Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions

This Ruling explains and clarifies what is, and what is not, a financial supply under Division 40 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) and Part 3-1 of the A New Tax System (Goods and Services Tax) Regulations 2019 (the GST regulations). [A1]

This Ruling also provides guidance on the types of acquisitions that are reduced credit acquisitions and entitle a financial supply provider to a reduced input tax credit under Division 70 of the GST Act and Part 4-2 of the GST regulations.

This Ruling applies to all entities that are registered or required to be registered that make, or facilitate the making of, financial supplies. Reduced input tax credits are only relevant to an entity making financial supplies if that entity exceeds the financial acquisitions threshold. This is because an entity that is below the financial acquisitions threshold is entitled to full input tax credits for creditable acquisitions made in carrying on its enterprise.

Unless otherwise stated, all legislative references in this Ruling are to the GST Act and GST regulations. In this Ruling, provisions of the GST Act and the GST regulations are referred to as sections, subsections, paragraphs and subparagraphs (as appropriate) in line with current legislative drafting practice. The format of the provision allows you to distinguish between provisions within the GST Act, as opposed to provisions of the GST regulations. For example, section 40-5 refers to a section of the GST Act, whereas section 40-5.09 refers to a section of the GST regulations.

From 1 July 2015, the term "Australia" was replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term "indirect tax zone". The scope of the new term, however, remains the same as the now repealed definition of "Australia" used in those Acts. This change was made for consistency of terminology across the tax legislation, with no change in policy or legal effect. In this Ruling, the "indirect tax zone" is referred to as "Australia".

This Ruling adopts interpretations of the GST Act expressed in other GST public rulings. It also refers to a number of other GST public rulings where it is envisaged that further guidance or more detail on a particular issue may be required. Although these rulings may be specifically expressed not to apply to financial supplies, the general principles in these rulings provide guidance that may apply in the financial supplies context. Among others, key relevant public rulings for financial suppliers include: • Goods and Services Tax Ruling GSTR 2003/9 Goods and services tax: financial acquisitions threshold; • Goods and Services Tax Ruling GSTR 2004/1 Goods and services tax: reduced credit acquisitions; • Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies; • Goods and Services Tax Ruling GSTR 2008/1 Goods and services tax: when do you acquire anything or import goods solely or partly for a creditable purpose?

This Ruling applies both before and after its date of issue, subject to the commencement and application provisions of each Act or Regulation to which it refers. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10 Public Rulings).

Changes made to this Ruling by addenda that issued since its original publication have been incorporated into this version of the Ruling. Refer to each addendum for details of how that addendum amended the Ruling, including the date of effect of the amendments.

[Omitted.]

Where an addendum applies to tax periods both before and after its date of issue, both the pre-addendum wording of the Ruling and the revised wording in the addendum apply for tax periods prior to the issue date of the addendum. In these circumstances, entities can choose to rely on either version when applying the Ruling to the past periods.

The GST Act provides that financial supplies are input taxed. [1] Not only financial institutions make financial supplies. You may make financial supplies in the course of carrying on your enterprise if you provide, acquire or dispose of an interest listed in the GST regulations in circumstances that satisfy the requirements for a financial supply under those regulations. No GST is payable on input taxed supplies.

You acquire or import something for a creditable purpose to the extent that you acquire or import it in carrying on your enterprise. However, you do not acquire or import it for a creditable purpose to the extent that it relates to making input taxed supplies (such as financial supplies) or is of a private or domestic nature. This means that you are not entitled to input tax credits for an acquisition or importation in those circumstances.

There are several exceptions to this general rule for acquisitions or importations that relate to making input taxed supplies. These exceptions include circumstances where: • the acquisition or importation is not treated as relating to supplies that would be input taxed; or • the acquisition is specified as a reduced credit acquisition within the meaning of Division 70 of the GST Act.

An acquisition or an importation is not treated as relating to supplies that would be input taxed to the extent that the supply you make is through an enterprise or a part of an enterprise that you carry on outside Australia. [2]

An acquisition is not treated as relating to making supplies that would be input taxed to the extent that: • the acquisition relates to making a financial supply consisting of a borrowing (except, in the case of an acquisition made on or after 1 July 2012, a borrowing through a deposit account you make available); and • the borrowing relates to you making supplies that are not input taxed. [3]

An importation is not treated as related to making supplies that would be input taxed to the extent that: • the importation relates to making a financial supply consisting of a borrowing; and • the borrowing relates to you making supplies that are not input taxed. [4]

Furthermore, an acquisition or an importation is not treated as relating to making supplies that would be input taxed if the only reason it would be treated as input taxed is because it relates to making financial supplies and you do not exceed the financial acquisitions threshold. [5] (The financial acquisitions threshold is described at paragraph 14 of this Ruling.)

If you do not exceed the financial acquisitions threshold, anything you acquire or import may be for a creditable purpose to the extent you import or acquire it in carrying on your enterprise. However, you do not acquire or import a thing for a creditable purpose to the extent it relates to making other [6] input taxed supplies or the acquisition or importation is of a private or domestic nature. [6AA]

In addition, Division 70 of the GST Act provides that specified acquisitions (reduced credit acquisitions) that relate to making financial supplies give rise to an entitlement to a reduced input tax credit. The GST regulations specify the acquisitions that are reduced credit acquisitions, and that the reduced input tax credit is an amount equal to either 75% or 55% of the GST payable on the supply of the acquisition. [6A]

Under section 189-5 and 189-10, an entity exceeds the financial acquisitions threshold at a time in a particular month if, assuming that all the financial acquisitions [7] it has made, or is likely to make, during the 12 months ending at the end of that month, or during that month and the next 11 months, were made solely for a creditable purpose, either or both of the following would apply: • the amount of all the input tax credits to which the entity would be entitled for its financial acquisitions would exceed $150,000 or such other amount specified in the GST regulations; and • the amount of the input tax credits to which the entity would be entitled for its financial acquisitions would be more than 10% of the total amount of the input tax credits to which the entity would be entitled for all its acquisitions and importations (including the financial acquisitions) during either of the periods referred to in this paragraph. [9]

If you do not exceed the financial acquisitions threshold, you cannot claim reduced input tax credits. You may however, be entitled to input tax credits under Division 11. If you exceed the financial acquisitions threshold, a reduced input tax credit is available for reduced credit acquisitions to the extent that the acquisition is for a creditable purpose. You are not entitled to a reduced input tax credit for an acquisition to the extent you are entitled to an input tax credit (or you are denied an input tax credit) for that acquisition under another provision of the GST Act. [10]

Other jurisdictions input tax services that are not directly financial supplies but involve arranging financial supplies. This is done partly to address a self-supply bias that arises where a financial service provider uses inputs that would normally be taxable. Reduced input tax credits were introduced in the Australian context to overcome this self-supply bias.

According to the Explanatory Statement to the original GST regulations, 'the RITC was designed to reduce the bias to insource and limit any pressure to extend input taxation up the supply chain...'. Where a financial institution purchases a service that is taxable and eligible for an RITC, the tax effect is similar to where the purchased service is input taxed. [11]

Determining the extent of your creditable purpose and making adjustments when your creditable purpose changes is dealt with in Goods and Services Tax Rulings GSTR 2000/24 Goods and services tax: Division 129 – making adjustments for changes in extent of creditable purpose, GSTR 2006/3 and GSTR 2008/1. You should refer to those Rulings for guidance on how to work out your entitlement to input tax credits and how to make adjustments when your actual use is different to your intended use.

We have also issued guidance to assist you in determining the extent of your creditable purpose where you make various financial supplies of credit cards, transaction accounts and home loans: • Goods and Services Tax Ruling GSTR 2004/4 Goods and services tax: assignment of payment streams including under a typical securitisation arrangement (see paragraphs 109A to 109BW); • Goods and Services Tax Determination GSTD 2017/1 Goods and services tax: when is the supply of a credit card facility GST-free under paragraph (a) of Item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?; • Goods and Services Tax Ruling GSTR 2019/2 Goods and services tax: determining the creditable purpose of acquisitions in a credit card issuing business; • Goods and Services Tax Ruling GSTR 2020/1 Goods and services tax: determining the creditable purpose of acquisitions in relation to transaction accounts; and • Goods and Services Tax Determination GSTD 2020/1 Goods and services tax: when is the supply of a transaction account GST-free under table item 3 or table item 4(a) of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?

The guidance listed in paragraph 18A of this Ruling can be read in conjunction with Practical Compliance Guideline PCG 2019/8 ATO compliance approach to GST apportionment of acquisitions that relate to certain financial supplies, which outlines our compliance approach and sets out the framework we use to assess the risk associated with methods to determine extent of creditable purpose of acquisitions relating to certain types of financial supplies.

The GST Act provides that financial supplies are input taxed [12] and that financial supply has the meaning given by the GST regulations. [13] 'Supply' has the meaning given by section 9-10 [14] and includes a financial supply. [15]

The GST regulations identify those supplies that are financial supplies by inclusion and exclusion. [16] Something is a financial supply only if it is mentioned as a financial supply in section 40-5.09 or is an incidental financial supply under section 40-5.10. [17] Section 40-5.12 has the effect of excluding things that might otherwise have been included as a financial supply by section 40-5.09. Section 40-5.12 does not exclude from being a financial supply something that is also an incidental financial supply. [18]

Subsection 40-5.09(1) provides that the provision, acquisition or disposal of an interest mentioned in the table in subsection 40-5.09(3) is a financial supply if certain conditions are met.

Subsections 40-5.09(4) and (5) also specifically provide that certain supplies are financial supplies, separate from the requirements of subsection 40-5.09(1). These subsections include certain supplies by an ADI and certain supplies of ATM services where the fee is not more than $1,000.

We acknowledge that in interpreting whether the requirements in subsection 40-5.09(1) are satisfied the regulations can either be read literally or more purposively. If the provisions are interpreted literally, something that is intended to be a financial supply might not be a financial supply. Where a literal reading would have such a result, we read the regulations more purposively to give effect to what we believe was intended. Instances where a literal reading of the provisions would have unintended consequences are discussed at paragraphs 22 to 27 of this Ruling.

The provision, acquisition or disposal of something is a financial supply where it satisfies the requirements of the GST regulations. Subsection 9-10(1) provides that a supply is any form of supply whatsoever. Subsection 9-10(2) then lists some examples of supplies, and includes a financial supply at paragraph 9-10(2)(f). While the provision or disposal of an interest may be a supply within the ordinary meaning of supply, the word 'supply' does not ordinarily contemplate the acquisition of something. For the purposes of the GST regulations and the GST Act, a supply includes a financial supply and a financial supply includes the acquisition of an interest in or under an item listed in the table in subsection 40-5.09(3).

Where the term 'supply' is used in Part 3-1 of the GST regulations [19] , we consider that it generally applies to all financial supplies, including the acquisition of a financial interest. 'Supply', in these instances, is read to cover both the supply (provision and disposal) and the acquisition of a financial interest. [20] This reading is a more purposive interpretation under the rules of statutory interpretation. [21]

In this Ruling, we have used the term 'financial interest' where the thing supplied, or the thing acquired, is mentioned as being a financial supply in the GST regulations. The term 'financial interest' is used to describe a supply that may be a financial supply because it is mentioned in a table item of subsection 40-5.09(3) and is capable of satisfying the tests in subsection 40-5.09(1). The provision, acquisition or disposal of a financial interest is a financial supply once it satisfies those requirements.

The term 'supply' is used throughout the GST Act and GST regulations both as a noun and as a verb. In some instances in Part 3-1 of the GST regulations, the verb 'supply' is used when we consider the expression 'provision, acquisition or disposal' is intended. [22] In other instances, 'supply' is used in its more natural sense.

In this Ruling, where we use the expression 'supply' we refer to the provision or disposal of a financial interest [22A] and where we use the expression 'acquisition-supply', we refer to the supply which is the acquisition of a financial interest. On the other hand, when we use the expression 'acquisition' we refer to the receipt of a supply (whether or not the supply is a financial supply).

Where the term 'supplier' is used in paragraph 40-5.09(1)(b), it could be substituted with the expression 'provider, acquirer or disposer'.

The provision, acquisition or disposal of an interest mentioned in subsection 40-5.09(3) is a financial supply where it satisfies the requirements of subsection 40-5.09(1).

The allotment, creation, grant or issue of an interest is regarded as provision [23] of the interest. Disposal [24] of an interest includes assignment, cancellation, redemption, transfer and surrender of the interest. Acquisition [25] in relation to the provision or disposal of an interest includes acceptance and receipt of the interest.

The provision, acquisition or disposal of the interest mentioned in subsection 40-5.09(3) must be: • for consideration; • in the course or furtherance of an enterprise; and • connected with Australia. [26]

Furthermore, the financial supplier [27] must be registered or required to be registered and a financial supply provider in relation to the provision, acquisition or disposal of the interest. [28] The acquisition of a financial interest from an unregistered supplier may be a financial supply if the acquirer is registered.

The connected with Australia requirement poses a difficulty in the context of the acquisition of a financial interest. This is discussed at paragraphs 45 to 77 of this Ruling. The term financial supply provider is explained at paragraphs 104 to 106A of this Ruling.

The provision, acquisition or disposal of an interest in or under a table item of subsection 40-5.09(3) is a financial supply if it is for consideration and it meets the other requirements of section 40-5.09. Thus, a single transaction between two parties can involve two financial supplies – the provision or disposal of an interest for consideration and the acquisition of an interest for consideration.

'Consideration' as used in the GST regulations has the same meaning as in the GST Act. Consideration is defined in section 195-1 to mean 'any consideration, within the meaning given by sections 9-15 and 9-17, in connection with the supply or acquisition'. For there to be a provision, acquisition or disposal of the interest 'for consideration', there must be sufficient nexus between the consideration and the particular supply.

