 section 100-25 | A New Tax System (Goods and Services Tax) Act 1999 section 100-5 | A New Tax System (Goods and Services Tax) Act 1999 section 153-B

Reasons for decision: Detailed Reasoning - Summary Reasoning:.: The supply of the SIM card with $Y credit can be considered a mixed supply with the SIM card being a taxable component and the $Y credit embodied in the SIM card a voucher, hence a non-taxable component. In addition, Division 100 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) renders the supply of the recharge vouchers not a taxable supply Alternatively, if the supply of the SIM pack and recharge vouchers meets the requirement of a Face Value Voucher (FVV), but where the consideration for the supply of a FVV exceeds its stated monetary value, subsection 100-5(2) of the GST Act applies and the supply of the FVV is a taxable supply, to the extent the consideration exceeds the stated monetary value on the FVV. | Detailed Reasoning - Detailed Reasoning: A supply will be a taxable supply where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) are satisfied. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply *is connected with Australia; and (d) you are *registered or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed (* denotes a defined term under section 195-1 of the GST Act) First we need to characterise the supply of the SIM packs and electronic recharge vouchers to customers in Australia. We consider that the supply of the SIM packs and electronic recharge vouchers is not a supply of a right to which Item 4 of subsection 38-190(1) of the GST Act applies as the substance of the supply is not a supply of a right. The supply of a SIM pack is not a supply of money or currency as in the case of Travelex. Paragraph 87 of GSTR 2003/8 states as follows: 87. Where 'off-the-shelf' computer software is supplied embodied in a carrying medium such as a disk, this is a supply of goods. The whole of the purchase price of the disk is treated as proceeds from the sale of goods, notwithstanding that there may be an ancillary supply of a licence to use the program The above example is analogous to a supply of software to enable access to telecommunication services that is embodied in a carrying medium namely a SIM card. Similarly, paragraphs 31 to 34 of Taxation Ruling (TR) 93/12 express the same ATO view. Based on the facts provided, we consider that your supply of the SIM pack and recharge vouchers is a supply of goods. Your supply of the SIM pack and recharge vouchers satisfies the requirements under paragraphs 9-5(a) and 9-5(b) of the GST Act as your supply of the SIM pack and recharge vouchers to customers is for consideration and the supply is made in the course of an enterprise that you carry on. Your supply is connected with Australia under paragraph 9-25(1); you satisfy the requirement under paragraphs 9-5(c) of the GST Act. You are registered for GST in Australia; you satisfy the requirement under paragraphs 9-5(d) of the GST Act. Your supply of SIM cards and recharge vouchers to customers in Australia is not input-taxed or GST-free under the GST Act or any other Act. Paragraph 32C of Goods and Services Tax Ruling (GSTR) 2003/5 states as follows: 32C. The Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (the 2006 Explanatory Memorandum) notes that: 4.16 The definition of 'prepaid phone card or facility' is intended to cover: * phone cards sold with an initial store of value for use on payphones or home phones, which may or may not be rechargeable or topped up; and * prepaid mobile phone cards which are sold with a subscriber identity module (SIM) card or as a bundled kit (eg, mobile handset and SIM card - although it is a mixed supply). In addition, paragraphs 13 and 20 of Appendix 3 in GSTR 2003/5: "Case Study - the application of Division 100 to prepaid phone cards or facilities" state as follows: Prepaid mobile phones 13. Telco Ltd also sells prepaid mobile phone products. Through one of its retail outlets Telco Ltd sells a mobile phone handset, SIM card and a prepaid mobile phone card to Alison as a bundled package. 20. Because Alison has purchased the voucher as part of a bundled kit including a handset and SIM card, the supply of the kit is a mixed supply. The consideration for the supply of the kit needs to be apportioned between its taxable (mobile handset and SIM card) and non-taxable (prepaid mobile phone card which is a FVV) components. Therefore the supply of the SIM card with $10 credit can be considered a mixed supply with the SIM card being a taxable component and the $10 credit embodied in the SIM card a non-taxable component. Alternatively, if the supply of the SIM pack and recharge vouchers meets the requirement of a Face Value Voucher, but where the consideration for the supply of a FVV exceeds its stated monetary value, subsection 100-5(2) of the GST Act applies and the supply of the FVV is a taxable supply, to the extent the consideration exceeds the stated monetary value on the FVV. Paragraphs 7 to 11 of GSTR 2003/5 state: 7. A voucher evidences a right or entitlement to receive supplies in the future, and the obligation to make supplies, on the exercise or redemption of that right or entitlement. A voucher plays a part in two transactions: · the supply of the voucher itself, and · the redemption of the voucher for supplies. 8. The supply of a voucher will be a taxable supply where the requirements of section 9-5 are met. Where Division 100 (the Division) applies, it alters the application of the basic rules of Chapter 2 of the GST Act so that GST is not payable on the supply of certain vouchers. 9. Under the Division, GST will be payable to the extent the consideration for the supply of the voucher exceeds the stated monetary value of the voucher. The Division requires that GST is payable on the supply made on redemption of the voucher if that supply is a taxable supply, rather than at the point of supply of the voucher itself. 