Issue
Is the entity, a management company that administers a barter scheme, making an input taxed supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it provides services to members of the barter scheme on behalf of the barter exchange company that owns the scheme?
Decision
No, the entity is not making an input taxed supply under subsection 40-5(1) of the GST Act, when it provides services to members of the barter scheme on behalf of the barter exchange company that owns the scheme.
The entity is making a taxable supply to the barter exchange company under section 9-5 of the GST Act.
Facts
The entity undertakes the management and administration of a barter scheme on behalf of the barter exchange company that owns the barter scheme.
The scheme allows members to buy and sell goods and services from each other in exchange for 'trading credits'. The trading credits are debited and credited to the accounts of the members, depending on whether the member has supplied goods or services or acquired goods or services.
The role of the barter exchange company is to facilitate trade transactions between the members of the barter scheme, and to keep records of those transactions in the members' trading accounts.
The barter exchange company does not carry out these duties itself. Rather, it engages the services of the entity (a separate management company) to manage and administer the barter scheme on its behalf, as set out in the management agreement and the rules of the barter scheme.
The barter exchange company issues members with a trading card and provides them with a trading account, but the entity is responsible for debiting or crediting this account each time a member makes a sale or purchase.
The entity receives from the barter exchange company a specified percentage of the fees collected from members, as consideration for providing these services.
Neither the entity nor the barter exchange company are a party to the sale or purchase transactions conducted between the members of the barter scheme.
The supply by the entity is made for consideration, in the course or furtherance of an enterprise and is connected with Australia.
The supply of the interest in the barter scheme is an input taxed financial supply by the barter exchange company under subsection 40-5(1) of the GST Act (refer to ATO ID236443-1 for a discussion of this issue).
Both the entity and the barter exchange company are registered for goods and services tax (GST).
Reasons for Decision
Under subsection 40-5(1) of the GST Act, a financial supply is input taxed. The supply of the interest in the barter scheme is an input taxed financial supply by the barter exchange company to the prospective members, under subsection 40-5(1) of the GST Act. However, it needs to be determined whether the entity is also making an input taxed financial supply when it manages and administers the scheme on behalf of the barter exchange company.
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 states that the provision, acquisition or disposal of an interest mentioned in subregulations (3) or (4) is a financial supply if, amongst other requirements, the supplier is: • registered or required to be registered for GST; and • a financial supply provider in relation to the supply of the interest.
The entity is registered for GST. Therefore, it must be established whether the entity is the financial supply provider of the interest in the barter scheme.
Under subregulation 40-5.06(1) of the GST Regulations, the financial supply provider of an interest is the entity that: • had property in the interest immediately before it was supplied; or • created the interest in making the supply.
The entity does not own the barter scheme and cannot therefore create an interest in the barter scheme. The barter scheme is owned by the barter exchange company who creates an interest in the scheme by issuing a preference share to a prospective member. The entity only manages and administers the scheme on behalf of the barter exchange company.
As such, the entity is a financial supply facilitator in relation to the supply of an interest in a barter scheme but is not the financial supply provider of that interest.
Accordingly, the entity is not making an input taxed supply under subsection 40-5(1) of the GST Act, when it provides services to members of the barter scheme on behalf of the barter exchange company that owns the scheme.
The entity is making a supply of services to the barter exchange company. The supply is made for consideration, in the course or furtherance of an enterprise, is connected with Australia, and the supplier (the entity) is registered for GST. Therefore, as the supply meets all of the requirements in section 9-5 of the GST Act, the entity is making a taxable supply to the barter exchange company.