Issue
Is the entity, a business operator, making a financial supply that is input taxed under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives interest from the Australian Taxation Office (ATO) for early payment of a tax debt?
Decision
Yes, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it receives interest from the ATO for early payment of a tax debt.
Facts
The entity is a business operator in Australia. The entity has a tax debt which it pays before the due date. The entity receives interest from the ATO for the early payment of this tax debt.
The entity is registered for goods and services tax (GST) and the tax debt was incurred in the course of the entity's enterprise.
Reasons for Decision
Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. Subsection 40-5(2) of the GST Act provides that a financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).
Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if: • the provision, acquisition or disposal is: - for consideration; and - in the course or furtherance of an enterprise; and - connected with Australia; and • the supplier is: - registered or required to be registered for GST; and - a financial supply provider in relation to the supply of the interest.
Firstly, it is necessary to determine whether the entity is providing, acquiring or disposing of an interest in or under an item mentioned in subregulation 40-5.09(3) or (4) of the GST Regulations.
Item 2 in 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'.
The entity has an interest in a credit arrangement with the ATO. The entity has disposed of its interest in the credit arrangement by paying its tax debt. The interest paid by the ATO for early payment of tax is consideration for the disposal of this interest in the credit arrangement.
In addition, the disposal of the interest in the credit arrangement is made in the course or furtherance of an enterprise, it is connected with Australia and the supplier, the entity, is registered for GST. Therefore, it is only necessary to determine if the supplier is a 'financial supply provider' in relation to the supply of the interest.
A financial supply provider is defined under subregulation 40-5.06(1) of the GST Regulations as an entity in relation to the supply of an interest that was: • immediately before the supply, the property of the entity; or • created by the entity in making the supply.
As the interest in the credit arrangement was the property of the entity immediately before the disposal of that interest, the entity is a financial supply provider in relation to that interest.
Therefore, as all of the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied, the disposal of an interest in a credit arrangement by the entity is a financial supply.
As such, the entity is making a financial supply that is input taxed under subsection 40-5(1) of the GST Act when it receives interest from the ATO for early payment of tax.