1 Are your supplies of qualifying outbound foreign currency exchange (Fx) transactions GST-free supplies under table item 4(a) of subsection 38-190(1) of the GST Act (item 4(a))?
Yes. Question 2 Is your proposed method of identifying outbound foreign currency transactions acceptable to the Commissioner for the purposes of applying item 4(a)? Answer Yes. Question 3 If the answer to Question 1 is "yes", can acquisitions that are made in the course or furtherance of your activities be acquired for a partly creditable purpose under section 11-30 of the GST Act? Answer Yes. Question 4 If the answer to Questions 1 and 3 are "yes", does the Commissioner consider your proposed methodology, to determine the extent of creditable purpose for your acquisitions made in the course or furtherance of your activities as fair and reasonable for the purposes of applying section 11-30 of the GST Act? Answer Yes. This ruling applies for the following period: 1 May 20XX to 30 April 20XX The scheme commenced on: 1 April 20XX
You provide retail foreign currency exchange (Fx) services (targeted at the general public). You will survey your customers to determine where they will spend the currency they purchase. You are only going to treat transactions where the customer purchases foreign currency, that they intend to spend outside of Australia, as GST-free. Given the nature of the services you provide, you are unable to identify any acquisition that will solely relate to GST-free supplies (outbound Fx transactions) as you will be making both input taxed and GST-free supplies in the course of your activities. You will use an indirect estimation method, specifically one based on the transaction count, in order to determine the extent of creditable purpose. You will conduct this estimation on a periodic in arrears basis and do so at a minimum annually i.e. you will apply last year's transaction to calculate this year's extent of creditable purpose.
A New Tax System (Goods and Services Tax) Act 1999 section 38-190 A New Tax System (Goods and Services Tax) Act 1999 section 11-5 A New Tax System (Goods and Services Tax) Act 1999 section 11-20 A New Tax System (Goods and Services Tax) Act 1999 section 11-25 A New Tax System (Goods and Services Tax) Act 1999 section 40-5 A New Tax System (Goods and Services Tax) Regulations 2019 section 40-5.09
Question 1 Are your supplies of qualifying outbound foreign currency exchange (Fx) transactions GST-free supplies under table item 4(a) of subsection 38-190(1) of the GST Act (item 4(a))? Detailed reasoning Both inbound and outbound Fx transactions are input taxed supplies under table item 9(a) and table item 9(b) of section 40-5.09 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) (item 9(a) or item 9(b)) respectively as the provision of Australian currency or foreign currency is: • for consideration; • in the course or furtherance of an enterprise that you carry on; • connected with Australia (as they are made through an enterprise that you carry on in Australia); • made by you, and you are registered for GST; and • made by you, and you are a financial supply provider (within the meaning of section 40-5.06 of the GST Regulations).
Section 38-190 provides that supplies of things other than goods or real property for consumption outside the indirect tax zone are GST-free. Table item 4(a) of subsection 38-190(1) (item 4(a)) provides that a supply made in relation to rights is GST-free if the rights are for use outside the indirect tax zone (Australia). In Travelex Ltd v Commissioner of Taxation [2010] HCA 33 (Travelex), the High Court determined that the supply of a banknote is a supply that is made in relation to rights because the banknote has value only because of the rights attached to it as a currency in the country of issue. Goods and Services Tax Determination GSTD 2012/5 Goods and services tax: are acquisitions related to an entity's retail foreign currency exchange transactions with customers in Australia made solely for a creditable purpose under section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? (GSTD 2012/5) confirms the view in Travelex
. Relevantly paragraph 4 of GSTD 2012/5 states that the entity's supply of FX is a financial supply, and is also a supply that is made in relation to rights. Hence, the supply is GST-free where the customer's intention is to use the FX outside Australia. Therefore, where it is evident that the foreign currency is to be used overseas, the rights attached to the currency are for use outside Australia. This means that the supply will be a GST-free supply under item 4(a). Subsection 9-30(3) provides that where a supply is both input taxed and GST-free, the supply should be characterised as GST-free. Therefore, any supplies of foreign currency you make, where the recipient intends to use the currency outside of Australia, will be GST-free under item 4(a). However, any supplies of foreign currency where the recipient does not intend to use the currency outside of Australia will be input taxed under table item 9(b) of section 40-5.09 of the GST Regulations. Question 2 Is your proposed method of identifying outbound foreign currency transactions acceptable to the Commissioner for the purposes of applying item 4(a)? Detailed reasoning Paragraph 124 of
GSTR 2003/8 Goods and services tax: supply of rights for use outside Australia - subsection 38-190(1), item 4 paragraph (a) and subsection 38-190(2) (GSTR 2003/8) provides that, when it comes to determining whether the rights are for use outside of Australia, it is not how they are ultimately used but rather that they were intended, at the time that they were created/granted/transferred, to be used outside of Australia. Paragraph 128 of GSTR 2003/8 acknowledges that the supplier does not necessarily always have the information to determine the extent to which the rights are for use outside of Australia, the recipient does. In these cases, the supplier is expected to consult with the recipient to obtain this information. Additionally, paragraph 129 of GSTR 2003/8 lists a number of factors to be considered when determining the extent of the intended use of rights and states: 129. Factors that may be relevant to forming a judgement as to the extent of intended use of rights for the purposes of paragraph (a) of item 4 include: •