10. To be a voucher to which Division 100 applies, an article must satisfy the meaning of voucher in section 100-25 as well as the additional requirements in section 100-5. Not every article which purports to be a voucher will be a voucher for the purposes of section 100-25. Even if an article is a voucher as defined, the article may not meet the further requirements of section 100-5 to qualify for treatment under Division 100. 11. For the purposes of this Ruling, a voucher which satisfies both sections 100-25 and 100-5 is referred to as a 'face value voucher' (FVV). | Detailed Reasoning - Step 1: Section 100-25 requirements: Therefore the first step is to find out if the SIM packs and recharge vouchers meet the meaning of voucher in section 100-25 of the GST Act. Section 100-25 of the GST Act states: 100-25 Meaning of voucher (1) A voucher is any: (a) voucher, token, stamp, coupon or similar article; or (b) *prepaid phone card or facility; the redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms. However, a postage stamp is not a voucher. (2) A prepaid phone card or facility is any article or facility supplied for the primary purpose of enabling the holder: (a) to use, on a prepaid basis, telephone or like services supplied by a supplier of *telecommunications supplies; or (b) to make, on a prepaid basis, acquisitions that are facilitated by using telephone or like services supplied by such a supplier. Paragraphs 25 to 26, and 32A to 32G of GSTR 2003/5 state: 25. The fact that a voucher is issued and/or redeemed electronically does not exclude it from the meaning of voucher in section 100-25. A voucher that is the electronic equivalent of the physical form of a 'voucher' satisfies section 100-25. An example of this may be a visual graphic representation of the voucher on a computer screen. 26. For a voucher to fall within subsection 100-25(1): · it must satisfy either paragraph 100-25(1)(a) or (b); · the presentation of the voucher must be integral to supplies on redemption; and · upon redemption, the voucher must entitle the holder to receive supplies. 'Voucher' for the purposes of paragraph 100-25(1)(b) 32A. Paragraph 100-25(1)(b) includes as a voucher a 'prepaid phone card or facility'. This term is described in subsection 100-25(2) as any article or facility supplied for the primary purpose of enabling the holder to: · use, on a prepaid basis, telephone or like services supplied by a supplier of telecommunication supplies; or · make, on a prepaid basis, acquisitions that are facilitated by using telephone or like services supplied by a supplier of telecommunication supplies. 32B. In this context, the right or entitlement to receive supplies may be represented by an account facility with credit on it on which the holder is entitled to draw as consideration for future supplies. 32C. The Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (the 2006 Explanatory Memorandum) notes that: 4.16 The definition of 'prepaid phone card or facility' is intended to cover: · phone cards sold with an initial store of value for use on payphones or home phones, which may or may not be rechargeable or topped up; and · prepaid mobile phone cards which are sold with a subscriber identity module (SIM) card or as a bundled kit (eg, mobile handset and SIM card - although it is a mixed supply). 32D. These two types of prepaid phone cards or facilities may be topped up. This can often be done in a number of ways, for example, by a customer: · purchasing a top-up card or docket through a retailer or similar merchant and following the instructions relevant to the card or docket; · using a credit card to top-up through the Internet or by phone; or · using electronic bill payment facilities. 32E. The single function characteristic that is evident in paragraph 100-25(1)(a) is not present in paragraph 100-25(1)(b). Additionally, the explanation of a prepaid phone card or facility in subsection 100-25(2) states that it is any article or facility supplied for the primary purpose of enabling the holder to do a number of things. The reference in subsection 100-25(2) to a primary purpose, together with the absence of any evident requirement for a single function in paragraph 100-25(1)(b), indicates that a prepaid phone card or facility can have an additional function (such as the ability to be topped up) and still be a voucher for the purposes of section 100-25. | Detailed Reasoning - Article or facility: 32F. The terms 'article' and 'facility' in subsection 100-25(2) are not defined in the GST Act. The dictionary definition of 'article' is 'any thing'. Definitions of the term 'facility' include 'something that makes possible the easier performance of any action; advantage' and 'the equipment, or the resources for doing something'. The ordinary meanings of the terms 'article' and 'facility' are broad. However, because an article or facility needs to be supplied primarily for the purpose stated in subsection 100-25(2), the context in which the terms are used in defining a 'prepaid phone card or facility' indicates that their meaning is limited to articles or facilities which are prepaid phone cards or prepaid phone facilities. 