Goods and Services Tax Determination GSTD 2015/1
Date of effect: 28 January 2015



Ruling: 1. Yes. The supply of brokerage services that facilitates the sale or purchase of financial products on overseas securities or futures exchanges is a GST-free supply under paragraph (a) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (Item 4). 2. For the purposes of this Determination: | Example 1: 3. Fantastic Brokerage carries on an enterprise in Australia and supplies brokerage services to an Australian resident client who is purchasing shares on an overseas securities exchange. 4. The brokerage services supplied by Fantastic Brokerage are a supply made in relation to rights as they facilitate a dealing in the rights that constitute the share. As the shares are purchased on an overseas securities exchange, the rights in the shares are for use where the exchange is located. 5. Therefore, the supply of brokerage services by Fantastic Brokerage is a supply that is made in relation to rights that are for use outside Australia. Accordingly, the supply of brokerage services is GST-free under Item 4. | Example 2: 6. Norved Single Origin Beans (Norved) is an Australian coffee roaster who buys its green coffee beans at the prevailing world price. It uses deliverable Arabica coffee bean futures that are traded on an overseas futures exchange to hedge its exposure to the world coffee price. Norved uses Helpful Hedger Co to provide brokerage services to facilitate opening and closing-out of its futures positions. 7. Norved decides that coffee prices are likely to rise, so it buys (long position) a coffee beans futures contract to lock in a particular price. Entry into the futures contract involves a supply in relation to rights for the purposes of Item 4. Norved may request that Helpful Hedger closes-out the open position on the overseas exchange near the expiry date. Alternatively, Norved will hold the contract until expiry, at which time the overseas futures exchange will match Norved to a specific seller to complete a sale of goods. As the use of the rights is on the overseas futures exchange, the rights in the futures contract are for use outside Australia. 8. Therefore, the brokerage services provided by Helpful Hedger Co to facilitate opening or closing the futures contract position is a supply in relation to rights for use outside Australia. Accordingly, the supply of brokerage services is GST free under Item 4. | Date of effect: 9. This Determination applies both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 28 January 2015