We have expressed views on the consideration for the supply of a credit card facility in paragraphs 11 to 13 of GSTR 2019/2 and on the consideration for the supply of a transaction account in paragraphs 15 to 16 of GSTR 2020/1.

Consideration for a financial interest is something given for the provision, acquisition or disposal of the financial interest. Part of what is given as consideration may include promises made, or rights granted, under a contract. In the context of financial supplies, the payment received is consideration for the provision or disposal of the financial interest and the payment made is consideration for the acquisition of the financial interest. Where consideration is given for the 'first' supply, there is no need to identify consideration specific to the acquisition-supply (the 'second' supply), as the acquisition will have been made for consideration. Where the financial supply has been made 'for consideration', the acquisition-supply will also be 'for consideration'.

Geo Co. supplies shares to McCulloch for $2,000. The payment of $2,000 by McCulloch is consideration for the provision of the shares (the first supply) by Geo Co. to McCulloch. McCulloch acquires the shares for consideration of $2,000. The acquisition-supply by McCulloch (the second supply) is for consideration.

When an entity borrows money from a lender on terms that include payment of interest, it creates an interest in a debt that includes the payment of interest. The lender creates and supplies an interest in a credit arrangement. Aside from the operation of subsection 9-10(4) each entity would make a supply of a financial interest (under table item 2 of subsection 40-5.09(3)) to the other, and each supply would be consideration for the other.

However, whatever is supplied as payment by way of creation of a debt is money as defined in section 195-1, and by operation of subsection 9-10(4) is not a supply unless supplied as consideration for a supply that is money or digital currency. [30] The supply of an interest in a credit arrangement is not money or digital currency, nor is it a supply of money or digital currency. Where the consideration for the debt is an interest in a credit arrangement, the interest in debt is not a supply (because it is not provided as consideration for a supply that is a supply of money or digital currency).

The supply of an interest in a credit arrangement is provided for (monetary) consideration (namely the debt) and is a financial supply.

Similarly, where an entity borrows money on terms that do not include payment of interest, the borrower creates and provides an interest in debt that is money as defined in section 195-1. The interest in debt is monetary consideration for the supply of an interest in a credit arrangement by the lender.

The lender provides an interest in a credit arrangement and the borrower acquires the interest in the credit arrangement provided by the lender. In acquiring the financial interest, the borrower is a financial supply provider of that interest, [31] and the acquisition-supply is for consideration.

Meteor Limited lends $150,000 to Satellite Limited, a subsidiary company that is not part of Meteor's GST group. The loan is for five years and there is no interest payable by Satellite Limited. Satellite Limited supplies an interest in a debt to Meteor Limited, and Meteor Limited supplies an interest in a credit arrangement to Satellite Limited. The consideration provided by Satellite is the interest in a debt and is money as defined in section 195-1. The supply by Meteor of the interest in a credit arrangement is the supply of a financial interest for consideration (the interest in a debt). In acquiring the interest in a credit arrangement, Satellite Limited has made an acquisition-supply for consideration.

SmithaPay is a buy-now, pay-later provider, who provides credit to consumers on terms where they need to repay in six equal instalments. Consumers can use the credit to acquire goods and services from participating merchants. Under the contractual arrangements between SmithaPay and those merchants, the merchants accept that the customer's obligation to pay the merchant for the underlying goods or services is discharged by the buy-now, pay-later provider. [31A]

SmithaPay does not charge interest to these customers, but it does charge late fees if customers fail to pay on time. Albert enters into such an arrangement to purchase a mobile phone from a merchant.

The consideration provided by Albert is the interest in a debt (his obligation to repay) and is money as defined in section 195-1. The supply by SmithaPay of the interest in a credit arrangement is the supply of a financial interest for consideration (the interest in a debt). This would be the case even if SmithaPay did not charge late fees to customers. Any late fees paid by Albert are additional consideration for the supply by SmithaPay of the interest in the credit arrangement to Albert.

Where a transaction involves the provision, acquisition or disposal of a financial interest in return for another financial interest, the transaction may give rise to four financial supplies. That is, both sets of supplies to the transaction will be comprised of a financial supply and an acquisition-supply. An example of this is a share swap. This is a result of the acquisition-supply itself being a financial supply and does not cause any unintended consequences. Input tax credits are denied in respect of any acquisitions that relate to making the financial supplies (unless the acquisitions are reduced credit acquisitions).

The following Rulings, along with GSTRs 2006/3 and 2008/1, provide an explanation of what is meant by 'carrying on an enterprise' and 'in the course or furtherance of an enterprise': • Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number; • Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?; • Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free?; and • Goods and Services Tax Ruling GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.

Subsection 9-25(5) sets out when the supply of anything other than goods or real property is connected with Australia.

It is arguable that while subsection 9-25(5) may apply to the provision or disposal of a financial interest, it cannot apply to the acquisition of a financial interest. This is because, while the provision or disposal of a financial interest is a supply within the ordinary meaning of supply, that term does not usually contemplate an acquisition. (See paragraph 22 of this Ruling.)

The literal interpretation of subsection 9-25(5) of the GST Act may result in an operation for section 40-5.09 that is clearly not intended. That is, on a strict reading of the subsection, the acquisition of a financial interest might never be connected with Australia and might therefore never be a financial supply. The GST regulations clearly contemplate that the acquisition of a financial interest, as well as the provision and disposal of a financial interest, is capable of being a financial supply.

The expression 'connected with Australia' is used consistently throughout the legislation and in our view the intention is to apply the connected with Australia test as contained within subsection 9-25(5) to the acquisition of financial interests and to financial supplies in general.

Therefore, in determining whether the provision, acquisition or disposal of the interest is connected with Australia, the tests contained in subsection 9-25(5) are relevant, along with the exceptions outlined in subsection 9-26(1). The principles dealing with when the supply of anything other than goods or real property is connected with Australia are set out in: • Goods and Services Tax Ruling GSTR 2019/1 Goods and services tax: supply of anything other than goods or real property connected with the indirect tax zone (Australia); and • Goods and Services Tax Ruling GSTR 2017/1 Goods and services tax: making cross-border supplies to Australian consumers.

These tests are alternatives, so that the provision, acquisition or disposal of an interest may be connected with Australia if: • the thing is done in Australia (see paragraphs 29 to 60 of GSTR 2019/1), unless the supply is disconnected under subsection 9-26(1) (see paragraphs 66 to 78 in GSTR 2019/1); • the provision, acquisition or disposal of the interest is made through an enterprise that the supplier carries on in Australia (see paragraphs 8 to 28 of GSTR 2019/1); • neither of the above two tests apply and the supply is of a right or option to acquire another thing and the supply of that other thing would be connected with Australia (see paragraphs 61 to 65 of GSTR 2019/1); or • the recipient is an Australian consumer (see GSTR 2017/1). In the context of financial supplies, the supplier is the provider, acquirer, or disposer of the financial interest.

Subsection 9-26(1) outlines exceptions to certain connected with Australia rules. Relevantly for financial supplies, inbound intangible supplies by a non-resident to an Australian-based business recipient will not be connected with Australia, even if they are done in Australia, unless the supplier makes the supply through an enterprise they carry on in Australia.

Paragraphs 51 to 77B of this Ruling draw on the principles dealing with when something is connected with Australia as set out in the rulings listed in paragraph 49 of this Ruling and are intended to illustrate how those principles apply in the context of financial supplies.

'Thing' is defined to mean anything that can be supplied or imported. [34] 'Thing' includes but is not limited to a service, advice, information, a right, a digital product, obligations to do anything, or any combination of these things. It therefore includes interests that are financial supplies, regardless of whether the financial supply arises from the provision, acquisition or disposal of the financial interest. 'Thing', in the context of paragraph 9-25(5)(a), is what is supplied. It is the subject of the supply (or acquisition-supply). Under paragraph 9-25(5)(a), the connection with Australia requires that the 'thing' being supplied is 'done' in Australia.

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

Where the supply is the provision, acquisition or disposal of a financial interest, the connection with Australia turns on whether the interest is provided, acquired, or disposed of in Australia. Whether an interest is provided, acquired or disposed of in Australia will depend on how, the provision, acquisition or disposal [38] is effected. For example, if the interest is created, issued or transferred by the execution of a written contract, the creation, issue or transfer of that interest is done in Australia if that contract is made in Australia.

Quokka Australia Ltd subscribes for shares in a New Zealand company, Bilby Ltd, which does not carry on an enterprise in Australia. The share subscription agreement is made in New Zealand. The issue (or provision) of the interest in the securities is done in New Zealand, as this is where the contract is made.

However, even if the thing was done in Australia, if Quokka Australia Ltd is an Australian-based business recipient of the supply, the supply will be disconnected under table item 1 of subsection 9-26(1).

[Omitted.]

Constructa Ltd, an Australian construction company, has a contract to build warehouses in Malaysia for a South-East Asian importer, Dragon Imports. Dragon Imports requires Constructa Ltd to provide a bank guarantee to finance completion of the project. An Australian bank agrees to supply the guarantee to Dragon Imports for a fee to be paid by Constructa Ltd. Constructa Ltd pays the fee and the guarantee documents are drawn up and executed in Australia. Although the obligee and the project guaranteed are both outside Australia, the creation (or provision) of the interest under the guarantee is done in Australia, as that is where the guarantee agreement is signed. The provision of the guarantee would also be connected with Australia under paragraph 9-25(5)(b) as it is made through an enterprise the Australian bank carries on in Australia. However, the supply may be GST-free if it satisfies the requirements of a table item of subsection 38-190(1). (See paragraphs 144 to 170B of this Ruling.)

Where the provision or disposal of the financial interest is done in Australia, the acquisition of the financial interest will also be done in Australia. However, the supply and acquisition-supply must each be separately considered to determine whether each of them is disconnected under subsection 9-26(1).

Manx Australia Ltd is a GST-registered Australian company which buys shares from a New Zealand company, Bobtail Ltd, which does not carry on an enterprise in Australia. The contract for purchase is made in Australia. The provision of the interest in the securities is done in Australia, as this is where the contract is made. However, the supply of the shares by Bobtail Ltd to Manx Australia Ltd, an Australian-based business recipient, is disconnected from Australia under table item 1 of subsection 9-26(1). The acquisition of the interest in the shares by Manx Australia Ltd is also done in Australia. The acquisition-supply made by Manx Australia Ltd is connected with Australia because the acquisition is done in Australia and is made through an enterprise that Manx Australia Ltd carries on in Australia (satisfying subsections 9-25(5)(a) and (b) respectively) and table item 1 of subsection 9-26(1) does not apply to disconnect the supply. However, the acquisition-supply may be GST-free if it satisfies the requirements of a table item of subsection 38-190(1). (See paragraphs 144 to 170B of this Ruling.)

Even if a thing is not done in Australia, it may still be connected with Australia if it is supplied through an enterprise the supplier carries on in Australia (Australian GST presence).

The principles for determining when an entity has an Australian GST presence within the meaning of section 9-27 are outlined in Law Companion Ruling LCR 2016/1 GST and carrying on an enterprise in the indirect tax zone (Australia). GSTR 2019/1 provides guidance on when a supply is made through an Australian GST presence for the purpose of determining whether the supply is connected with Australia under paragraph 9-25(5)(b) (see paragraphs 8 to 28 of this Ruling).

[Omitted.]

[Omitted.]

[Omitted.]

In the context of financial supplies, the supplier will be the provider, acquirer, or disposer of the financial interest. A financial supply made by the supplier, although 'done' or made offshore, will be connected with Australia if it is made through an Australian GST presence, or if it is made to an Australian consumer. However, a supply of a service or anything other than goods or real property to an offshore recipient may be GST-free under section 38-190 (see paragraphs 144 to 170B of this Ruling).

An American company with no Australian GST presence, Marvel Inc., has been advised to invest in medium-term notes issued by an Australian company, Big Blue. Big Blue issues its medium-term notes to a number of dealers who then on-sell the notes into the secondary market. Two of these dealers are Blue Chip Australia, a dealer that carries on its enterprise in Australia, and Integrity Plus, a dealer that carries on its enterprise in Europe. Marvel Inc. acquires $10 million worth of notes from each of these two entities.

The $10 million worth of notes acquired by Marvel Inc. from Blue Chip Australia are supplied through an Australian GST presence and the supply is connected with Australia. However, the supply may be GST-free if it satisfies the requirements of a table item of subsection 38-190(1). (See paragraphs 144 to 170B of this Ruling.)

The acquisition-supply by Marvel Inc. from Blue Chip Australia will not be connected with Australia, even if the thing is done in Australia. It will be disconnected by subsection 9-26(1) because Marvel Inc. is a non-resident that does not make the acquisition-supply through an Australian GST presence and is making a supply to an Australian-based business recipient. [38AA]

The $10 million worth of notes acquired by Marvel Inc. from Integrity Plus is not supplied through an Australian GST presence and the supply is not connected with Australia. The acquisition-supply by Marvel Inc. is not made through an Australian GST presence nor done in Australia and therefore is not connected with Australia. [38A]

Where a supply is not connected with Australia because it is not done in Australia, is not made through an Australian GST presence, is not made to an Australian consumer and is not of a right or option to acquire another thing the supply of which would be connected with Australia, the acquisition-supply may still be connected with Australia if the acquisition is made through an enterprise the acquirer carries on in Australia. The test in subsection 9-25(5) is applied to both the supply and the acquisition-supply.

This means that even where the thing is not done in Australia, if the recipient of the 'first' supply acquires the thing through an Australian GST presence, the acquisition-supply (the second supply) is connected with Australia. This is the case, whether or not the 'first' supply was made through an enterprise the first supplier carries on in Australia.

