Private ruling: GST and apportionment methodology
Date of advice: 9 February 2017
Published: July 2017

Ruling: Q1: Is the following revenue based formula a fair and reasonable methodology, for the purposes of subsection 11-30(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), for establishing the Extent of Creditable Purpose (ECP) of your acquisitions where it is based on the percentage split of inbound and outbound transactions? [Revenue from Outbound transactions] / [Revenue from (Inbound + Outbound) transactions] x100 | A1: Given that - ● your range of products is relatively narrow (in that you only make inbound and outbound transactions); ● you do not offer travel cards, cheques, insurance etc; ● your methodology does not require the adoption of any major assumptions; and ● there appear to be no distortive factors impacting the outcome, we are of the view that the revenue based formula (as stated above) is a fair and reasonable methodology for establishing the ECP of your acquisitions.

Relevant facts and circumstances: You are part of a multinational group of companies specialising in foreign exchange services, with branches across several countries. You are an Australian resident company and you operate at a relevant Australian airport. You have an ABN and have been registered for GST during the relevant period. All your services can be categorised for GST purposes as outbound or inbound , as follows: ● Outbound: a customer may purchase foreign currency either online or at the airport, however, only when they present their passport and flight number to verify they are traveling overseas the purchase of foreign currency is categorised as an outbound transaction. Outbound transactions are treated as GST-free. ● Inbound: when a customer purchases Australian currency or foreign currency without presenting their passport and flight number, that purchase is categorised as an inbound transaction. Inbound transactions are treated as input taxed. You establish customer's intention for the use of foreign currency on the basis of reasoning in Travelex Ltd v. Commissioner of Taxation [2010] HCA 33. Namely, obtaining foreign currency at an international terminal, and upon presentation of their passport and flight number, is accepted by you to be for use outside Australia. Specifically, you offer foreign exchange services from which you derive revenue by way of foreign exchange margin and commission fees. Your revenue streams include: ● Retail exchange of currency in cash over the counter at the airport, which involves customers purchasing foreign or Australian currency. These transactions are categorised as inbound or outbound in the same way as described above. ● Online pre-ordering of currency, followed by collection of that currency in cash over the counter at the airport. These transactions are categorised as inbound or outbound in the same way as described above. ● Wholesale exchange of foreign currency into Australian Dollars involves airport retailers who accumulate foreign notes during their daily operation, and who require exchanging foreign notes into Australian Dollars. These transactions are categorised as inbound transactions and they are treated as input taxed. ● Your accounts show that you intend to derive ' online and corporate revenues ', however, these services are not yet active and you have not derived any revenue as of December 201X. These transactions are categorised as inbound or outbound in the same way as described above. Other revenue streams appearing in your accounts do not form part of your service offering; they are: ● Realised gains and losses on the appreciation/depreciation of currencies in stock ● Realised gains and losses on the difference between exchange rates applied by you and by the Reserve Bank of Australia (RBA) These other revenue streams are not related to any supply because there is no physical exchange of currencies between you and your customers. Accordingly, these are accounting entries and, as such, they are not included in the calculation of ECP. You do not offer pre-paid cards, travel passports, insurance etc. You do not offer bank transfers, inbound or outbound. Currently, you do not offer corporate sales channels; therefore, there is no corporate revenue. You currently operate from only one location, at a relevant Australian airport. In carrying on your enterprise you make acquisitions which are not directly attributable, such as: professional consultants, security, rent, insurance, bank charges, repairs and maintenance, office supplies, uniforms and staff-related costs, internal audit expenses, marketing, information technology equipment and passport readers. You are not able to allocate inputs directly. You exceed the financial acquisitions threshold (FAT) but you do not claim any reduced input tax credits (RITC) for your acquisitions. Your largest expense is rent, which is charged by the airport on the basis of your projected revenue and, mainly for this reason, you propose a revenue based formula. You propose to calculate your ECP using the following revenue based formula: [Revenue from Outbound transactions] / [Revenue from (Inbound + Outbound) transactions] x100 where Revenue comprises: ● the profit margin (being the difference between the buy and sell price of the foreign exchange) and ● commission fees; The appropriate ECP will be determined using actual (not estimated) transaction data. You will revise your ECP on a six monthly basis in the first twelve months of operation. Once twelve months of revenue has been recorded the methodology will be reviewed annually.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 11-30(3).