Issue
Is the entity, a financial institution, making an input taxed financial supply under subsection 40-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies an internet banking facility that allows its personal customers to perform transactions on which it charges a transaction fee for each payment forwarded to another financial institution?
Decision
Yes, the entity is making an input taxed financial supply under subsection 40-5(1) of the GST Act.
Facts
The entity is a financial institution. The entity is an authorised deposit-taking institution (ADI) which provides its customers with internet banking services in the course of its banking business within the meaning of the Banking Act 1959 .
The entity makes available an account to its personal customers. The personal customers can access their accounts through the internet banking facility to make individual payments to third parties as part of their everyday account transaction functions. These payments may be made by entering the bank account details of the third party.
The entity charges its personal customers a transaction fee each time the customers use their account to make an individual payment to the account of a third party with another financial institution.
The supply is made in the course of the entity's enterprise and is connected with Australia. The entity is 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. 'Financial supply' is defined in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) (subsection 40-5(2) of the GST Act).
Subregulation 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest mentioned in subregulation 40-5.09(3) or 40-5.09(4) of the GST Regulations is a financial supply if: (a) the provision, acquisition or disposal of that interest is: • for consideration • in the course or furtherance of an enterprise, and • connected with Australia, and (b) the supplier is: • registered or required to be registered for GST, and • a financial supply provider in relation to the supply of the interest.
Item 1 in the table in subregulation 40-5.09(3) of the GST Regulations (Item 1) lists an interest in or under an account made available by an Australian ADI in the course of its banking business within the meaning of the Banking Act.
The entity is an ADI that provides its customers with internet banking services in the course of its banking business within the meaning of the Banking Act.
When the entity provides its personal customers access to their accounts through its internet banking facility to make individual payments to a third party, it is in relation to an account transaction.
Part 1 of Schedule 7 to the GST Regulations list examples covered by Item 1. Some of the examples listed, which could encompass the transfer of funds to a third party through an internet banking facility, are: • maintaining of cheque, debit card, deposit and savings accounts for account holders • electronic operation of accounts, and • electronic funds transfer.
Therefore, the transaction allowing individual payment to the account of a third party with another financial institution by customer is part of the provision of an interest in a bank account. Accordingly, the entity is providing an interest in or under an account under Item 1.
The transaction fee is consideration for the entity's supply of an interest in or under an account. The supply is made in the course of the entity's enterprise and is connected with Australia. The entity is registered for GST and, as they provided the interest, is the financial supply provider in relation to the supply of the internet banking facility (regulation 40-5.06 of the GST Regulations).
The supply satisfies the requirements of subregulation 40-5.09(1) of the GST Regulations. Therefore, the entity is making an input taxed financial supply under subsection 40-5(1) of the GST Act when it supplies an internet banking facility that allows its personal customers to perform transactions on which it charges a transaction fee for each payment forwarded to another financial institution.