Boxer Ltd, a resident Australian company that carries on an enterprise only in Australia, buys shares from a New Zealand company, Terrier Ltd. The contract is made in New Zealand and Terrier Ltd does not carry on an enterprise in Australia. The supply is not connected with Australia as the thing (the provision of the shares) is not done in Australia, nor is the supply made through an Australian GST presence, and Boxer Ltd is not an Australian consumer. The acquisition-supply is connected with Australia as the acquisition of the shares is made through an enterprise Boxer Ltd carries on in Australia. The acquisition-supply is GST-free if it satisfies the requirements of subsection 38-190(1). (See paragraphs 144 to 170B of this Ruling.)

As explained at paragraph 71 of this Ruling, the supplier of a financial supply will be the provider, acquirer or disposer of the financial interest. A financial supply made by a supplier, that is not done in Australia and is not made through an Australian GST presence, will be connected with Australia if it is the supply of a right or option to acquire another thing and the supply of that other thing would be connected with Australia. However, a supply of a service or anything other than goods or real property to an offshore recipient may be GST-free under section 38-190 (see paragraphs 144 to 170B of this Ruling).

Under paragraph 9-25(5)(d), a supply of anything other than goods or real property will be connected with Australia if the recipient of the supply is an Australian consumer (refer to GSTR 2017/1). [38AB] This includes supplies of services, rights, entry into or release from obligations or digital products, and can include financial supplies.

Section 40-5.02 provides that an interest in relation to a financial supply is anything that is recognised at law or in equity as any form of property. Examples include: • A debt or a right to credit; • An interest conferred under a public or private superannuation scheme; • A mortgage over land or premises; • A right under a contract of insurance or a guarantee; • A right to receive a payment under a derivative; and • A right to future property.

The term 'interest' is taken to be very broad even taking into account the use of the word property. The above examples are property or proprietary rights on a broad interpretation of the term and do not extend or contradict the generally accepted concept of 'property'. The examples indicate that the term is given its broadest application so that an interest is as wide as the legal and equitable concept of property, including rights arising under a contract.

This view is supported by judicial decisions that look to the relevant legislation for assistance in interpreting the term 'property'. The fact that a right is not assignable does not mean that it cannot be a proprietary right.

The Full Federal Court considered the meaning of the term 'interest' in section 40-5.02 in Commissioner of Taxation v. American Express Wholesale Currency Services Pty Limited (American Express) [38B] in the context of whether the right to present a credit card or charge card was an interest. After considering a number of cases including the High Court decision of Yanner v. Eaton [38C] , the majority of the Court [38D] observed at [145] to [146]: 145. Although the subject matter in Yanner is very different indeed from that in these appeals, the discussion about the concept of "property" is helpful in the present context. First, Yanner shows that the meaning of the word "property" can be fixed by relevant context, and the rather narrow meanings given in the authorities cited by the respondents will not apply in all contexts. Secondly, the word "property" can be applied to different kinds of relationships between a person and a subject matter, and can be understood as referring to the degree of power that is recognised in law as power permissibly exercised over the thing. 146. Considering the text of the GST Act (especially ss 9-10 and 11-10) and the Regulations, it is apparent that the term "interest" is referable to a very broad conception of property. The words "anything" and "in any form" in regulation in 40-5.02 highlight this extensive scope. Further, as the Commissioner submitted, the examples of financial supplies in the table in regulation 40-5.09(3) include a range of items that would not fit the narrower definition of property urged by the respondents. The same can be said of the "examples of interest" attached to regulation 40-5.02. These examples are illustrative of the proposition in the joint judgment in Yanner mentioned above.

The majority of the Court concluded at [148] that cardholders agreeing to the terms in respect to a credit card or charge card gain a bundle of rights, the most important of which is the right to present the card as payment and incur a corresponding obligation to pay the card provider at a later date. These rights constitute an 'interest' under the broad definition within the GST regulations. [38E]

In their judgment in Commissioner of Taxation (Cth) v. Orica Ltd [39] , Gaudron, McHugh, Kirby and Hayne JJ considered the nature of a proprietary interest for the purposes of Part IIIA [40] of the ITAA 1936. In discussing the term 'any form of property' in section 160A of the ITAA 1936, they cited with approval a statement by Kitto J in National Trustees Executors & Agency Co. of Australasia Ltd v. FC of T [41] : It may be said categorically that alienability is not an indispensable attribute of a right of property according to the general sense which the word "property" bears in the law. Rights may be incapable of assignment, either because assignment is considered incompatible with their nature, as was the case originally with debts (subject to an exception in favour of the King) or because a statute so provides or considerations of public policy so require, as is the case with some salaries and pensions; yet they are all within the conception of "property" as the word is normally understood... Gummow J, in discussing the judgment of the lower court in ICI Australia v. FC of T, [42] observed that neither of the cases considered in relation to 'property' was dealing with rights created under the general law of contract and that it was those rights that were the subject of the case under consideration. He concluded that the contractual rights, whether or not assignable, were property for the purposes of Part IIIA of the ITAA 1936.

In the context of section 40-5.09, we do not ascribe any specific technical significance to establishing whether something is covered as an interest in or an interest under an item in the table. Section 40-5.09 also covers those transactions where by nature, the interest being supplied arises under (rather than in) an item mentioned in the table.

For example, in the case of an interest rate swap contract each party provides the other party with the right to receive a series of cash flows. The proper characterisation of the supply of each party's property is the provision of an interest under an interest rate swap (derivative) contract. Each party will also make a supply of the acquisition (the acquisition-supply) of an interest under an interest rate swap (derivative) contract. [43]

The interest must be an interest in, or under, one of the categories set out in the table in subsection 40-5.09(3). These categories are: • an account made available by an Australian ADI (authorised deposit-taking institution) in the course of its banking business or its State banking business (table item 1 of subsection 40-5.09(3)); • a debt, credit arrangement or right to credit, including a letter of credit (table item 2 of subsection 40-5.09(3)); • a charge or mortgage over real or personal property (table item 3 of subsection 40-5.09(3)); • specified superannuation arrangements (table item 4 of subsection 40-5.09(3)); • an annuity or allocated pension (table item 5 of subsection 40-5.09(3)); • specified life insurance business or related reinsurance business (table item 6 of subsection 40-5.09(3)); • a guarantee (table item 7 of subsection 40-5.09(3)); • an indemnity (table item 7A of subsection 40-5.09(3)); • credit under a hire purchase agreement entered into before 1 July 2012 [43A] (table item 8 of subsection 40-5.09(3)); • Australian currency, currency of a foreign country, digital currency or an agreement to buy or sell any of these three things (table item 9 of subsection 40-5.09(3)); • securities (table item 10 of subsection 40-5.09(3)); • derivatives (table item 11 of subsection 40-5.09(3)); • an account made available by a non-resident in the course of carrying on a banking business in a foreign country in which the entity is authorised under the law of that country to carry on a banking business (table item 12 of subsection 40-5.09(3)); and • a foreign superannuation fund (table item 13 of subsection 40-5.09(3)).

The provision, acquisition or disposal of an interest may be covered by more than one item in subsection 40-5.09(3). The supply need satisfy only one item in this subsection to be a financial supply, although it may be classified under more than one. Similarly, the acquisition-supply may be classified under more than one item. Conversely, something need only be mentioned in one item under section 40-5.12 to be excluded from being a financial supply. (See paragraph 189 of this Ruling.)

So long as the provision, acquisition or disposal is of something that is within one of the items listed in the table in subsection 40-5.09(3), and meets the other requirements of section 40-5.09, it is a financial supply.

As stated at paragraph 79 of this Ruling, 'interest' within Part 3-1 of the GST regulations includes rights arising under a contract. An interest in or under particular items in section 40-5.09 may include contractual rights. The acquisition of an interest in a bank account, for example, includes the acquisition of the contractual rights in relation to the operation of that bank account.

The supply of an interest in any of the table items of subsection 40-5.09(3) may be viewed as a single supply, a composite supply, a mixed supply or a series of separate supplies depending on the facts in each case. (Mixed and composite supplies are explained at paragraphs 91 to 98 of this Ruling.)

Nostrum has a loan with Multilender, a lending institution. Multilender provides Nostrum with a statement of interest paid every six months for a fee. The entitlement to a statement of interest paid is given as part of an interest in or under a loan account. The provision of the statement of interest paid is part of the single supply of the account that is an input taxed supply. (It might also be characterised as a composite supply – see paragraph 91 of this Ruling.)

[Omitted.]

If you make a supply that contains separately identifiable taxable and non-taxable parts, it is a mixed supply. A composite supply on the other hand is essentially a supply of a single thing. If you make a supply that contains a dominant part and includes something that is integral, ancillary or incidental [44] to that part, then the supply is composite. The word 'incidental' in this context is not to be confused with the term when used in connection with an incidental financial supply.

Where a supply contains a part that is a taxable supply and another part that is a financial interest, the relevant facts will determine the treatment of the supply. If it is a composite supply, there will be no need to separate the part that is a financial interest from the taxable part, as one is so integral, ancillary or incidental to the other part of the supply that it cannot be separately identified. If on the facts it is a mixed supply then you will need to separate the parts of the supply.

Big Truck Haulage Company enters into a contract to transport goods for the Economy Group of retail stores. Under the contract, Big Truck Haulage Company indemnifies the Economy Group for any loss or damage caused by Big Truck Haulage Company's drivers. The drivers are independent contractors that provide their own vehicles.

The supply contracted for is the transport of goods in a timely way and undamaged state. The indemnity under this contract is integral, ancillary or incidental to this supply and cannot be separated out and treated as a financial supply.

Convenient Co. provides a charge card called 'The Super Convenient Card' to Nastro. Under the agreement for The Super Convenient Card, Nastro is provided with a charge card facility and the additional benefit of 24-hour roadside assistance. The annual fee charged for the Super Convenient card is $95. The annual fee charged for charge cards without the additional benefit of roadside assistance is $30.

The brochures for the different cards provided by Convenient Co emphasise the benefits and convenience of the Super Convenient Card. The brochures suggest that cardholders of charge cards without the roadside assistance change from their existing charge card to the Super Convenient card to access the roadside service. The brochures also detail the advantages to the Super Convenient roadside assistance compared to roadside assistance provided through other organisations.

Neither of the things embodied by the agreement can be viewed as the dominant part with the other part being integral, ancillary or incidental to it. Under the agreement, the supply can be characterised as consisting of a distinct taxable part (the roadside assistance) and a distinct non-taxable part (an interest in a credit arrangement or a right to credit) each of which can be enjoyed independently of the other. Accordingly, Convenient Co. has made a mixed supply of taxable and input taxed parts to Nastro.

Apportionment of consideration for a supply that includes taxable and non-taxable parts is discussed in GSTR 2001/8.

While 'money' is not specifically listed in the GST regulations as an item that is a financial supply, many financial supplies involve money-like transactions. The definition of supply excludes a supply of money or digital currency unless the money or digital currency is provided as consideration for a supply that is a supply of money or digital currency. [46] Therefore, where the consideration for a supply is money or digital currency, the consideration will not itself be a supply unless the other supply is also money or digital currency.

Shaun sells goods to Mae Ling for $100. Shaun is making a supply for consideration of $100. Mae Ling is not making a supply because the $100 is provided as consideration for a supply of goods and not as consideration for a supply of money.

Jeanette buys digital currency from CryptoC for $2,000. Jeanette is making a supply because the $2,000 is provided as consideration for a supply of digital currency. CryptoC is also making a supply, as the digital currency is provided as consideration for a supply of money (the $2,000). [47]

An acquisition includes the acquisition of something the supply of which is a financial supply. [48] However, an acquisition does not include an acquisition of money or digital currency unless the money or digital currency is provided as consideration for a supply that is a supply of money or digital currency. [49]

The GST regulations distinguish between a financial supply provider [50] and a financial supply facilitator. [51] These definitions are used to avoid confusion between the provision of the actual financial supply and another supply made in connection with it (such as agency services).

An entity is the financial supply provider of an interest if: • the interest was the entity's property immediately before the supply (for example, an entity sells a debenture that it owns); • the entity created the interest when making the supply (for example, an entity issues a debenture); or • the entity acquires the interest supplied (for example, an entity acquires a debenture). [53]

Whether or not an entity is a financial supply provider in relation to an interest will depend on the facts. For example, when an entity provides a mortgage over real property to a bank it creates an interest in a mortgage and is a financial supply provider of that interest. [54] The bank acquires the interest in the mortgage created by the entity and is a financial supply provider in relation to that acquisition-supply.

Section 40-5.06 gives an acquirer of a financial interest the status of a financial supply provider. However, the acquisition-supply is only a financial supply if the other conditions of subsection 40-5.09(1) are met.

Where the financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply provider' applies. The financial supply provider is the entity that makes the financial supply. See paragraphs 651A and 651B of GSTR 2004/1 for an example involving table item 27 of subsection 70-5.02(1) and a financial supply of ATM services.

A financial supply facilitator, in relation to a supply of an interest, is an entity that facilitates the supply of the interest for the financial supply provider. [55] The supply by a financial supply facilitator, in that capacity, is not a financial supply. [56] A supply by a facilitator will be a taxable supply, unless it is not taxable under another provision of the GST Act (for example, it is GST-free or input taxed). Only the financial supply provider in relation to a particular supply can make a financial supply of that thing, as only the provider can satisfy the requirements of subparagraph 40-5.09(1)(b)(ii).

For example, if Alpha sells shares to Beta but does so through Xanthe, a broker, Alpha is making the financial supply of the shares to Beta and Xanthe is making the supply of brokerage services. The financial supply is input taxed, whilst the brokerage services are taxable.

Certain acquisitions from a financial supply facilitator qualify as reduced credit acquisitions. This is explained further at paragraphs 257 to 265 of this Ruling.

When a financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply facilitator' applies. The financial supply facilitator is the entity that facilitates the financial supply for the entity making the financial supply.

