1 Are you required to register for goods and services tax (GST) under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
1 Yes. Question 2 If so, are you entitled to input tax credits under section 11-20 of the GST Act? Answer 2 Yes, but only to the extent that your acquisitions used in carrying on your business relate to making supplies that are not input taxed or of a private or domestic nature. This ruling applies for the following period: XX March 20XX to XX March 20XX
Entity A (you) is intending to commence operations of providing business consulting and money transfer services once your registration with AUSTRAC is finalised. Once enrolled with AUSTRAC as a remittance dealer, and you commence money transfer services, all payments made to beneficiaries will be made by bank transfer. You will not deal with physical currencies in the remittance service activity. You will not charge any extra service fee to clients on top of the quoted foreign exchange (FX) rate. Since you have not yet commenced operations, you do not have a current GST turnover. Your estimated projected GST turnover for the first financial year of operation was provided.
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-15 A New Tax System (Goods and Services Tax) Act 1999 section 11-30 A New Tax System (Goods and Services Tax) Act 1999 section 23-5 A New Tax System (Goods and Services Tax) Act 1999 section 23-15 A New Tax System (Goods and Services Tax) Act 1999 section 38-190 A New Tax System (Goods and Services Tax) Act 1999 section 40-5 A New Tax System (Goods and Services Tax) Act 1999 section 188-15 A New Tax System (Goods and Services Tax) Act 1999 section 188-20 A New Tax System (Goods and Services Tax) Act 1999 section 188-25 A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.09
GST registration Section 23-5 of the GST Act provides that you are required to be registered for GST if: • you are carrying on an enterprise; and • your GST turnover meets the registration turnover threshold. Once AUSTRAC registration is approved, you will commence carrying on an enterprise of business consulting and money transfer services and will satisfy the first condition of section 23-5 of the GST Act. In accordance with paragraph 23-15(1)(a) of the GST Act, the applicable registration turnover threshold is currently $75,000. Under subsection 188-10(1) of the GST Act, your GST turnover will meet the registration turnover threshold if: • your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold, or • your projected GST turnover is at or above the turnover threshold. Your current GST turnover at a time during a particular month is the sum of the value of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month (in accordance with subsection 188-15(1) of the GST Act).
Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months (in accordance with subsection 188-20(1) of the GST Act). In each case, the value does not include the GST component of the supplies. In working out the value, pursuant to subsections 188-15(1) and 188-15(3) of the GST Act, you also exclude the following: • supplies that are input taxed, for example, financial supplies; • supplies where there is no consideration paid, unless they are made to associates; • supplies that are not made in connection with your enterprise; and • supplies that are not connected with Australia. Goods and Services Tax Ruling GSTR 2001/7: Goods and services tax: meaning of GST turnover , including the effect of section 188-25 on projected turnover provides further explanation of the Commissioner's view in relation to the meaning of GST turnover. You advised that you expect that in the first financial year of operations, your projected turnover from consulting fees from clients and referral fees from other business will exceed $75,000.
Accordingly, once the GST projected turnover is satisfied, you will be satisfying both the requirements of section 23-5 of the GST Act; and will be required to be registered for GST. Question 2 Generally, an entity is entitled to an input tax credit on any creditable acquisition that it makes. However, the amount of the input tax credit is reduced if the acquisition is only partly creditable. Paragraph 11-30(1)(a) of the GST Act explains that an acquisition is partly creditable if it is made only partly for a creditable purpose, as defined by section 11-15 of the GST Act. Relevantly, paragraph 11-15(2)(a) of the GST Act provides that an acquisition is not made for a creditable purpose to the extent that it relates to making supplies that would be input taxed. Money as a supply The term supply is broadly defined in subsection 9-10(1) of the GST Act to mean 'any form of supply whatsoever'. Subsection 9-10(4) of the GST Act provides, however, that a supply does not include a supply of money (or digital currency) unless the money is provided as consideration for a supply that is a supply of money (that is, a supply of 'money for money').
