GST and supply of foreign currency notes

Is the supply of foreign currency notes by the entity, a financial institution that provides foreign currency exchange services to its customers, a GST-free supply 'made in relation to rights' for the purposes of paragraph (a) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

No, the supply of foreign currency notes is not a supply 'made in relation to rights' for the purposes of paragraph (a) of item 4 in the table in subsection 38-190(1) of the GST Act.

The supply of foreign currency notes is a supply of money that is an input taxed financial supply under subsection 40-5(1) of the GST Act.

The entity is a financial institution that provides foreign currency exchange services to its customers in Australia. The entity is a financial supply provider.

The entity sells foreign currency notes in exchange for Australian dollars according to a published exchange rate and for a fee. The foreign currency notes are not convertible.

The entity is registered for goods and services tax (GST).

Paragraph (a) of item 4 in the table in subsection 38-190(1) of the GST Act provides that a supply that is made in relation to rights is GST-free if the rights are for use outside Australia.

Goods and Services Tax Ruling GSTR 2003/8 explains the meaning of 'supply made in relation to rights'. Specifically, paragraph 76 states: Accordingly, we consider that the phrase 'a supply that is made in relation to rights' means a supply of the right itself by way of the creation, grant, transfer or assignment of the right or a supply by way of the surrender of the right. It does not cover a supply of a service provided to facilitate the supply of the right or that is merely associated with the supply of the right.

Foreign currency notes are not convertible. That is, the holder of the notes, when in the country of their issue, has no right in relation to the notes other than an entitlement to have a particular note replaced by the Central Bank of that country (or other bank of issue of the notes) with another note of equivalent value in exchange. To the extent that rights are recognised as attaching to the supply of the foreign currency notes, these rights are incidental or ancillary only, with the supply of the notes themselves being the dominant component.

Instead, section 195-1 of the GST Act defines 'money' in paragraph (a) to include currency, whether of Australia or of any other country. The supply of foreign currency notes is a supply of money rather than a supply made in relation to rights. Accordingly, the supply of foreign currency notes is not a GST-free supply under paragraph (a) of item 4 in the table in subsection 38-190(1) of the GST Act.

The supply of the foreign currency notes, as a supply of money, is a supply in accordance with the exception in subsection 9-10(4) of the GST Act.

A financial supply is input taxed under subsection 40-5(1) of the GST Act. Subsection 40-5(2) of the GST Act defines a financial supply as having the meaning given by the A New Tax System (Goods and Service Tax) Regulations 1999 (GST Regulations).

'Currency of a foreign country' is specifically listed at item 9 in the table in subregulation 40-5.09(3) of the GST Regulations as a financial supply.

Paragraph 77 of Goods and Services Tax Ruling GSTR 2003/14 states that 'a supply of cash is a supply of an interest in or under Australian currency under item 9 of subregulation 40-5.09(3) of the GST Regulations and is therefore a financial supply.'

Accordingly, the supply of the foreign currency notes is a financial supply that is input taxed under subsection 40-5(1) of the GST Act. Note 1: to the extent that the supply of such a right is accepted as forming a part of a single composite supply, the right is incidental or ancillary to the supply of the foreign currency notes themselves. The supply of the notes is either a single supply of money or a composite supply, in which the supply of money is dominant, as explained in the Goods and Services Tax Ruling GSTR 2001/8: apportioning the consideration for a supply that includes taxable and non-taxable parts. Note 2: line No. F4 in Goods and Services Tax Ruling GSTR 2002/2 provides that the fees charged by a financial supply provider for the supply of foreign currency notes is an input taxed supply. [HISTORY: This ATOid was amended on 27 April 2007 to improve readability and accuracy.]