GST and supply of a loan

Is the entity, a provider of financial supplies, making an input taxed supply under section 40-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it provides a loan to a client?

Yes, the entity is making an input taxed supply under section 40-5 of the GST Act when it provides a loan to a client.

The entity is a financial supply provider that provides a loan to a client. The entity charges interest on the loan. The entity also charges administration fees for the use of the loan facility.

The entity supplies this loan in the course of its enterprise, the supply is connected with Australia and the entity is registered for goods and services tax (GST).

Section 40-5 of the GST Act provides that a financial supply is input taxed.

A financial supply is defined in subregulation 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) to include the provision, acquisition or disposal of an interest in an item that: • is listed in the table of subregulation 40-5.09(3) of the GST Regulations; and • is for consideration; and • is in the course or furtherance of an enterprise; and • is connected with Australia; and • the supplier is registered or required to be registered for GST; and • the supplier is a financial supply provider in relation to the supply of the interest.

Item 2 of the table in subregulation 40-5.09(3) of the GST Regulations (Item 2) lists 'a debt, credit arrangement or right to credit, including a letter of credit'. Under Part 2 of Schedule 7 of the GST Regulations, borrowing and lending, including establishing, maintaining and discharging loans are examples of financial supplies that are relevant to Item 2. Therefore, the supply of a loan will constitute the supply of an interest in a debt and is covered by Item 2.

In this case, the financial supply provider is supplying a loan to a client, in Australia. The consideration for this loan is the interest and administration fees that are charged by the entity. As well, the entity is providing this loan in the course of its enterprise and it is registered for GST. Therefore, as all the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied, the supply of the loan is a financial supply.

As the supply of the loan is a financial supply, the entity is making an input taxed supply under section 40-5 of the GST Act when it provides a loan to a client.