The definition of money in section 195-1 of the GST Act includes, amongst other things, currency (whether of Australia or of any other country). Provided the market value of the foreign currency does not exceed its face value in the country of issue, the foreign currency is money that is supplied as consideration for a supply that is a supply of money (and vice versa), meaning each is a supply for the purposes of the GST Act, in accordance with subsection 9-10(4) of the GST Act. Input taxed financial supplies Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed. Subsection 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) sets the requirements for a supply to be a financial supply. It states: The provision, acquisition or disposal of an interest mentioned in subsection (3) or (4) is a financial supply if: (a) the provision, acquisition or disposal is: (i) for consideration; and (ii) in the course of furtherance of an enterprise; and (iii) connected with Australia; and (b) the supplier is: (i) registered or required to be registered; and
(ii) a financial supply provider in relation to supply of an interest. 'Interest' is defined at section 40-5.02 of the GST Regulations as anything that is recognised at law or in equity as property in any form. The interests itemised at subsection 40-5.09(3) of the GST Regulations include, at item 9, an interest in or under Australian currency, the currency of a foreign country, digital currency or an agreement to sell any of these 3 things. Section 40-5.06 of the GST Regulations provides that an entity is the financial supply provider of an interest if: • the interest was the entity's property immediately before the supply; • the entity created the interest when making the supply; or • the entity acquires the interest supplied (referred to as an acquisition-supply). Item 9 in the table in subsection 40-5.09(3) (item 9) lists Australian currency, the currency of a foreign country, or an agreement to buy or sell currency of either kind. Therefore, the supply of Australian currency, in exchange for foreign currency, to Australian resident clients is input taxed under Item 9.
However, subsection 9-30(3) of the GST Act contemplates that to the extent a supply may be both GST-free and input taxed, it is GST-free. Hence, to the extent that the supply of a particular financial product has the character of being both GST-free and input taxed, it will be GST-free. Supplies of foreign currency products may be GST-free under item 4(a) in the table in subsection 38-190(1) of the GST Act (Item 4(a)). Item 4(a) relevantly provides that a supply that is made in relation to rights is GST-free if the rights are for use outside the indirect tax zone (i.e. Australia). This involves a two step process. Firstly, determine if the supply of the foreign currency product can be said to be 'made in relation to rights'. Secondly, determine whether the relevant rights are 'for use outside Australia'. Is the supply one that is made in relation to rights? The essential character of a supply of an overseas electronic funds transfer is to transfer money to the bank account of an overseas third party (the payee).
What is referred to as a 'transfer' from one account to another via the banking system does not involve the actual transfer of physical currency or the transfer or assignment of ownership of a chose in action (a right). Rather it involves the extinguishment (or reduction in value) of one chose in action (the payer's) and the creation (or increase in value) of another (the payee's), represented by the relevant accounting entries. Whilst the rights held by the payer are extinguished during the transfer process, it is accepted there is a dealing in rights, being the effective transfer of the value in the rights from the payer to the payee. Therefore, as the essential character of the supply of the overseas electronic funds transfer is to facilitate a dealing in rights, it is a supply in relation to rights. In this context, the relevant right is the chose in action represented by the deposit into the payee's account at an overseas location (rather than the extinguished chose in action of the payer, or the payer's contractual rights under the electronic funds transfer agreement). When are the rights for use outside Australia?
In this instance, as the essential character of the overseas electronic funds transfer is the facilitation (or effective transfer) of the rights to an overseas bank account, it is accepted that these rights are for use outside of Australia. Where the payer (the recipient of the bank transfer) nominates that the amount is to be transferred to the account of a payee who is located outside of Australia, the rights are for use outside of Australia and the supply of the electronic funds transfer is GST-free under Item 4(a). Entitlement to input tax credits Generally, you are entitled to the input tax credits on creditable acquisitions that you make. Section 11-15 of the GST Act provides that you make an acquisition for a creditable purpose to the extent that it is acquired in carrying on your enterprise. However, subsection 11-15(2) of the GST Act states that you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.
Accordingly, as you will be making some input taxed financial supplies (i.e. those remittance services which are not GST-free under item 4(a) of the table in subsection 38-190(1)), subsection 11-15(2) of the GST Act denies the creditable purpose of acquisitions which relate to making those input taxed supplies. Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies provides guidance on methods that can be used for calculating the extent of creditable purpose by providers of financial supplies and states: 27. To calculate the amount of your input tax credits, you will need to make a fair and reasonable estimate of the extent of creditable purpose for your acquisitions and importations. The requirement that your estimation is fair and reasonable is a prerequisite for any decision you make.