Issue
Does the entity, a financial institution, receive consideration for a supply under sections 9-15 and 9-17 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when a commodity supplier exercises its right to roll-over a commodity repurchase transaction?
Decision
Yes, the entity receives consideration for a supply under sections 9-15 and 9-17 of the GST Act when a commodity supplier exercises its right to roll-over a commodity repurchase transaction.
The consideration provided is the difference between the original purchase price and the agreed repurchase price.
Facts
The entity makes an acquisition from a commodity supplier in conjunction with an undertaking from the commodity supplier to repurchase the commodity at a specific future date for a specified repurchase price. Ownership and title in the commodity pass from the commodity supplier to the entity upon payment by the entity and then back to the commodity supplier upon the further payment by the commodity supplier at the time of repurchase.
Under the terms of the repurchase agreement, on the agreed date of the repurchase the entity and the commodity supplier can agree to 'roll-over' the transaction. If the entity and the commodity supplier agree to roll-over the transaction then the commodity supplier must pay the entity the difference between the original purchase price and the agreed repurchase price.
When a roll-over occurs, ownership and title in the commodity remain with the entity. A new repurchase agreement is created between the entity and the commodity supplier in which a new repurchase price is determined for repurchase of the commodity at the new future date. The same commodity may be rolled-over several times before the title actually passes back to the commodity supplier.
Under the agreement, there is no sale and repurchase of the commodity.
The entity and the commodity supplier are registered for goods and services tax and each carrying on an enterprise. The supplies between the entity and the commodity supplier are made in Australia.
Reasons for Decision
Under subsection 9-15(1) of the GST Act, consideration includes: (a) any payment, or any act or forbearance, in connection with a supply of anything, and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
However, subsection 9-17(1) of the GST Act limits consideration arising in respect of the supply of a thing pursuant to a right or option previously granted to acquire the thing. It provides that, in such circumstances, the consideration for the thing supplied is limited to the additional consideration provided either for the supply or in connection with the exercise of the right or option.
In this case, the repurchase agreement grants the right or option to vary the terms of the agreement. Under this right or option, a new repurchase date and repurchase price are negotiated. To renew or extend the commodity repurchase transaction beyond its maturity date, the right or option must be exercised. Therefore the additional consideration provided when the right or option is exercised, is the difference between the original purchase price and the agreed repurchase price.
Accordingly, the additional consideration received by the entity is consideration for a supply under sections 9-15 and 9-17 of the GST Act.
Amendment History
Date of amendment Part Comment 14 June 2013 Issue Inserted section 9-17 Decision Inserted section 9-17 Reasons for Decision Deleted paragraph 9-15(3)(a) and inserted subsection 9-17(1) after 'However'. Inserted section 9-17 in the last paragraph. Subsection 9-15(3) repealed with effect from 1 July 2012. Section 9-17 inserted with effect from 1 July 2012. Legislative References Added section 9-17 and subsection 9-17(1). Deleted paragraph 9-15(3)(a).
Date of amendment | Part | Comment
14 June 2013 | Issue | Inserted section 9-17
Decision | Inserted section 9-17
Reasons for Decision | Deleted paragraph 9-15(3)(a) and inserted subsection 9-17(1) after 'However'. Inserted section 9-17 in the last paragraph. Subsection 9-15(3) repealed with effect from 1 July 2012. Section 9-17 inserted with effect from 1 July 2012.
Legislative References | Added section 9-17 and subsection 9-17(1). Deleted paragraph 9-15(3)(a).