32G. The Commissioner considers that the words 'article or facility', in the context of 'prepaid phone card or facility', include any or all of a phone card, the subsequent topping up process and the account maintained by the supplier for the account holder. Further, a top-up card or docket and the means for using it through such an account is an 'article or facility' as these are things used in accessing a right to make, for example, telephone calls. The presentation of the SIM packs and recharge vouchers are integral to supplies on redemption and upon redemption, the SIM packs and recharge vouchers entitle the holder to receive supplies. The SIM pack and recharge vouchers can be considered as a prepaid mobile phone card which is sold with a subscriber identity module (SIM) card. We consider that the SIM packs and recharge vouchers are prepaid phone card or facility supplied for the primary purpose of enabling the customers/subscribers to use, on a prepaid basis, telephone or like services supplied by a supplier of telecommunication supplies. The SIM pack enables the subscribers/customers to use telephone or like services, which include services such as software content and data transmission services (including email) and internet access services. Since a prepaid phone card or facility can have an additional function (such as the ability to be topped up) and still be a voucher for the purposes of section 100-25, we consider that the SIM packs and recharge vouchers are Vouchers under paragraphs100-25(2) (a) and 100-25(1)(b) of the GST Act. | Detailed Reasoning - Step 2: Section 100-5 requirements: The next step is to consider whether the SIM pack and the electronic recharge vouchers satisfy section 100-5 of the GST Act to be a Face Value Voucher. Paragraph 56 and 74 to 75 of GSTR 2003/5 state: 56. The requirement for a FVV first to be a voucher as defined in section 100-25 is discussed at paragraphs 20 to 54. In the following paragraphs we discuss the following additional requirements of section 100-5 and their consequences: · the supply of a voucher must otherwise be a taxable supply (discussed at paragraphs 57 to 67); · 'the holder of the voucher is entitled' (discussed at paragraphs 68 to 73); · upon redemption the voucher must entitle the holder to receive a reasonable choice and flexibility of supplies. (discussed at paragraphs 74 to 79); · the voucher must have a stated monetary value (discussed at paragraphs 80 to 83F); and · on redemption of the voucher the holder is entitled to supplies up to its stated monetary value (discussed at paragraphs 84 to 129). | Detailed Reasoning - Reasonable choice and flexibility of supplies: 74. The supplies to which the holder is to be entitled under section 100-5 are supplies up to the stated monetary value, not supplies of a stated monetary value. A voucher that entitles its holder to a specified supply is not one to which subsection 100-5(1) applies, even if a monetary value or price is stated on the voucher. What is required, is that the terms of the voucher must entitle the holder to a reasonable choice and flexibility as to the types of supplies for which the voucher may be redeemed. 75. The Explanatory Memorandum to Division 100 explains this requirement in section 100-5 as follows: 1.97 Only vouchers that entitle the holder to supplies up to the monetary value stated on the voucher come within Division 100. The types of things contemplated are vouchers etc. which entitled the holder to goods or services from a particular provider up to the value stated (for example a gift voucher)... 1.98 Division 100 will not cover things which are for a specified good or service but which may also state a price or value of the good or service, such as a bus ticket, a movie ticket or an airline ticket. These types of supplies entitle the holder to a specified service such as a set number of trips on a bus or travel on a particular date or over a particular period (for example a monthly bus pass). These types of supplies are subject to the normal rules and subject to GST at the time of the supply of the ticket etc. As discussed above, the supply of both the SIM pack and the electronic recharge voucher from you to the customers would be a taxable supply if Division 100 of the GST Act does not apply to them. Both the SIM pack and the recharge voucher have a monetary value and on redemption, customers are entitled to mobile broadband supply from C up to the monetary value stated on the products. In addition, customers have flexibility of choice of supplies in that the credit of $Y in the SIM pack and the credit in the recharge vouchers provide access to calls, text and data up to the stated face value. Therefore the supply of the prepaid mobile credits and electronic recharge vouchers satisfy the requirements of Face Value Vouchers. However, paragraphs 63 to 66 of GSTR 2003/5 state as follows: 63. If subsection 100-5(1) applies to a voucher it is a FVV. The supply of the FVV is not a taxable supply and no GST is payable. 64. However, where the consideration for the supply of a FVV exceeds its stated monetary value, subsection 100-5(2) applies and the supply of the FVV is a taxable supply, to the extent the consideration exceeds the stated monetary value on the FVV. 65. An example of a FVV for which the consideration may exceed the stated monetary value is a commemorative FVV (that is, a FVV issued to recognise or celebrate an historic moment or event). | Detailed Reasoning - Example 11: consideration exceeding stated monetary value of a FVV: 66. Owen pays $61 for a limited edition Olympic Moments FVV with a stated monetary value of $50. As the consideration exceeds the monetary value stated on the FVV, the supply of the FVV to Owen is a taxable supply. The consideration for the supply of the FVV is treated as if it were $11 ($61 less $50, the stated monetary value of the FVV). The GST payable on the supply of the FVV is $1. On redemption of the FVV for supplies, the consideration is the stated monetary value of the FVV if it is redeemed in full (that is, $50). In this case, the consideration for the supply of the SIM pack is $X, with the stated monetary credit value of $Y. This is stated on the SIM pack. The consideration for the supply of the recharge vouchers equals the stated monetary credit value on said vouchers. Therefore Division 100 of the GST Act apply at the time of the sale to render the supply of the SIM pack a taxable supply to the extent the consideration ($X) exceeds the monetary value stated on the FVV ($Y), that is, the taxable component is $X - $Y. The supply of the recharge vouchers is not a taxable supply. All public rulings and publications are available on the ATO website at www.ato.gov.au

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.