As stated at paragraph 43 of this Ruling, the acquisition of a financial interest can be both an acquisition and a financial supply. The acquirer of the financial interest both acquires and supplies a financial interest, that is, it makes a supply of the acquisition (or the 'acquisition-supply').

The intention is that neither the supplier nor the acquirer of a financial supply should be able to claim input tax credits in relation to the supply or acquisition of the financial supply. This is achieved by denying a creditable purpose to both parties to a transaction in which there is a financial supply.

The entity that makes or supplies the financial interest and the entity that acquires the financial interest have both made financial supplies. [57] Therefore, anything acquired or imported that relates to making those supplies is not for a creditable purpose, and each entity is denied input tax credits for those acquisitions or importations.

S&T Galore is registered for GST and carries on an enterprise in Australia as a share trader. S&T Galore buys and sells shares in the course of carrying on that enterprise. Both the sale and the acquisition of the shares are financial supplies and S&T Galore is denied input tax credits for acquisitions and importations that relate to making those financial supplies. S&T Galore will be entitled to reduced input tax credits for things acquired in making those financial supplies that are reduced credit acquisitions (for example, brokerage). Assuming the other conditions in section 40-5.09 are satisfied, the acquisition-supply in each case is also a financial supply.

A financial supply that consists of the acquisition of a financial interest may not involve anything other than consideration passing from the acquirer to the provider. For example, Nudge Pty Ltd sells shares to Wink Pty Ltd for $20,000. Wink Pty Ltd has acquired a legal interest in the shares and arguably all Nudge Pty Ltd has received in return is the money.

A recipient in relation to a supply is defined in section 195-1 as meaning the 'entity to which the supply is made'. A financial supply consisting of the acquisition of a financial interest is treated by the legislation as being 'made to' a recipient, so that it does not matter that the recipient of the acquisition-supply may not actually receive something. The GST regulations treat the receipt of this interest by the acquirer as being a supply to the provider. Therefore, in the example above, Nudge Pty Ltd provides legal title in the shares and Wink Pty Ltd acquires the interest in those shares. In acquiring those shares, Wink Pty Ltd makes a supply of the acquisition (an acquisition-supply) and Nudge Pty Ltd is taken to have received that supply.

One consequence of this interpretation is that the acquisition of a financial interest, as well as the provision or disposal of the financial interest, may be GST-free. The supply and the acquisition-supply must each be separately considered to determine whether they satisfy the requirements of subsection 38-190(1). (See paragraphs 144 to 170B of this Ruling.)

As stated at paragraph 20 of this Ruling, the supply or acquisition of a financial interest is a financial supply if it is mentioned as: (a) a financial supply in section 40-5.09; or (b) an incidental financial supply in section 40-5.10. [58]

For a supply to be an incidental financial supply, the requirements of section 40-5.10 must be satisfied. That is, something is an incidental financial supply, if it is: • supplied by the same supplier to the same recipient as the original financial supply; and • supplied directly in connection with a financial supply. Further, the thing supplied will only be an incidental financial supply where it is: • incidental to the financial supply; and • supplied at or about the same time, as the financial supply but not for separate consideration; and • the usual practice of the entity to supply the thing (or similar things) and the financial supply together in the ordinary course of the entity's enterprise.

A composite supply is essentially the supply of a single thing. Composite supplies contain one dominant part and also include something that is integral, ancillary or incidental to that part. Section 40-5.10, on the other hand, contemplates the supply of two things, one of which is a financial supply, for a single consideration. Where one of the things is an incidental financial supply, you do not need to determine whether there is a mixed or composite supply.

The term 'incidental' when used in the context of an incidental financial supply has a meaning different from its meaning when used in the phrase 'integral, ancillary or incidental' in relation to a composite supply. [59] (See paragraphs 133 to 135 of this Ruling.)

In practice, it may be difficult to identify something that is an incidental financial supply, because supplies that fit the definition of an incidental financial supply may, in many cases, also be described as a composite supply.

GSTR 2001/8 provides an entity with the option to treat a minor part of the supply as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were part of a mixed supply) does not exceed the lesser of $3.00 or 20%. However, the Ruling also states that you cannot apply this approach where a provision of the GST Act specifically requires you to treat a part of a supply a particular way.

We do not consider that the approach in GSTR 2001/8 displaces, or should displace, section 40-5.10. Section 40-5.10 deals specifically with incidental financial supplies and provides its own tests of what is an incidental financial supply. Some things may be incidental financial supplies even though they are part of a mixed supply and would not be integral, ancillary or incidental under the approach mentioned above.

Section 40-5.10 operates in a way similar to the option given in GSTR 2001/8 to treat a minor part of the supply as incidental. As stated at paragraph 119 of this Ruling, an incidental financial supply is essentially the supply of two things, one of which is a financial supply. Applying the principles in GSTR 2001/8, this would be characterised as a mixed supply. A composite supply, on the other hand, is essentially the supply of a single thing.

In making something an incidental financial supply, section 40-5.10 has the effect of treating something that is the supply of more than one thing as a composite supply. However, even if the conditions in section 40-5.10 are not met, the supply may still be a composite supply if, applying the principles in GSTR 2001/8, it would be one.

The ordinary meaning of 'directly in connection with' contemplates a direct or immediate link or association.

The expression 'directly in connection with' used in section 40-5.10 is also used in the New Zealand GST legislation to determine the link necessary between a supply and goods or real property before the supply can be treated as zero-rated. [60] In examining the expression, the New Zealand courts have found that there must be a direct relationship with the goods or real property. [61]

In the financial supply context, in establishing whether a supply is directly in connection with a financial supply, you look at the supply and determine whether that supply has the requisite connection with the financial supply. For a supply to be 'directly in connection with' a financial supply, the supply must have a direct relationship with the financial supply. A causal relationship may be sufficient to determine that a supply is directly in connection with a financial supply for the purposes of section 40-5.10.

A supply has a direct relationship with a financial supply where the supply: • is readily identifiable as having occurred because of the financial supply; and • would not occur if there were not a financial supply.

The provision of information or advice that does not have a direct relationship to a financial supply would not be 'directly in connection with' a financial supply.

Paddie SuperFund has an internet site that its members can use to access information about their superannuation entitlements under their membership account. When members join the fund, Paddie SuperFund offers training sessions in how to access and use the site. The fee for joining the fund includes the training sessions. The supply of the training sessions is directly connected to the supply of an interest in the superannuation fund because without the supply of the interest in the superannuation fund, the training sessions would not be provided and they have no value or purpose of their own. Where the other requirements of section 40-5.10 are satisfied the supply of the training sessions will be an incidental financial supply.

Goldenweb Ltd is a promoter of managed investment schemes and property developments. When an entity invests in a managed investment scheme, part of the package of information provided is an invitation to a luncheon presentation on inner city townhouse developments currently being marketed by Goldenweb Ltd. The invitations are available to the general public from Goldenweb Ltd's reception desk and are also distributed by letterbox drop the week before each presentation. The invitation to the luncheon presentation is not 'directly in connection' with the supply of the interest in a managed investment scheme.

'Incidental' is not defined in the GST Act or GST regulations. 'Incidental' is defined in Black's Law Dictionary as 'depending upon or appertaining to something else as primary;...; something incidental to the main purpose'. [62]

It follows that in the context of section 40-5.10 for a supply to be 'incidental' to a financial supply it is subordinate to the financial supply and depends upon or is coincidental to the financial supply.

A supply may be regarded as incidental to a financial supply where that supply is something that is of lesser significance or importance than the financial supply.

Whether a supply is for separate consideration will depend on the facts of a particular transaction. Separate itemisation of the fees on an invoice may indicate that the service is provided for separate consideration, but it is not a conclusive factor. Other factors, including the nature of the service provided, the contractual arrangements and intention of the parties, will also be relevant in determining whether there is separate consideration.

LotsaCards Finance offers cardholders an option of three different types of credit cards – Red, Silver, and Gold cards. There are different annual fees for each card. The fees for each card are based on the types of benefits that are associated with that card and the credit limit available. The Red Card has a credit limit of $2,000 with an annual fee of $10. The Silver Card has a credit limit of $7,500 with an annual fee of $35. The Gold Card has a credit limit of $10,000 with an annual fee of $75. The main benefit of the Silver Card is membership in a loyalty rewards program. The main benefits of the Gold Card are membership in a loyalty reward program plus insurance on certain purchases using the card (for example, domestic airfares). The difference in the annual fees does not mean that there is separate consideration for the different benefits attaching to each card. Red Card and Silver Card cardholders can pay the additional annual fee amount to upgrade to the next level card. This additional amount is not separate consideration. The supply of the additional benefits by LotsaCards Finance is an incidental financial supply provided all the other conditions of section 40-5.10 are met.

Continuing on from the example at paragraph 137 of this Ruling, LotsaCards Finance also offers income protection insurance for an extra $5 a month, regardless of the type of card held. The extra $5 payable by cardholders for the insurance cover is separate consideration. On these facts, the insurance cover is not an incidental financial supply. However it and the credit card facility may be a composite supply if on a closer analysis of the supply it is in substance and reality the supply of an interest in credit, rather than a mixed supply of insurance and an interest in credit.

Goods and Services Tax Ruling GSTR 2012/1 Goods and services tax: loyalty programs provides guidance on the GST implications of other aspects of certain loyalty programs, such as the accrual and redemption of points by members and transactions between program partners.

To determine whether something is the 'usual practice' of an entity, you look at the context in which an activity is undertaken. The ordinary meaning of 'usual practice' contemplates that the 'usual practice' of an entity is an action of the entity that is performed consistently within the entity. The adoption of set guidelines or procedures that are to be followed by the entity when transacting business would be indicative of the 'usual practice' of that entity. It is sufficient if the entity provides the 'thing' together with the financial supply as a matter of course.

'Usual practice' is not limited to those activities that are existing and established practices of that entity. It can be a practice new to that entity, or a usual practice established by other financial supply providers, that the entity intends adopting.

Kramer is provided with an organiser when taking out a home loan with a mortgage of $750,000 over his new property. The supply of the organiser satisfies all of the other requirements of an incidental financial supply, however, Kramer is the first customer the bank has provided with an organiser. The bank intends to provide organisers to all customers who take out a loan. The bank has acquired 500 organisers in contemplation of this practice. This is indicative of the commencement of a usual practice. As all the requirements of section 40-5.10 are satisfied, the supply of organisers will be an incidental financial supply.

Whether a thing is supplied in the ordinary course of the entity's enterprise is a question of fact taking into account the nature of the enterprise and general customs and practices of its trade.

The requirement that the transaction be in the 'ordinary course' of the enterprise excludes transactions that are made for purposes other than the carrying on of the enterprise or to achieve ends dissimilar from those of the business activity. [63] Again, there may be a business activity that is new to the enterprise and a single transaction carried out with the intention to carry on that business activity will be in the course of the entity's enterprise. [64]

The table in subsection 38-190(1) lists the supplies of things other than goods or real property for consumption outside Australia that are GST-free. Table items 2, 3 and 4 set out the circumstances most relevant to financial supplies. Table item 5 (dealing with exports of services to repair, etcetera imported goods) is not applicable to financial supplies. Supplies that satisfy the circumstances described in any of table items 1 to 5 may not be GST-free if they fall within the exclusion in subsection 38-190(2). Supplies that satisfy the circumstances described in table item 2 may not be GST-free if they fall within the exclusion in subsection 38-190(3). Supplies that satisfy the circumstances described in any of table items 2 to 4 may not be GST-free if they fall within the exclusion in subsection 38-190(2A).

The following GST rulings discuss the application of section 38-190: • Goods and Services Tax Ruling GSTR 2003/7 Goods and Services Tax: what do the expressions 'directly connected with goods or real property' and 'a supply of work physically performed on goods' mean for the purposes of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?; • Goods and Services Tax Ruling 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); • Goods and Services Tax Ruling GSTR 2004/7 Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999: • when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'? • when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'?; • Goods and Services Tax Ruling GSTR 2025/1 Goods and services tax: supplies of things (other than goods or real property) made to non-residents but provided to another entity in Australia; • Goods and Services Tax Ruling GSTR 2025/2 Goods and services tax: supplies of things (other than goods or real property) where effective use or enjoyment of the supply takes place outside Australia.

Subsection 9-30(3) provides that if a supply is both GST-free and input taxed, the supply is GST-free (unless the supply is of the type where the supplier can choose to treat it as input taxed under a specific provision). This means that if something is both GST-free by virtue of subsection 38-190(1) and input taxed because of the GST Act and regulations, it is GST-free. Acquisitions relating to the making of that GST-free supply are creditable.

As discussed at paragraph 51 of this Ruling, 'thing' means anything that can be supplied or imported [65] and therefore includes interests that are financial supplies.

A supply to a non-resident recipient is GST-free under subsection 38-190(1) if it is a supply made to a non-resident who is not in Australia when the thing supplied is done65A and: • the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia;65B or • the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered. [66]

However, the supply is not GST-free if any of subsections 38-190(2), (2A) or (3) apply to that supply.

Knightly Co. is an Australian resident with a permanent establishment in New Zealand. It is applying for a loan from Kiwi Bank in New Zealand. Kiwi Bank has no operations outside New Zealand. Kiwi Bank acquires information from a credit rating agency located in Australia about the creditworthiness of Knightly Co. The credit rating agency searches databases and makes telephone calls to other financial institutions (all located in Australia). This supply of information by the credit rating agency in Australia is connected with Australia because the information is prepared in Australia. However, as the recipient is not an Australian resident, the supply is GST-free provided Kiwi Bank is not in Australia in relation to the supply when the information services are performed.

