Private ruling: Goods and services tax and the sale of banknotes
Published: October 2013

Ruling: Q1: Does the sale of banknotes from you to your sole trader enterprise make the banknotes second-hand? | A1: No, the sale of banknotes from you to your sole trader enterprise does not make the banknotes second-hand. | Q2: Are you making a taxable supply for goods and services tax purposes (GST) when you sell banknotes as collectables for a price greater than the stated face value? | A2: Yes, you make a taxable supply when you sell banknotes as collectables for a price greater than the stated face value. | Q3: Is your sale of banknotes for a price greater than the stated face value to a Company of which you are the sole director a taxable supply and therefore, subject to GST? | A3: Yes, your sale of banknotes for a price greater than the stated face value to a Company of which you are the sole director is a taxable supply and therefore subject to GST.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are registered for GST. You are a sole trader who is engaged in the business of buying and selling banknotes. You have purchased sequential uncirculated banknotes from the Reserve Bank of Australia (RBA). The purchase was at the stated face value and therefore, an exchange of money for money. You intend to sell the banknotes from your personal capacity into your sole trader enterprise to claim the cost of the purchase and to make a taxable profit by selling the banknotes as collectibles. Alternatively, you intend to sell the banknotes to a Company of which you are the sole director at a price greater than face value.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-15 | A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-E | A New Tax System (Goods and Services Tax) Act 1999 Section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 195 | A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.09 | A New Tax System (Goods and Services Tax) Regulations 1999 regulation 40-5.12

Reasons for decision: Summary: A supply is defined in section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and states: | Detailed Reasoning - 9-10 Meaning of supply: 1) A supply is any form of supply whatsoever. 2) Without limiting subsection (1), supply includes any of these: (a) a supply of goods; (b) a supply of services; (c) (c)…………. The Commissioner's view on the meaning of 'supply' and its consequences are set out in Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies (GSTR 2006/9). In particular, paragraph 12 of GSTR 2006/9 explains that the basic rules of GST require an entity, the supplier, to make the supply and generally another entity, the recipient to acquire the supply. Further, paragraph 17 of GSTR 2006/9 provides that the scheme of the GST Act is not so broad to embrace the notions of an entity making a supply to itself. Part 2 of GSTR 2006/9 looks at how to identify and characterise supplies in the context of the transaction in which they are made. The Ruling uses ten propositions to assist in analysing a transaction to identify the supply or supplies made in the transaction. In particular, Proposition 2 and paragraph 55 of GSTR 2006/9 state: | Detailed Reasoning - Proposition 2: generally, for every supply there is a recipient and an acquisition: 55. The supplier and the recipient have to be different entities because an entity cannot make a supply to itself. ……. Also, Proposition 7 and paragraph 95 of GSTR 2006/9 state: | Detailed Reasoning - Proposition 7: an entity cannot make a supply to itself: 95. The proposition that an entity cannot make a supply to itself flows from the proposition 'supply usually, but not necessarily, requires something to be passed from one entity to another'. It also seems self evident in a transaction based tax. Paragraph 15 of GSTR 2006/9 states: 15. You make an acquisition if you are the recipient of a supply. That is, the supply is made to you. In most transactions concerning GST the recipient of a supply is the entity that is also provided with that supply……….. As a sole owner of an enterprise, from a legal perspective there is no distinction between yourself and the enterprise. This is because you and your sole trader enterprise is one entity. Applying the principles above, the supply of banknotes from you to your sole trader enterprise does not constitute a supply under the GST Act. Because there is no supply of banknotes there can be no acquisition and therefore the banknotes do not become second-hand. | Detailed Reasoning - Answer 2: A supply is a taxable supply if it meets the requirements of section 9-5 of the GST Act. This section 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 term defined in section 195-1 of the GST Act) Subsection 9-10(1) of the GST Act states that a supply is 'any form of supply whatsoever'. However, subsection 9-10(4) of the GST Act provides for an exception and states that a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money. Therefore, money in itself is not a supply unless it is provided as consideration for a supply of money. The definition of money is provided in section 195-1 of the GST Act and states that: Money includes: (b) currency (whether of Australia or of any other country); … However, it does not include: (j) a collector's piece; or (k) an investment article; or (l) an item of numismatic interest; or (m) currency the market value of which exceeds its stated value as legal tender in the country of issue. In accordance with the definition of money you are not making a supply of money when you sell coins and notes at face value. However, coins and notes of numismatic interest are generally intended to be collected rather than bought and sold for use as currency. Therefore, coins and notes are capable of being supplied as 'goods' as long as they are supplied as an item of numismatic interest and not as currency used as legal tender. In your case, where you supply the banknotes as collectables with a market value exceeding their stated value as legal tender, the exception in subsection 9-10(4) of the GST Act will not apply. Consequently, the sale of these banknotes will be a supply under the GST Act. Your supply of the banknotes is made for consideration, in the course of carrying on your enterprise and you are registered for GST. Where the banknotes are sold in Australia, the supply of the banknotes will be connected with Australia. Therefore, your supply of banknotes is a taxable supply to the extent that it is not an input taxed or GST-free supply. We will now consider whether your supply of the banknotes is input taxed or GST- free. Input Taxed supplies Section 40-5 of the GST Act provides that financial supplies are input taxed. Financial supplies are defined in regulation 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) and states that the provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if it is: · for consideration; and · in the course or furtherance of an enterprise; and · connected with Australia. Australian currency and the currency of a foreign country is listed in item 9 in the table in regulation 40-5.09 of the GST Regulations and is therefore a financial supply. However, Item 17 in the table in regulation 40-5.12 of the GST Regulations provide that where the market value of that currency exceeds its stated face value as legal tender, it is not a financial supply. Where a supply is mentioned in both regulation 40-5.09 and 40-5.12, subregulation 40-5.08(2) of the GST Regulations states that the supply is not a financial supply. Therefore, where the market value of the banknotes you supply exceeds its stated face value as legal tender, the supply of the banknotes will not be an input taxed financial supply. Note that where you sell or exchange banknotes at their stated face value, you will be making an input taxed financial supply as specified in Item 9 of the GST Regulations. GST-free supplies Where you export goods for consumption outside Australia the supply of those goods may be a GST-free supply under Subdivision 38-E of the GST Act. Following from the above analysis, your supply of the banknotes meet the requirements of paragraphs (a) to (d) of section 9-5 of the GST Act and is not input taxed or GST-free. Therefore your supply of the banknotes will be a taxable supply. | Detailed Reasoning - Answer 3: A company is a separate legal entity. Your sale of banknotes to a Company of which you are the sole director will constitute a taxable supply provided the conditions in section 9-5 of the GST Act are met. The operation of section 9-5 of the GST Act has been discussed in Answer 2. Subsection 7-1(1) of the GST Act provides that GST is payable on taxable supplies and taxable importations.