Examples: Example 1: 3. Fantastic Brokerage carries on an enterprise in Australia and supplies brokerage services to an Australian resident client who is purchasing shares on an overseas securities exchange. 4. The brokerage services supplied by Fantastic Brokerage are a supply made in relation to rights as they facilitate a dealing in the rights that constitute the share. As the shares are purchased on an overseas securities exchange, the rights in the shares are for use where the exchange is located. 5. Therefore, the supply of brokerage services by Fantastic Brokerage is a supply that is made in relation to rights that are for use outside Australia. Accordingly, the supply of brokerage services is GST-free under Item 4. | Example 2: 6. Norved Single Origin Beans (Norved) is an Australian coffee roaster who buys its green coffee beans at the prevailing world price. It uses deliverable Arabica coffee bean futures that are traded on an overseas futures exchange to hedge its exposure to the world coffee price. Norved uses Helpful Hedger Co to provide brokerage services to facilitate opening and closing-out of its futures positions. 7. Norved decides that coffee prices are likely to rise, so it buys (long position) a coffee beans futures contract to lock in a particular price. Entry into the futures contract involves a supply in relation to rights for the purposes of Item 4. Norved may request that Helpful Hedger closes-out the open position on the overseas exchange near the expiry date. Alternatively, Norved will hold the contract until expiry, at which time the overseas futures exchange will match Norved to a specific seller to complete a sale of goods. As the use of the rights is on the overseas futures exchange, the rights in the futures contract are for use outside Australia. 8. Therefore, the brokerage services provided by Helpful Hedger Co to facilitate opening or closing the futures contract position is a supply in relation to rights for use outside Australia. Accordingly, the supply of brokerage services is GST free under Item 4. Date of effect 9. This Determination applies both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 28 January 2015 Background 10. This Determination sets out the Commissioner's views regarding how Item 4 applies to specific brokerage services. The application of Item 4 is considered more broadly in Goods and Services Tax Ruling GSTR 2003/8. Supplies in relation to rights that are for use outside Australia 11. Item 4 relevantly provides that 'a supply that is made in relation to rights' is GST-free 'if... the rights are for use outside Australia'. Paragraph (b) of Item 4 is not considered in this Determination. Subsection 38-190(2) of the GST Act will not apply as brokerage services are a supply of a service not a supply of a right or an option to acquire something. 12. GSTR 2003/8 explains [1] that a supply of a thing is a 'supply that is made in relation to rights' if it fits within one of three categories. Category 3 refers to services directly connected with rights. If a dealing or exercise in a particular financial product on an overseas securities or futures exchange (overseas exchange) is one of rights, then the brokerage services that facilitate that dealing or exercise are directly connected to those rights. [2] Are the specified financial products rights or a bundle of rights? 13. To establish if brokerage services relating to a particular financial product is a supply in relation to rights, it needs to be determined if the essential character or substance of a dealing in a financial product is one of rights. [3] This will be satisfied if a supply of the financial product can be characterised as a supply of rights (Category 1) or a supply of a thing where the value is exclusively or almost exclusively a bundle of rights (Category 2). [4] The rights must be more than incidental, for example rights in an executory contract may contribute to the supply but cannot be identified as the dominant part of the supply. [5] 14. Due to the financial character of financial products that are listed on overseas securities and futures exchanges, any dealings in those products are considered to be in rights. The following examples illustrate this: Futures 15. Deliverable commodity futures contracts are an agreement to buy or sell the underlying goods. The commercial or business purpose of the futures market, discerned objectively, [7] is trading in the contracts themselves [8] . It is considered in the context of Item 4, that the essential character of a deliverable commodity futures contract, at the time that brokerage services are provided in opening or closing the position, is in the rights (to make or take delivery of the underlying goods) in the contract. This is the case even if the client intends to hold the contract until delivery is required. [9] Are the rights for use outside of Australia? 16. The remaining requirement to establish that a supply of brokerage services will be GST-free under Item 4, is to determine if the rights in the financial products are for use outside Australia. It is the intended use of those rights that is relevant to determine where the rights are for use. [10] Brokerage services when purchasing a financial product 17. Given the varied nature of financial products, a client may intend to use the rights for various purposes, such as trading or reselling the financial product, exercising the rights in the financial product, or holding the product as an investment. 18. When financial products are acquired with the intention of reselling them on an overseas exchange, or the essential character of the financial product is to exercise a right (for example options and warrants) on an overseas exchange, the rights are for use outside Australia. 19. When financial products are acquired without the client having any immediate intention to exercise or resell them, other factors may be relevant. In considering the nature of the rights in the financial products and the surrounding circumstances, the jurisdiction where the relevant rights would be exercised or enforced, combined with the financial product being listed on an overseas securities or futures exchange, are relevant factors for determining if the rights are for use outside Australia. [11] 20. It is accepted that a broker may face the following practical difficulties in determining the use of the financial product to which the brokerage services relate: 21. Taking into account the difficulties described in paragraph 20, when a client buys a financial product on an overseas exchange, the location of the exchange is a reasonable method of determining where the rights in the financial product are for use. [12] Therefore, a supply of brokerage services to purchase a financial product on an overseas securities or futures exchange is GST-free. [13] Brokerage services when selling a financial product 22. When a client is acquiring brokerage services to sell a financial product on an overseas exchange, the rights will be for use by the subsequent purchaser, not the broker's client. [14] It is accepted that it is generally not possible for the broker to identify the purchaser and their use of the financial product. 23. When a client sells a financial product on an overseas exchange, the new purchaser will be considered to have acquired the rights in the financial product for use outside Australia. [15] Therefore, the supply of brokerage services to sell a financial product on an overseas securities or futures exchange is GST-free. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Previously issued as GSTD 2014/D4