Australian Enterprises is a share-trader resident in Australia with all its activities being in Australia. Therefore, supplies that it makes are connected with Australia. It acquires shares from American Inc. a company that is located in the United States (US) and is not in Australia in relation to the supply. The GST regulations and the GST Act operate so that in acquiring the shares, Australian Enterprises makes a financial supply (an acquisition-supply) to American Inc. The acquisition-supply to American Inc satisfies the requirements of table item 2 of subsection 38-190(1) and is GST-free. To the extent that anything acquired or imported by Australian Enterprises relates to making that financial supply (that is, acquiring the shares) it is for a creditable purpose.

As discussed in paragraph 147 of this Ruling, one of the ways in which a supply may be GST-free is if it is made to a non-resident who is not in Australia when the thing supplied is done and the non-resident acquires the supply in carrying on an enterprise but is not registered, or required to be registered, for GST. In these situations, the financial supply provider needs to be satisfied that the non-resident recipient is not registered, or required to be registered, before it can treat the supply as GST-free.

A supplier is able to check the GST registration status of a recipient by checking the Australian Business Register. [67] However, the Australian Business Register does not include those non-resident entities that are registered as a 'Limited Registration Entity'.

For the purposes of determining whether a supply is GST-free under table item 2 of subsection 38-190(1), a check of the Australian Business Register may not, on its own, constitute reasonable grounds for being satisfied the recipient is not registered or required to be registered.

The supplier must be satisfied, on reasonable grounds that the entity it supplies to is not required to be registered. Where a supplier has reason not to be so satisfied, enquiries should be made of the recipient.

We accept that the supplier has reasonable grounds for being satisfied, if the entity has provided a statement, declaring that the entity is not required to be registered. This is provided the supplier has no other reason to believe that the statement is not accurate.

Having a statement from the recipient is not the only way in which a supplier may be satisfied that the recipient is not required to be registered.

A supply is also GST-free where it is a supply: • that is made to a recipient who is not in Australia when the thing supplied is done; [67A] and • the effective use or enjoyment of which takes place outside Australia, [67B] other than a supply of work physically performed on goods situated in Australia when the work is done, or a supply directly connected with real property situated in Australia. [68] However, the supply will not be GST-free if subsections 38-190(2) or (2A) apply to the supply.

Ripper Home Loans, an Australian resident company, securitises its mortgages by assigning the income stream from them to a special purpose vehicle, Ripper Securitisation, an Australian resident entity. Ripper Securitisation then issues securities (that are rights) to a non-resident offshore bank, Landmark Ltd, that sells them to offshore investors. Landmark Ltd does not have a presence in Australia in relation to the supply of securities to it. Ripper Securitisation pays interest on the securities to the investors into their offshore accounts. The effective use and enjoyment of the securities by Landmark Ltd is outside Australia, as Landmark Ltd is a company (a non-individual) that does not have a presence in Australia in relation to the supply of securities (see GSTR 2025/2). This example specifically illustrates a situation where effective use and enjoyment takes place outside Australia. However, the supply may also be GST-free under table items 2 and 4 of subsection 38-190(1).

Under table item 4 of subsection 38-190(1), a supply in relation to rights is GST-free if: • the rights are for use outside Australia; [68A] or • the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done. [68B]

The principles for determining the types of supplies capable of being covered by table item 4 of subsection 38-190(1) and when rights are 'for use outside Australia' are outlined in GSTR 2003/8. [68CA] It is the intended use of those rights, determined objectively, that is relevant in determining whether the rights are for use outside Australia. The actual use of the rights is not relevant, other than as potential evidence of the intended use.

A GST-registered Australian company, Never Never Investments Pty Ltd (Never Never), sells 100% of the shares in its wholly owned US subsidiary to another GST-registered Australian company, Kandalex Investments Pty Ltd (Kandalex). The US subsidiary operates a profitable business in the US. Kandalex acquires 100% of the shares in the US subsidiary with the intention of holding the shares long term and earning dividend income, using its controlling interest to control the US subsidiary's future business activities. The shares supplied provide Kandalex with various shareholder rights (voting rights, the right to share in company profits, etcetera) which are governed by the relevant US jurisdiction's corporate law.

The jurisdiction where the relevant rights would be exercised or enforced by Kandalex is relevant to determining if the rights under the shares are for use outside Australia. In considering the nature of the rights and the surrounding circumstances, the supply of shares by Never Never in the US subsidiary is a supply of rights that are for use outside Australia. The supply is not a supply of rights to which subsections 38-190(2) or (2A) apply. The supply therefore is GST-free under table item 4 of subsection 38-190(1).

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

Whether a supply is made to a non-resident is a question of fact to be established in each case. Section 195-1 defines a non-resident as an entity that is not an Australian resident. Australian resident is defined in terms of the definition of 'a resident of Australia' in subsection 6(1) of the ITAA 1936. This definition provides different tests for companies and individuals. Whether an entity satisfies the relevant test is essentially a question of fact to be established in each case, having regard to the decided income tax cases and any income tax public rulings issued. [68D]

While address information supplied by the recipient of a financial supply may be indicative that the recipient is a non-resident, it is not determinative. Where a financial supply provider has reason to believe that the entity is in fact an Australian resident, further enquiries must be undertaken. A financial supply provider must be satisfied that the recipient of the supply is a non-resident before they can treat a supply as GST-free.

To satisfy the requirements for a GST-free supply under table item 2 of subsection 38-190(1), the non-resident must also not be in Australia when the thing supplied is done. Whether an entity is 'not in Australia' at the time when the thing supplied is done requires an analysis based on the facts. [68DA]

In some circumstances, it may not be possible for a financial supplier in Australia to determine whether the counterparty to a transaction is a resident or a non-resident or whether the counterparty is in Australia when the thing supplied is done. This may be the case where the Australian enterprise supplies or acquires securities in an on-market transaction. Where it is not possible to determine the residency or location of the counterparty in an on-market securities transaction (and only in that circumstance), the Australian enterprise may use the following to approximate the residency and location of the counterparty: • the place the transaction takes place (that is, the location of the securities exchange through which the transaction takes place); • if it is not known where the transaction takes place, the place where the security is listed; • if it is not known where the transaction takes place or where the security is listed, the place where the counterparty's broker is ordinarily resident.

[Omitted.]

Subsection 38-190(3) applies to ensure that a supply made pursuant to table item 2 of subsection 38-190(1) is not GST-free if it is supplied under an agreement with a non-resident and the supply is provided, or is required to be provided, to another entity in Australia. For subsection 38-190(3) to apply, the supply must be provided, or the agreement must require it to be provided, to another entity in Australia. [68F]

However, subsection 38-190(3) will not prevent a supply from being GST-free under table item 2 where the supply is not an input taxed supply and any of the following apply: • the other entity (to which the supply is provided or the agreement requires it to be provided) would be an Australian-based business recipient of the supply, if the supply had been made to it; • the other entity is an individual who is provided with the supply as an employee or an officer of an entity that would be an Australian-based business recipient of the supply, if the supply had been made to it; or • the other entity is an individual who is provided with the supply as an employee or officer of the recipient and the recipient's acquisition of the thing is solely for a creditable purpose and is not a non-deductible expense. [68G]

If the GST-free status of a supply covered by table item 2 of subsection 38-190(1) is negated by the application of subsection 38-190(3), that supply may still be GST-free if the requirements of another table item are satisfied and subsections 38-190(2) and (2A) do not apply.

If a supply is not connected with Australia, it will not be a taxable supply under section 9-5 of the GST Act. However, an intangible supply (being the supply of anything other than goods or real property) or supply of low-value goods may be treated as a taxable supply under section 84-5 where certain requirements are satisfied.

Although the table in subsection 84-5(1) includes several types of supplies that may be subject to the reverse charge, this section of the Ruling focuses on table item 1 of subsection 84-5(1) as this is likely to be the most common item applicable to entities that make financial supplies. An intangible supply will be taxable (except to the extent it is GST-free or input taxed) under table item 1 of subsection 84-5(1) where: • the supply is not connected with Australia; • the recipient of the supply acquires the thing supplied solely or partly for the purpose of an enterprise that the recipient carries on in Australia; • the recipient does not acquire the thing solely for a creditable purpose; • the supply is for consideration; and • the recipient is registered, or required to be registered. [69AAAA]

The GST on a supply treated as a taxable supply under section 84-5 is payable by the recipient of the supply and is not payable by the supplier. The charge for GST is reversed, so Subdivision 84-A (containing section 84-5) is commonly referred to as a 'reverse charge' provision. [69AAA]

If Division 84 applies to the provision, acquisition or disposal of an interest mentioned in subsection 40-5.09(3), the provision, acquisition or disposal is a financial supply to the extent that it would, apart from subparagraphs 40-5.09(1)(a)(iii) and (b)(i), be a financial supply. [69AA] That is, it will be a financial supply (and not a reverse charged taxable supply) even if: • it is not connected with Australia, or • the supplier is not registered for GST.

You do not acquire a 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. Things acquired by an entity from offshore for use in making financial supplies are not acquired solely for a creditable purpose. This includes acquisitions that may be reduced credit acquisitions.

It is clear that the purpose of Division 84 is to apply to acquisitions that would not be fully creditable because, for example, they relate to making a financial supply. Division 70 is a statutory device the effect of which is to allow partial input tax credits to an entity making financial supplies. The application of Division 70 should not impede the appropriate operation of Division 84. Support for this is found in section 70-5.02A, which contemplates that Division 84 applies to reduced credit acquisitions.

Where Division 84 applies, intangible supplies not connected with Australia and low-value imported goods acquired from offshore for use in making financial supplies are subject to a 'reverse charge' unless the supply would have been GST-free or input taxed. GST is payable on the supply by the recipient of those services or other things. This means that where a financial supply provider acquires a service from offshore that would be subject to GST if purchased in Australia the recipient is required to remit GST equal to 10% of the price of the supply.

Invest Bank, a GST-registered Australian financial institution, engages Legal UK, solicitors operating in the United Kingdom (UK), to prepare an opinion on the legal aspects of a proposed banking operation in Australia in liaison with a subsidiary of a UK bank. The legal advice is prepared in the UK and provided to Invest Bank in Australia. The supply of that advice is not connected with Australia because the advice is not prepared in Australia and Legal UK has no Australian GST presence. [69A]

The supply is for consideration, Invest Bank is registered for GST and it acquires the supply for the purpose of its enterprise carried on in Australia. The proposed Invest Bank enterprise will only make input taxed supplies. The acquisition made by Invest Bank is not solely for a creditable purpose because the acquisition relates to making supplies that are input taxed. Thus, the requirements of section 84-5 are satisfied and the supply by Legal UK is a taxable supply. Under section 84-10, Invest Bank, the recipient of the supply, is liable to pay GST on the taxable supply.

Where the entity receiving the supply is registered, or required to be registered, the supply of that service or thing is a taxable supply and GST of 10% of the price is payable by the recipient. [70]

If the recipient is not registered or required to be registered, the supply may still be a taxable supply where the supply is to an Australian consumer. [71AAA] GST on taxable supplies to Australian consumers is not subject to the reverse charge in Division 84 (except for certain circumstances where incorrect information is provided to the supplier); rather, GST will be payable by the supplier pursuant to the normal rules. [71AA]

Where you have acquired something that is a taxable supply because of the reverse charge provisions, you may be entitled to input tax credits (including reduced input tax credits) for the acquisition. Any input tax credit for those acquisitions is worked out under section 84-13.

The acquisition of some financial interests by a financial supply provider will not be connected with Australia because they are not 'done' in Australia, are not made through an enterprise the financial supply provider carries on in Australia, are not made to an Australian consumer and they are not the acquisition of a right or option to acquire another thing the supply of which would be connected with Australia. In these circumstances, when read on its own, Division 84 would operate to treat those financial interests as taxable. [71A] The GST regulations operate so that if Division 84 applies to a financial interest, which would be a financial supply apart from the fact it is not connected with Australia and the supplier is not registered or required to be registered, [72] it is a financial supply. [73]

Earthbound Bank, an Australian resident entity, acquires units in Balmy Unit Trust. Balmy Unit Trust is a resident of the Bahamas, and issues the units in the Bahamas. The supply of the financial interest, which is the interest in the unit trust, is not a financial supply because it is not connected with Australia and the supplier is not required to be registered. As Division 84 would apply to make the supply taxable, subsection 40-5.09(2) applies to treat the supply of the interest as a financial supply. Division 84 does not apply to make the supply taxable to the extent that it is input taxed. (The acquisition-supply by Earthbound Bank to Balmy Unit Trust would also be a financial supply due to the operation of subsection 40-5.09(1). It may be GST-free if the requirements of subsection 38-190(1) are met.)

Transfers to an enterprise carried on inside Australia, or the doing of anything for an enterprise carried on in Australia, from or by an enterprise carried on outside Australia where these enterprises are branches (but not GST branches) of the same entity are treated as a supply that is not connected with Australia. [75] Therefore, provided the other requirements of section 84-5 are satisfied, the transfers are a taxable supply and subject to the reverse charge.

Transfers to an enterprise carried on outside Australia, or the doing of anything for an enterprise carried on outside Australia by an enterprise carried on in Australia, where these enterprises are branches (but not GST branches) of the same entity are not supplies for the purposes of the GST Act. This is because supplies between these branches of an entity are supplies within a single entity rather than supplies between separate entities corresponding to the branches of that entity.

Where an entity conducts an enterprise through a branch in Australia, the entity must register [76] for GST in Australia and will have a GST liability for supplies made to third parties by the Australian enterprise provided the supply satisfies the other conditions for a taxable supply. The entity may also be entitled to input tax credits in relation to acquisitions made in the course of conducting its enterprise, including those relating to transfers made, or services provided, within the entity.

A range of supplies that are sometimes associated with financial transactions, and other supplies that are themselves financial in nature, are excluded by the regulations [77] from being financial supplies. These supplies will be taxable supplies unless specified to be GST-free, input taxed or otherwise not taxable under another provision of the GST Act.