expectations of the recipient, based on reasonable grounds, as to the likely use of the right over the period for which the right is granted, or if the right has been granted for an unspecified period, the expectations of the recipient as to the likely use over the anticipated period of use; • economic, social, cultural and political conditions the nature of the right itself, for example, the language of a written work or its relevance to a particular culture, may influence where the rights will be used; • past revenue, royalty or profitability patterns evident from the use of similar rights, this may come from industry statistics or from past experience in the recipient's business; and • Projected use of the right in and outside Australia based on market research. Considering your circumstances against these factors, your method for identifying outbound Fx transactions is acceptable. Question 3 If the answer to Question 1 is "yes", can acquisitions that are made in the course or furtherance of your activities be acquired for a partly creditable purpose under section 11-30 of the GST Act? Detailed reasoning
Section 11-20 provides that an entity is entitled to an input tax credit for any creditable acquisition that it makes. Section 11-5 provides that an entity makes a creditable acquisition if: (a) the entity acquires the thing solely or partly for a creditable purpose (b) the supply of the thing to the entity is a taxable supply (c) the entity provides, or is liable to provide, consideration for the supply, and (d) the entity is registered, or required to be registered, for GST. Section 11-15 provides that an entity acquires a thing for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise. However, the acquisition is not for a creditable purpose to the extent that the acquisition: (a) relates to making supplies that would be input taxed; or (b) is of a private or domestic nature. Section 11-25 provides that the amount of input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired. However, the amount is reduced if the acquisition is only partly creditable. Section 11-30 further provides that an acquisition is partly creditable if one or both of the following applies:
(a) the entity acquires the thing only partly for a creditable purpose (b) the entity provides, or is liable to provide, only part of the consideration for the acquisition. An acquisition that relates to making both input taxed and non-input taxed supplies will only be partly for a creditable purpose, to the extent that it relates to making non-input taxed supplies. GSTD 2012/5 provides explanation on creditable purpose and acquisition-supplies. According to paragraph 42 of GSTD 2012/5, the exchange transactions give rise to four financial supplies being made: • Outbound transactions - the supply of the Fx which is a GST-free supply through the operation of subsection 9-30(3), and the acquisition-supply of the AUD; and • Inbound transactions - the supply of AUD, which is an input taxed supply, and the acquisition-supply of Fx. Relevantly, paragraphs 6 and 9 GSTD 2012/5 further states: 6. To the extent that acquisitions made by the entity relate to outbound transactions, they relate solely to the GST-free supply of the FX. Consequently, to this extent, these acquisitions are made solely for a creditable purpose. ...
9. To the extent that acquisitions made by the entity relate to inbound transactions, they relate solely to the input taxed supply of the AUD. Consequently these acquisitions are not made for a creditable purpose. As you will be making input taxed (inbound and non-qualifying outbound Fx transactions) and GST-free (qualifying outbound transactions) supplies, and it is not possible to identify acquisitions relating solely to qualifying outbound transaction, any acquisitions made will be partly for a creditable purpose to the extent that they relate to making GST-free supplies. Question 4 If the answer to Questions 1 and 3 are "yes", does the Commissioner consider your proposed methodology, to determine the extent of creditable purpose for your acquisitions made in the course or furtherance of your activities as fair and reasonable for the purposes of applying section 11-30 of the GST Act? Detailed reasoning
Paragraph 42 of GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies (GSTR 2006/3) states that if an acquisition made in carrying on an enterprise relates partly to the making of an input taxed supply, apportionment is required. Paragraph 26 of GSTR 2006/3 states that the fundamental requirement in whatever apportionment method is used to calculate the input tax credit entitlement is that the method must be fair and reasonable, and appropriately reflect the intended use of the acquisition. Although a direct method of allocating or apportioning the intended use of acquisitions is preferrable, where it is not possible or practical to do so, an indirect method may be used provided that it is fair and reasonable in the circumstances of the conduct of your enterprise. Paragraph 104 of GSTR 2006/3 lists a number of indirect estimation methods that could be considered fair and reasonable, including: • an overall, Entity-based general formula, based on the proportion of input taxed and non-input taxed revenues of the entity as a whole;
• Revenue-based formulas which are more narrowly targeted than the entity-based general formula; • a combination of revenue-based formulas with direct methods; and • non-revenue based indirect estimation methods. An entity-based formula is not suited to your circumstances nor is a revenue based formula as the cost of a retail foreign exchange transaction is not tied to the value of the transaction. Paragraph 119 of GSTR 2006/3 acknowledges that the other indirect estimation methods (including the number of transactions) may also provide a fair and reasonable outcome. Paragraph 88A of GSTR 2006/3 provides that, when the method you use includes factors or characteristics that change over time, those factors or characteristics must be periodically updated and applied to the method to determine intended use. If a method uses an input where updated data is readily available on an annual basis (such as transaction count data) it is expected that it is applied to the method annually.
We accept that using the number of qualifying transactions for the previous financial year (with the number of qualifying transactions being determined using a percentage derived from a compulsory survey) is a fair and reasonable basis for estimating your input tax credit entitlement.