Appendix: Background: 10. This Determination sets out the Commissioner's views regarding how Item 4 applies to specific brokerage services. The application of Item 4 is considered more broadly in Goods and Services Tax Ruling GSTR 2003/8. | Supplies in relation to rights that are for use outside Australia: 11. Item 4 relevantly provides that 'a supply that is made in relation to rights' is GST-free 'if... the rights are for use outside Australia'. Paragraph (b) of Item 4 is not considered in this Determination. Subsection 38-190(2) of the GST Act will not apply as brokerage services are a supply of a service not a supply of a right or an option to acquire something. 12. GSTR 2003/8 explains [1] that a supply of a thing is a 'supply that is made in relation to rights' if it fits within one of three categories. Category 3 refers to services directly connected with rights. If a dealing or exercise in a particular financial product on an overseas securities or futures exchange (overseas exchange) is one of rights, then the brokerage services that facilitate that dealing or exercise are directly connected to those rights. [2] | Are the specified financial products rights or a bundle of rights?: 13. To establish if brokerage services relating to a particular financial product is a supply in relation to rights, it needs to be determined if the essential character or substance of a dealing in a financial product is one of rights. [3] This will be satisfied if a supply of the financial product can be characterised as a supply of rights (Category 1) or a supply of a thing where the value is exclusively or almost exclusively a bundle of rights (Category 2). [4] The rights must be more than incidental, for example rights in an executory contract may contribute to the supply but cannot be identified as the dominant part of the supply. [5] 14. Due to the financial character of financial products that are listed on overseas securities and futures exchanges, any dealings in those products are considered to be in rights. The following examples illustrate this: | Futures: 15. Deliverable commodity futures contracts are an agreement to buy or sell the underlying goods. The commercial or business purpose of the futures market, discerned objectively, [7] is trading in the contracts themselves [8] . It is considered in the context of Item 4, that the essential character of a deliverable commodity futures contract, at the time that brokerage services are provided in opening or closing the position, is in the rights (to make or take delivery of the underlying goods) in the contract. This is the case even if the client intends to hold the contract until delivery is required. [9] | Are the rights for use outside of Australia?: 16. The remaining requirement to establish that a supply of brokerage services will be GST-free under Item 4, is to determine if the rights in the financial products are for use outside Australia. It is the intended use of those rights that is relevant to determine where the rights are for use. [10] | Brokerage services when purchasing a financial product: 17. Given the varied nature of financial products, a client may intend to use the rights for various purposes, such as trading or reselling the financial product, exercising the rights in the financial product, or holding the product as an investment. 18. When financial products are acquired with the intention of reselling them on an overseas exchange, or the essential character of the financial product is to exercise a right (for example options and warrants) on an overseas exchange, the rights are for use outside Australia. 19. When financial products are acquired without the client having any immediate intention to exercise or resell them, other factors may be relevant. In considering the nature of the rights in the financial products and the surrounding circumstances, the jurisdiction where the relevant rights would be exercised or enforced, combined with the financial product being listed on an overseas securities or futures exchange, are relevant factors for determining if the rights are for use outside Australia. [11] 20. It is accepted that a broker may face the following practical difficulties in determining the use of the financial product to which the brokerage services relate: 21. Taking into account the difficulties described in paragraph 20, when a client buys a financial product on an overseas exchange, the location of the exchange is a reasonable method of determining where the rights in the financial product are for use. [12] Therefore, a supply of brokerage services to purchase a financial product on an overseas securities or futures exchange is GST-free. [13] | Brokerage services when selling a financial product: 22. When a client is acquiring brokerage services to sell a financial product on an overseas exchange, the rights will be for use by the subsequent purchaser, not the broker's client. [14] It is accepted that it is generally not possible for the broker to identify the purchaser and their use of the financial product. 23. When a client sells a financial product on an overseas exchange, the new purchaser will be considered to have acquired the rights in the financial product for use outside Australia. [15] Therefore, the supply of brokerage services to sell a financial product on an overseas securities or futures exchange is GST-free. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Previously issued as GSTD 2014/D4


Goods and services tax: is the supply of brokerage services that facilitates the sale or purchase of financial products on overseas securities or futures exchanges, a GST-free supply under paragraph (a) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 ?: This Ruling contains references to provisions of the A New Tax System (Goods and Services Tax) Regulations 1999, which have been replaced by the A New Tax System (Goods and Services Tax) Regulations 2019. This Ruling continues to have effect in relation to the remade Regulations. | Paragraph 32 of TR 2006/10 provides further guidance on the status and binding effect of public rulings where the law has been repealed and rewritten. | A comparison table which provides the replacement provisions in the A New Tax System (Goods and Services Tax) Regulations 2019 for regulations which are referenced in this Ruling is available. | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.


Related rulings: TR 2006/10 TR 2008/9 GSTR 2002/2 GSTR 2003/8
Legislative references: ANTS(GST)A 1999 38-190(1) ANTS(GST)A 1999 38-190(2) ANTS(GST)R 1999 40-5.12
Case references: Travelex Ltd v. Commissioner of Taxation (2010) 241 CLR 510 [2010] HCA 33 2010 ATC 20-214 (2010) 76 ATR 329
Subject references: financial Instruments goods and services tax GST financial supplies GST free rights for use outside Australia