Section 40-5.12 sets out categories of supplies that are not financial supplies regardless of whether a financial supply provider or a financial supply facilitator makes the supply. The categories, as set out in section 40-5.12 of the GST regulations, are: • supplies of cheque and deposit forms to an ADI and special forms provided to account holders (table items 1 and 2 of section 40-5.12); • professional services, including information and advice in relation to a financial supply (table item 3 of section 40-5.12); • an interest in or under a payment system (table item 4 of section 40-5.12); • stored value cards not linked to an account with an ADI (table item 5 of section 40-5.12); • goods supplied in accordance with agreements under which the goods are leased, where the lessors dispose of their rights in the goods to the lessees, or the lessees have no obligation or option to acquire the rights of the lessors in the goods (table item 6 of section 40-5.12); • an option, right or obligation to make a taxable supply or acquire something the supply of which is a taxable supply, except a mortgage or charge mentioned in table item 3 of subsection 40-5.09(3) (table item 7 of section 40-5.12); • a supply made as a result of the exercise of an option or right, or the performance of an obligation to make a taxable supply or acquire something the supply of which is a taxable supply (table item 8 of section 40-5.12); • facilities for trading securities or derivatives and clearance and settlement of those trades (table item 9 of section 40-5.12); • insurance and reinsurance business (other than life insurance business) (table item 10 of section 40-5.12); • broking services (table item 11 of section 40-5.12); • management of the assets or liabilities of another entity (table item 12 of section 40-5.12); • debt collection services (table item 13 of section 40-5.12); • sales accounting services under a factoring arrangement (table item 14 of section 40-5.12); • trustee services (table item 15 of section 40-5.12); • custodian services in relation to money, digital currency, documents and other things (table item 16 of section 40-5.12); • currency with a market value that exceeds its stated value as legal tender (table item 17 of section 40-5.12); • bailment and floorplan arrangements (table item 18 of section 40-5.12); • goods supplied under a hire purchase agreement entered into on or after 1 July 2012 (table item 19 of section 40-5.12); • credit under a hire purchase agreement entered into on or after 1 July 2012 (table item 20 of section 40-5.12); and • a warranty for goods (table item 21 of section 40-5.12).

If something is a financial supply under section 40-5.09 and also not a financial supply under section 40-5.12, then section 40-5.12 prevails. Unless it is also an incidental financial supply, the supply will be treated as not being a financial supply. [78]

Divest Bank provides a variety of banking services including bank accounts, loans, safe custody services, cash and cheque counting and sorting. It provides these services (for a fee) to both account holders and non-account holders. One of its customers, Marrakesh Holdings, deposits money, cheques, and credit card vouchers with Divest Bank for overnight storage. Divest Bank provides Marrakesh Holdings with wallets for this purpose. The following day, Divest Bank clears and counts the money and cheques in the wallets and deposits the funds into Marrakesh Holdings' account. It returns the credit card vouchers to Marrakesh Holdings. Custodian services fall within table item 16 of section 40-5.12 and they may also fall within table item 1 of section 40-5.09 if they are part of the supply of the account to Marrakesh Holdings (or on the facts are parts of a composite supply). The custodian services are not part of an account keeping function for Marrakesh Holdings but are a separate supply. Section 40-5.12 has the effect that the custodian services are treated as a separate supply to, or separate component of, the supply of the account held by Marrakesh Holdings. Therefore section 40-5.12 prevails and the service is taxable.

Use the same facts as at paragraph 187 of this Ruling; however, in this example, Divest Bank does not charge Marrakesh Holdings a separate fee for the storage but absorbs the costs into its monthly account-keeping fees. The supply is incidental to the supply of an interest in an account and is an incidental financial supply. [79] Section 40-5.10 prevails over section 40-5.12 and therefore the supply is input taxed.

Table items 1, 2, 5 and 8 of section 40-5.12 refer back specifically to a table item of subsection 40-5.09(3). As stated at paragraph 85 of this Ruling, the provision, acquisition or disposal of something may fall under more than one table item of subsection 40-5.09(3). Even if something mentioned in table items 1, 2, 5, or 8 of section 40-5.12 is covered by a table item of subsection 40-5.09(3) in addition to the item specifically mentioned, it is excluded from being a financial supply. For example, special forms provided in connection with an account mentioned in table item 1 are excluded from being financial supplies even though an interest in an account may also be covered as an interest in or under a debt in table item 2.

Table items 7 and 10 of section 40-5.12 also mention specific table items of section 40-5.09 but do so only to exclude them from the operation of the table item of section 40-5.12.

Financial supply providers may incur expenses on behalf of a customer (as agent) or as a principal in the ordinary course of providing their services to the customer.

Where the cost is incurred as principal, the financial supply provider may seek to build that expense into the fee charged to the customer. We refer to this as 'on-charging'. On the other hand, where the cost is incurred on the customer's behalf, the financial supply provider may seek reimbursement for that amount from the customer. We refer to this as 'recovery' or reimbursement.

The principles on agency relationships set out in Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law apply equally to the agent and principal relationships that may exist between a financial supply provider and its customer. The GST treatment of certain costs that are charged for by the financial supply provider depends on whether it incurs the cost as principal or as agent.

Where an expense incurred by the financial supply provider is absorbed into the consideration for the financial supply and 'on-charged' to the customer, it will be input taxed. This will be so whatever the type of expense being on-charged and irrespective of whether the on-charged items are listed separately. The expense incurred is treated as an input into the service or supply made by the financial supply provider.

For taxes, fees and charges excluded from GST [80] , such as stamp duties, the GST treatment depends on whether the financial supply provider or the customer is liable for meeting the expense. This will determine whether the expense is 'recovered' or 'on-charged' (that is, whether it was incurred as principal or agent) and whether the supply is taxable, input taxed or GST-free.

These are the situations contemplated by the examples in Schedule 2 of the GST regulations in relation to taxes, fees and charges excluded from GST. [81] On the other hand, where the expense is incurred on behalf of the customer and then reimbursed, the 'recovery' will not of itself be a financial supply. The recovery of the tax, fee or charge from the customer will continue to be excluded from GST.

Where a financial supply facilitator incurs costs in providing the taxable supply of its services and passes on the costs as part of its fee for service (on-charging), the entire fee will be taxable. The facilitator may also incur expenses on behalf of the financial supply provider, and recover those expenses. The recovery will have the same character as the expense incurred on behalf of the financial supply provider.

In some cases, acquisitions that relate to making financial supplies may attract a reduced input tax credit, even though no input tax credit would arise under the basic rules. These acquisitions are reduced credit acquisitions [82] and are listed in section 70-5.02. If a reduced credit acquisition is not wholly for a creditable purpose [83] under Division 70 of the GST Act (for example, if it relates to making other input taxed supplies), you will need to determine your extent of creditable purpose. Subsection 70-20(2) and section 84-13 contain formulae for working out your input tax credit in these circumstances and this is further explained in GSTR 2006/3.

The list of acquisitions under sections 70-5.02 and 70-5.02A is intended to be exhaustive. This is clear from the language in subsections 70-5.02(1) and 70-5.02A(3). Therefore, if something is not specified as an item within the table, then it is not a reduced credit acquisition. While an acquisition must fall within one of the items, it is not necessary that there be an express reference to a particular acquisition in an item, unless it is clear from the wording of the item that this is the case.

An acquisition is not a reduced credit acquisition to the extent that you would be entitled to an input tax credit for the acquisition outside of Division 70 of the Act. [84]

For the purposes of subsection 70-5(2), the GST regulations specify that the percentage of the input tax credit for each reduced credit acquisition is either 75% or 55%. [85]

For the purposes of table item 1 of subsections 40-5.09(3) and 40-5.09(4), 'account' means an account made available by an Australian ADI within the meaning of section 9 of the Corporations Act 2001. [86]

This does not prevent other supplies or acquisition-supplies that have 'account-like' facilities being financial supplies provided that they satisfy another table item in subsection 40-5.09(3). As illustrated in example 9 of this Ruling, the supply or acquisition-supply of an interest in or under a debt may include account-like facilities with a non-ADI. Provided that the other elements of subsection 40-5.09(3) are satisfied, the financial interest in these circumstances will be a financial supply that includes the provision of the account-like facilities. The account-like facility in these circumstances is not dependent on coming within table item 1 of subsection 40-5.09(3).

[Omitted.]

The purpose of the definition of account in section 196-1.01 is to expand the meaning of 'account' when the term is used outside subsection 40-5.09(3). The definition includes table item 1 of subsection 40-5.09(3) accounts and paragraph (b) extends the meaning of account to include accounts with institutions other than ADIs. [86A] This expanded meaning of account is of most relevance to subsection 70-5.02(1), in that items referring to accounts (such as table items 1 to 5 and table item 8 of subsection 70-5.02(1)) are not limited to table item 1 Australian ADI accounts. It includes accounts that have characteristics whereby the account holder has the right to: • have the account maintained by the account provider (the provider); • repayment of the amount credited to the account by the provider; and • require the provider to act on directions by the account holder that are in accordance with the arrangements, or any agreement, between the provider and the account holder in relation to operation of the account.

While paragraph (b) of the definition extends the meaning of account to include accounts with institutions other than ADIs the term must still be read in the context in which it appears. While definitions of account in general dictionaries may extend the meaning to include 'any periodically rendered reckoning' [87] , the context of an item in the GST regulations narrows it to transactions involving a sum of money. Therefore, the meaning of account (for both subsection 40-5.09(3) and the defined term) as used in the GST regulations does not extend to an 'account' that records non-monetary balances such as reward or loyalty point and 'frequent flyer' point balances. (These accounts are further excluded from the scope of the GST regulations as they do not give 'account holders' the right to repayment of an amount credited.) This meaning of 'account' is specific to the GST regulations and it is not necessarily interpreted in the same way for the purpose of the GST Act.

[Deleted.]

Part 4-2 of the GST regulations lists those acquisitions that are reduced credit acquisitions for the purposes of Division 70 of the GST Act. While Division 70 of the regulations is intended to contain an exhaustive list of the acquisitions that qualify as reduced credit acquisitions, some of the things listed under items are listed on an 'inclusive' basis.

Items listed in the GST regulations contain the expressions 'including', [88] 'the following' or 'of the following kinds' [89] and 'the following, ... including' or 'including the following'. [90] The words 'the following' are used in those items where the list is intended to be exhaustive. 'Including' is used where the list is not exhaustive.

The word 'including' has been considered in numerous cases. [91] In some instances, the word 'including' is used as an extension of the thing defined or described and at other times to provide clarification. In the GST regulations, the expression is used in a variety of constructions and you need to look at each item in the regulation to see in what sense it is used. It is often used to simply make clear what the item in the regulation intends to cover by describing a practical activity or acquisitions intended to be covered by the general expression used at the commencement of the item.

Different constructions of 'including' used in the GST regulations are the expressions 'including', 'including by using the following facilities', or 'including the following'. Where these expressions are used, the listings that follow provide examples of the item being described. For example, table item 2 of subsection 70-5.02(1) refers to: Processing services in relation to account information for account providers, including the following: (a) archives storage, retrieval and destruction services; (b) statement processing and bulk mailing; (c) processing and manipulation of information relating to accounts, including information about transactions to which item 7 applies. Paragraphs (a) to (c) are examples of processing services in relation to account information.

To give an item its correct context, each paragraph in the item needs to be read with reference to the commencing words of the item. For example, an 'archive destruction service' mentioned in table item 2(a) of subsection 70-5.02(1) is a processing service and a reduced credit acquisition if it is a destruction service 'in relation to archived account information for an account provider'. This means that a service acquired to destroy archived account information for an account provider is a reduced credit acquisition. However, the acquisition of services to destroy other papers, records or assets does not come within the item and is not a reduced credit acquisition.

[Deleted.]

[Deleted.]

In relation to the use of the expression 'the following', the subsequent words are intended to be an exhaustive list of the item being described. Outside of examples given, no other meaning can be attributed to the item. We give this same interpretation to the expression 'the following ... including' in table items 23 and 24 of subsection 70-05.02(1). The word 'including' in this context clarifies that the item applies to superannuation schemes.

Table 1 of this Ruling describes the interpretation we give to each item that contains an expression mentioned in paragraphs 209 to 215 of this Ruling. Table 1: Interpretation of expressions used in subsection 70-5.02(1) Table item no Context of Expression Illustrative or Exhaustive 1 The service of ... performing a transaction in respect of an account ... including by using the following facilities Illustrative 2 Processing services ... including the following ... Illustrative 5 Processing services ... including ... Illustrative 6 Supplies to which the following ... relate Exhaustive 7 Processing ... of the following kind Exhaustive 8 Services to a third party mentioned in paragraph (b) in table item 6 ... including ... Illustrative 9 Arrangement ... including the following ... Illustrative 10 Securities and unit registry services ... including the following ... Illustrative 11 The following supplies Exhaustive 14 The following loan application ... services Exhaustive 15 The following loan management services Exhaustive 17 The following debt collection services Exhaustive 23 The following ... functions, including those functions for superannuation schemes ... Exhaustive 24 The following administrative functions ... including those functions for superannuation schemes ... Exhaustive 26 The following life insurance administration services ... Exhaustive 29 Trustee and custodial services ... including ... Illustrative 30 The following master custody services ... Exhaustive Table 2: Interpretation of expressions used in subsection 70-5.02A(3) [91A] Table item no. Context of Expression Illustrative or Exhaustive 1 Provision of senior management services, including the following: ... Illustrative 3 Provision of human resources support services, including the following: ... Illustrative 7 Performance of financial management service functions, including the following: ... Illustrative 13 Provision of legal services, including: ... Illustrative 15 Maintenance and operation of transaction processing systems (including communications and applications systems) Illustrative

An entity making financial supplies in Australia may receive management and support services from an enterprise it carries on outside Australia, a non-resident parent, subsidiary or other closely related enterprise. As the services are supplied from outside Australia, the recipient of the supply is subject to a GST 'reverse charge' on the supply. The imposition of a GST on these services may place the Australian enterprise at a competitive disadvantage when compared to the operations of other financial institutions acquiring similar services in Australia. Resident financial institutions will not incur a GST liability on management and support services that are undertaken wholly within the entity or between GST grouped entities.

To address this potential disadvantage, where an Australian enterprise acquires specified management and support services from a 'closely related' non-resident enterprise, the acquisition may be a reduced credit acquisition. To qualify as a reduced credit acquisition, the acquisition must satisfy the conditions in section 70-5.02A. These conditions are that the supply or transfer is a taxable supply because of section 84-5 of the Act and the receiving enterprise and the supplying enterprise are closely related. In addition, the supply or transfer that gives rise to the acquisition must consist in: • the transfer of something to an enterprise in Australia (the receiving enterprise) from an enterprise outside Australia (the supplying enterprise); or • the doing of something for the receiving enterprise by the supplying enterprise.

To qualify as a reduced credit acquisition, the acquisition must also be the acquisition of something that is listed within subsection 70-5.02A(3).

An enterprise is closely related [93] to another enterprise if: • both enterprises are carried on by the same entity; • one enterprise is carried on by a 100% subsidiary of the entity that carries on the other enterprise; or • both enterprises are carried on by 100% subsidiaries of the same entity. For example, a supply from a non-resident 'head office' or 'parent' entity, to an Australian branch or 100% subsidiary company of the supplier will involve a supply between 'closely' related entities.

In determining the reduced credit acquisition, the price of the relevant supply is reduced by the amount passed on by the supplying enterprise to the receiving enterprise for any unabsorbed contribution from a third party (subsection 70-5.02A(5)).

An acquisition is not a reduced credit acquisition where the supplier does no more than seek recovery of the cost of a supply by a third party (with or without additional cost or profit margins) and the substance and character of the supply by the third party remains unchanged by the supplier before supply to the Australian enterprise. This will be an unabsorbed contribution for the purposes of subsection 70-5.02A(5).

The supplier of something that is identifiable as having more than one part where each part is taxable does not need to apportion the consideration for the supply. This is because GST is payable on the whole supply. Similarly, if all of the parts of a supply are identifiable as being non-taxable, GST is not payable on any part of the supply.

However, a supply consisting only of taxable parts may not be wholly a reduced credit acquisition to the acquirer. Only those parts that are reduced credit acquisitions give rise to reduced input tax credits.

It is not necessary to separate parts of an acquisition into things that are listed in section 70-5.02 and parts that are not unless these are separately identifiable parts of the acquisition. Where there are no separately identifiable parts of the acquisition you need to look at the acquisition as a whole to determine whether it is an acquisition specified in the GST regulations.

Papier Suppliers supplies Fobick Bank with stationery. The supply is made up of deposit and withdrawal forms, letterhead and business cards. The supply from Papier Suppliers consists of several parts, all of which are taxable. There is no need for Papier Suppliers to separately identify the consideration that relates to each part; however, Papier Suppliers chooses to separately list each item on the invoice provided to Fobick Bank.

Examining the acquisition, Fobick has acquired deposit and withdrawal forms, letterhead and business cards. Business cards and letterhead are not listed as reduced credit acquisitions in section 70-5.02. Therefore, the acquisition of those items by Fobick Bank is not a reduced credit acquisition. Deposit and withdrawal forms are listed in table item 4 of section 70-5.02 as a reduced credit acquisition and, therefore, the acquisition of those forms is a reduced credit acquisition by Fobick Bank.

If something that is listed as a reduced credit acquisition is acquired together with something that is not listed as a reduced credit acquisition then you may need to treat those parts separately. This will depend on whether the acquisition is a 'mixed acquisition' or a 'composite acquisition'. These terms are intended to be similar to the concepts of a mixed supply [94] and a composite supply and to adopt similar principles. The difference is that these terms are used to describe an acquisition that contains parts that are reduced credit acquisitions and parts that are not. Paragraphs 19 to 24 of GSTR 2001/8 explain how to differentiate between mixed and composite supplies.

The supplier may not need to separate the components of a supply that is a 'mixed acquisition' or a 'composite acquisition' to the acquirer. Paragraph 11 of GSTR 2001/8 states: 'Where you make a supply that is identifiable as having more than one part and each part is taxable, you do not need to apportion the consideration for the supply. This is because GST is payable on the whole supply.'

A supply, or part of a supply, that is taxable to the supplier (and therefore requires no further separation into its component parts) may still be a mixed acquisition to the acquirer. That is, a supply, or part of a supply, that consists of separately identifiable parts that would all be taxable does not need to be characterised as a mixed or composite supply. However, that supply, when viewed from the perspective of the acquirer may be characterised as a mixed acquisition because it consists of separately identifiable parts. The terms mixed acquisition and composite acquisition are not defined terms but are used in this Ruling as an aid to interpreting the provisions.

The description of the supply on the invoice is a factor in determining the character of the acquisition, but is not necessarily decisive.

A mixed acquisition contains separately identifiable parts where one or more of the parts is a reduced credit acquisition and one or more of the parts is not a reduced credit acquisition. In a mixed acquisition, no part is dominant, and each part has a separate identity.

On the other hand, a composite acquisition is an acquisition of one dominant part and includes other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the acquisition. Where an acquisition is a composite acquisition, then it is essentially the acquisition of a single thing, and will be either wholly a reduced credit acquisition or wholly not a reduced credit acquisition.

In working out whether you are acquiring a mixed or composite acquisition, the key question is whether the acquisition has parts that should be regarded as being separately identifiable, or whether it is essentially an acquisition of one dominant part with other parts being integral, ancillary or incidental to that dominant part. This is discussed in paragraphs 235 to 256 of this Ruling.

In many cases, it will be a matter of degree whether the parts of an acquisition are separately identifiable, and retain their own identity. This is a similar process to determining whether or not something is a mixed supply. The principles and case law relevant to determining whether a supply includes separately identifiable parts are outlined in paragraphs 45 to 54C of GSTR 2001/8.

The principles enunciated in GSTR 2001/8 assist in establishing, by analogy, how to determine whether an acquisition includes separately identifiable parts. GSTR 2001/8 illustrates that the relevant factor is what the acquirer in essence acquires. The question is what 'in substance and reality' is acquired for the consideration paid.

Further discussion on mixed acquisitions is contained in Goods and Services Tax Determination GSTD 2011/3 Goods and services tax: do the acquisitions of the services provided under the arrangement described in Taxpayer Alert TA 2010/1 form part of a reduced credit acquisition made by the financial supply provider under item 9 of the table in subregulation 70-5.02(2) of the A New Tax System (Goods and Services Tax) Regulations 1999?, which specifically deals with supplies from a financial supply facilitator that is related to a financial supply provider.

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

[Omitted.]

In a particular month, Clever Counters provides Inca Investments with administrative services such as maintaining records, handling inquiries, and processing application forms. Clever Counters also provides Inca Investments with a new record keeping software package. The parts of the acquisition are separately identifiable, and retain their own identity. No one part of the acquisition dominates another. In 'substance and reality' Inca Investments has acquired administration functions and a software package. The acquisition of a software package is not a reduced credit acquisition under any of the items in the regulations. Inca Investments is entitled to a reduced input tax credit for the administrative services but not for the record keeping package.

In a composite acquisition, subordinate parts complement and accompany the dominant part of the acquisition. Such an acquisition is essentially the acquisition of a single thing. It need not be broken down, unbundled or dissected any further. A composite acquisition may appear, at first, to have more than one part, but is treated as if it is the supply of one thing. The principles for determining whether a supply is a composite supply that includes integral, ancillary or incidental parts are outlined in paragraphs 55 to 63 of GSTR 2001/8.

[Omitted.]

[Omitted.]

[Omitted.]

Luther Life Co. acquires archives storage and retrieval services from Storit. As part of the service, Storit provides a number of things, such as archive boxes and labels, as well as collection and storage of the boxes. These things are merely some of the things that go together to make up the acquisition of archive services. The acquisition is a composite acquisition and therefore is a reduced credit acquisition under table item 2(a) of subsection 70-5.02(1).

Trusted Bank acquires transaction cards from Trendee Cards. Customers use these cards to operate their accounts with Trusted Bank. The contract for the acquisition of the transaction cards from Trendee Cards includes the supply of the card blanks together with artwork and embossing (for example, with the customer's name, the card number and expiry date, etcetera). When acquired from a single supplier and as part of a single acquisition, the parts cannot be separated. Without each of the parts the card is not a transaction card but is simply a piece of plastic. The acquisition is a composite acquisition and therefore a reduced credit acquisition under table item 3 of subsection 70-5.02(1).

However, in some cases, no matter how subordinate a minor part may be, the subordinate part still maintains its individual status under a specific legislative provision. For example, taxation and auditing services under table items 24(h) and 26(h) of subsection 70-5.02(1) are specifically excluded from being reduced credit acquisitions where provided as part of services to comply with industry regulatory requirements.

Sure, Steady and Associates provides Inca Investments with the service of ensuring compliance with industry regulatory requirements including taxation services, such as completion of its BAS. Under table item 24(h) of subsection 70-5.02(1), taxation services (such as completion of Inca Investment's BAS) are excluded from the administrative function of compliance with industry regulatory requirements. That part is therefore not a reduced credit acquisition under paragraph 24(h). Inca Investments is not entitled to reduced input tax credits for the preparation of its BAS or any other taxation services Sure, Steady and Associates might provide as part of that service.

The specific exclusions in table items 24(h) and 26(h) of subsection 70-5.02(1) relate only to the services provided under that paragraph of the item. Where the audit or taxation services mentioned in paragraph (h) of table items 24 and 26 of subsection 70-5.02(1) are provided as an integral part of a service under a different paragraph of that item, there is no need to treat the part that is a taxation or auditing service differently to the other part of the supply.

Overlord Administration Services provides Inca Investments with a total administration package for its investment funds. The fee for this service is calculated as a percentage of the funds under management and is not dissected according to the various functions performed. Part of the duties of Overlord Administration Services is taxation services including preparation of the BAS. There is no need for Inca Investments to separate the acquisition of the taxation services from the acquisition of the other services. Inca Investments will be entitled to reduced input tax credits for the acquisition of the total administration service package.

In terms of what is and what is not a financial supply, the GST regulations distinguish between a supply made by a financial supply facilitator and one made by a financial supply provider. As discussed in paragraph 103 of this Ruling, these definitions principally serve to avoid confusion between the provision of the actual financial supply and another supply made in connection with it.

A financial supply facilitator is defined in section 40-5.07 in relation to a supply of a particular interest, to be an entity facilitating the supply of that interest. The facilitating of a supply refers to activities that help forward (assist) the supply [106] , rather than those that simply assist the financial supply provider. In determining whether an entity is facilitating the supply of the interest for a financial supply provider, the activities performed by the entity must have the effect of helping forward or assisting the supply and therefore must have a sufficient nexus with the supply of an interest by a financial supply provider.

A sufficient nexus in these circumstances requires that the activities of the entity have an identifiable association with the supply that goes beyond a mere general association. An identifiable association does not mean that the activities have to be directly linked to the supply, however it does require that there be a substantial connection so as to exclude activities that are only generally related. The activities must relate to and assist a particular supply.

As a general rule, acting in an agent-like capacity on behalf of a financial supply provider indicates an identifiable association with the supply of an interest, as the activities of the agent are substantially connected with the supply of an interest. However, acting in an agent-like capacity is not the only way in which the activities of an entity may have an identifiable association with the making of a financial supply. In the absence of this identifiable association, an entity will not be a financial supply facilitator of the supply of the interest.

The term financial supply facilitator is specific to subsection 70-5.02(1) and to those items listed in the subsection. Although the term is defined in section 40-5.07, the nature of the services provided by a financial supply facilitator that are eligible for a reduced input tax credit are outlined in the relevant items in subsection 70-5.02(1). For the purposes of these items, if a financial supply facilitator does not provide the specific service mentioned then the service will not be a reduced credit acquisition. For example, an entity may be a financial supply facilitator in relation to the supply of an interest in an account, but the service it provides will not be a reduced credit acquisition unless it is the service of opening, issuing, closing, operating, maintaining, or performing a transaction in respect of the account.

When a financial supply does not involve the supply of an interest, the ordinary meaning of 'financial supply facilitator' applies. The financial supply facilitator is the entity that facilitates the financial supply for the entity making the financial supply.

ABC Ltd engages XYZ Ltd to locate borrowers for ABC Ltd. XYZ Ltd receives money from ABC Ltd for this purpose and then provides that money as loans to borrowers. In this scenario, XYZ Ltd makes the supply of the loan monies to borrowers as agent for ABC Ltd. For the purposes of the GST regulations, XYZ Ltd is acting as a financial supply facilitator in relation to the supply of the interest in the loan funds. XYZ Ltd facilitates this supply for ABC Ltd (who is the financial supply provider by virtue of being the entity that owns the interest in the loan funds) and supplies that interest to borrowers.

The supply made by XYZ Ltd to ABC Ltd is a reduced credit acquisition under item 11 of subsection 70-5.02(1) as the supply the financial supply facilitator is making is the provision of a loan facility under paragraph (b) of that item. The provision of the loan facility by XYZ Ltd facilitates the supply of an interest in a credit arrangement by ABC Ltd, the financial supply provider.

For the purpose of strategic planning, DMW Ltd engages Radical Ltd to provide advice on suitable takeover targets. Based on the advice supplied by Radical Ltd, DMW Ltd selects a company and engages Jones RD Ltd to facilitate the acquisition of a controlling interest in the company selected. In this example, despite the fact that the advice is relied upon to ultimately make a financial supply, Radical Ltd is not a financial supply facilitator. This is because the activities of Radical Ltd have only a general association with the acquisition of the controlling interest in that they assist the financial supply provider but do not assist the particular supply (of the acquisition) of the securities.

However, Jones RD Ltd is a financial supply facilitator because its activities have an identifiable association with DMW Ltd's acquisition of the controlling interest and assist that particular supply by the financial supply provider. The supply made by Jones RD Ltd to DMW Ltd is a reduced credit acquisition under table item 9 of subsection 70-5.02(1), as the supply it makes as a financial supply facilitator is the arrangement of the provision, acquisition or disposal of an interest in a security, specifically, arranging a takeover bid under paragraph (f). The arranging of a takeover bid by Jones RD facilitates the supply (acquisition-supply) of an interest in securities by DMW Ltd, the financial supply provider.

GSTR 2008/1 provides guidance on determining whether an acquisition is for a creditable purpose, including whether the acquisition relates to making supplies that would be input taxed (see Part B of GSTR 2008/1, from paragraph 101 to 196).

Where a financial supply provider acquires the services of a financial supply facilitator to effect a financial supply, the complexity of the transaction may require that the facilitator supply services over an extended period. The financial supply provider is entitled to reduced input tax credits from the time there is a relationship between a reduced credit acquisition and the making of a financial supply. That is, the financial supply provider does not have to wait until the financial supply has been concluded before the entitlement arises.

How much reduced input tax credit an entity can claim and when it can be claimed will depend on the usual attribution rules. If your actual use of the acquisition changes from your planned use, you may need to make an adjustment to reflect any changes in the extent of your creditable purpose. GSTR 2000/24 provides general guidance on making adjustments for changes in extent of creditable purpose. Goods and Services Tax Determination GSTD 2012/3 Goods and services tax: does an adjustment for a change in extent of creditable purpose necessarily arise for services acquired in relation to a proposed merger and acquisition transaction that does not eventuate, or that does not proceed in the manner contemplated at the time the services were acquired? provides specific guidance on adjustments for changes to extent of creditable purpose arising from merger and acquisition activity or proposed activity.

At the board meeting of Future Corporation, the decision to acquire a controlling interest in Past Enterprises is made and recorded in the minutes. To facilitate the transaction, Future Corporation engages the services of an investment banker (Present Ltd). Present Ltd invoices Future Corporation on a monthly basis. Present Ltd takes nine months to complete the transaction for Future Corporation.

Although the acquisition of the controlling interest takes nine months to complete, Future Corporation is entitled to claim a reduced input tax credit for each preceding month's supply of services by Present Ltd (being the arrangement by a financial supply facilitator of the acquisition of an interest in a security) as each invoice issues. This is because the acquisition of the services relates to a financial supply that Future Corporation is in the process of making.

Following from the example at paragraph 268 of this Ruling, instead of the transaction being completed, Future Corporation's acquisition fails due to the actions of the existing Past Enterprises board. Although the shares are not in fact acquired, Present Ltd's services up to this point still relate to the making of a financial supply by Future Corporation.

As Future Corporation's actual use of Present Ltd's services has not changed from its planned use, no adjustment under Division 129 arises in these circumstances. This is because, up to this point, Future Corporation has used Present Ltd's services for the intended purpose.

Belvedere Ltd, an investment company, wishes to expand its operations into minerals exploration. It engages a merchant bank (Eagle Corp) to recommend a method (such as takeover, acquire assets, acquire a joint venture or partnership interest) by which the expansion may be most effectively achieved and to facilitate the expansion once the method has been approved by the Belvedere Board. Eagle Corp will receive a success fee on completion of the arrangement.

After three months of due diligence activities, Eagle Corp recommends to Belvedere Ltd that a takeover of Rochester Enterprises (a medium-sized minerals exploration company) will provide the best vehicle for its proposed expansion. At Belvedere's next Board meeting, the directors agree to proceed with the acquisition of a controlling interest in Rochester Enterprises and record this in the Board minutes. The arrangement of the acquisition of the shares in Rochester Enterprises takes Eagle Corp a further six months to complete. At that time, it furnishes Belvedere Ltd with a tax invoice for all of the services rendered. Belvedere Ltd accounts for GST on a non-cash basis and remits monthly. Belvedere Ltd will need to ascertain the extent of creditable purpose relating to its acquisition from Eagle Corp to determine its entitlement to input tax credits in that month's tax period.

The services rendered prior to the activities of arranging the acquisition of the shares of Rochester Enterprises need to be apportioned in light of the type of due diligence advice provided by Eagle Corp. To the extent that the due diligence conducted relates to an option that, if adopted, would lead to the making of input taxed supplies, the acquisition of the advice would not be creditable. Conversely to the extent that advice relates to an option that, if adopted, would lead to the making of taxable supplies, the acquisition of the advice would be creditable. The services of arranging for the acquisition of the shares in Rochester Enterprises are not for a creditable purpose as they relate to making supplies that would be input taxed. Belvedere Ltd may be entitled to a reduced input tax credit under table item 9 of subsection 70-5.02(1) in respect of the services acquired concerning the arrangement of the acquisitions of shares in Rochester Enterprises. Whether Belvedere Ltd is entitled to reduced input tax credits for the acquisition depends on the other requirements of Division 70 being met and whether, in substance and reality, the services acquired come within table item 9 of subsection 70-5.02(1).

Something that is used in making a reduced credit acquisition is not, for that reason, a reduced credit acquisition. [107] This means that an input used by a supplier in providing something that is a reduced credit acquisition in the hands of the recipient, is not itself a reduced credit acquisition.

Loaner Bank engages Retro Inc. to process its loan applications. Retro Inc. is short staffed and hires staff from an employment agency to process the loan applications. The supply of processing services by Retro Inc. is a reduced credit acquisition by Loaner Bank, however, the labour hire is not a reduced credit acquisition to Retro Inc.

Inputs into a supply that become an integral part of that supply do not need to be segregated out. While these things are not themselves reduced credit acquisitions, the supplier does not need to separately identify the inputs into the supply made to the financial supply provider.

In Example 42 of this Ruling, Retro Inc. invoices Loaner Bank for the processing services. The amount invoiced includes a component for the labour hire services. The acquisition of processing services is a reduced credit acquisition to Loaner Bank and there is no need for Loaner Bank to segregate out the labour hire component.

No special tax invoice requirements apply to suppliers of reduced credit acquisitions. That is, the supplier is not required to identify that a particular supply is a reduced credit acquisition. However, the supplier must comply with the tax invoice requirements generally.

[Omitted.]

Goods and Services Tax Ruling GSTR 2013/1 Goods and services tax: tax invoices discusses the information requirements for tax invoices. These information requirements do not include any specific requirements for tax invoices issued for reduced credit acquisitions. Tax invoices issued must comply with the information requirements that apply to a supply of that kind.

Schedule 1 of this Ruling contains a glossary of terms to explain what is understood by the financial product or acquisition mentioned in the Ruling including Schedule 2. Not all of these terms are legislative definitions. Most terms have been taken from banking and finance dictionaries or are based on explanations provided by industry bodies. (A list of references appears at the end of the glossary.)

Schedule 1 does not form part of the proposed binding public ruling. The explanations given in Schedule 1 for terms used in this Ruling are not exhaustive definitions, nor are they interpretative. They are indicative only and may, due to industry usage, legal developments or other considerations, change over time.

Schedule 2 of this Ruling sets out the GST treatment of supplies and fees commonly provided by financial supply providers. Many of these are expressed by reference to the consideration provided for the supply of the services.

These supplies, fees, and charges are divided into the following categories: • Transaction Banking and Cash Management: - Accounts; - Payments and funds transfer; - Stored value and similar cards; - Deposits and investment; • Advances, Loans and Mortgages: - Loan transactions; - Credit and charge cards; - Mortgages and charges; - Debt and credit arrangements; • Trade Finance, Asset Based Finance and Inventory Based Finance: - Trade finance; - Asset based finance; - Inventory or receivables finance; • Securities; • Guarantees and Indemnities; • Currency; • Superannuation, Annuities and Allocated Pensions: - Superannuation; - Annuities or allocated pensions; • Derivatives; • Insurance; • Advisory and Professional Services: - Advisory and professional services; - Financial planning; • Brokerage and Facilitator Services; • Trustee and Custodian Services; • Funds Management; • Commodities and Collectibles.

The provision, acquisition or disposal of an interest mentioned in subsection 40-5.09(3) is a financial supply if: • the provision, acquisition or disposal is: - for consideration; and - in the course or furtherance of an enterprise; and - connected with Australia; and • the supplier is: - registered or required to be registered; and - a financial supply provider in relation to the supply of the interest.

This is represented in Table 3 of this Ruling: Table 3: Requirements for a financial supply in the Accounts table in Schedule 2 of this Ruling Line no. Supply, service or consideration GST Regulation or GST Act GST status Notes A2 Account opening, keeping, maintenance and service fees 40-5.09(3) Table item 1 Input taxed Subsection 40-5.09(4) may also apply

This means that the supply satisfies the requirement for a financial supply within the GST regulations because it is: • the provision of an interest in or under an account made available by an ADI in the course of its banking business; • provided the provision is: - for consideration; - in the course or furtherance of an enterprise; and - connected with Australia; • the supplier is a financial supply provider in relation to the supply of the interest; and • the supplier is registered or required to be registered. As a financial supply, this supply is input taxed.

However, a financial supply will not be input taxed to the extent that it is GST-free. Reference should be made to paragraphs 144 to 170B of this Ruling for guidance on the application of subsection 38-190(1) to financial supplies. While Schedule 2 of this Ruling does provide notes indicating when particular supplies may be GST-free under subsection 38-190(1), Schedule 2 is not intended to be an exhaustive list of all GST-free supplies.

If relevant, subsection 40-5.09(4) will also apply. The supply of those services to a non-account holder will be input taxed if supplied for a fee of $1,000 or less and if table item 1 of subsection 40-5.09(3) would have applied to that supply in relation to an account with the ADI.

The symbol "§" indicates that the term is defined in Schedule 1 of this Ruling. The definitions provided in Schedule 1 are provided to assist in interpreting the various terms but do not form part of this Ruling (see paragraph 283 of this Ruling).

The supply may be an incidental financial supply if it satisfies the requirements of section 40-5.10; namely, it is: • something that is supplied by the same supplier to the same recipient as the original financial supply; • supplied directly in connection with a financial supply; • incidental to the financial supply; • supplied at or about the same time, as the financial supply but not for separate consideration; and • the usual practice of the entity to supply the thing (or similar things) and the financial supply together in the ordinary course of the entity's enterprise.

This is represented in Table 4 of this Ruling: Table 4: Incidental financial supplies in the Loan Transactions table in Schedule 2 of this Ruling Line no. Supply, service or consideration GST Regulation or GST Act GST status Notes B48 Card insurance (supplied with card – no separate fee) 40-5.09(3) Table item 1 and 2 and 40-5.10 Input taxed Not applicable

This means that the supply of the insurance, provided with a transaction card for no separate (additional) fee, is incidental to the supply of an account under table item 1 or the supply of an interest in credit under table item 2 of subsection 40-5.09(3). The supply is an incidental financial supply provided the requirements of section 40-5.10 are met. Being a financial supply, the supply is input taxed. (The supply, on the facts might also be characterised as a composite supply.)

If the supply does not satisfy the requirements of section 40-5.09, or if it is a supply listed within section 40-5.12, then it will not be a financial supply. It may be taxable, GST-free, input taxed or otherwise non-taxable under another provision of the GST Act. Some supplies may come within both sections 40-5.09 and 40-5.12. Where this is the case, section 40-5.12 prevails and the supply will not be a financial supply (unless it is also an incidental financial supply).

This is represented in Table 5 of this Ruling: Table 5: Requirements for a non-financial supply in the Fees and charges payable by a merchant for merchant operations table in Schedule 2 of this Ruling Line no. Supply, service or consideration GST Regulation or GST Act GST status Notes A102 Sales processed fee Section 9-5 40-5.12 item 4 Taxable† Not applicable

This means that the supply is specified not to be a financial supply under section 40-5.12. Supplies under section 40-5.12 are generally taxable supplies, unless they are specifically treated as GST-free, input taxed or non-taxable under another provision of the GST Act. Sales processed fees for credit, debit and card merchant operations are taxable supplies under section 9-5.

Whether or not a supply is in fact a supply of the kind listed in the fourth column of Table 4 of this Ruling depends on the requirements for a supply of that kind being met. Each transaction will need to be judged and its GST status determined by having regard to all the facts and circumstances particular to that case. Items in this category are identified by the symbol "†".

The line number in the table is used merely as a device for referring to a particular item.

Schedule 2 forms part of this Ruling.

See the Glossary in Schedule 1 of this Ruling.

Below is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Date of effect 6 Background 7 Financial acquisitions threshold 14 Reduced input tax credits (RITCs) 15 Extent of creditable purpose and changes in creditable purpose 18 Ruling with Explanations 19 40-5.09 – When is something a financial supply? 19 Supply includes acquisition 22 Supply 25 Supplier 27 Provision, acquisition or disposal 28 Consideration 33 Example 1: Supply and acquisition-supply are for consideration 36 Consideration relating to a loan 37 Example 2: Consideration for an interest-free loan 42 Example 2A: Buy-now, pay-later credit provider 42A Financial supply given as consideration for a financial supply 43 Course or furtherance of an enterprise 44 When is the provision, acquisition or disposal of a financial interest connected with Australia? 45 Thing is done in Australia 51 Example 3: Provision of a financial interest – the thing is not done in Australia 62 Example 5: Supply of a guarantee – the thing is done in Australia 64 Example 6: Acquisition of financial interest – the thing is done in Australia 66 Supply made through an enterprise that the supplier carries on in Australia 67 Example 7: Supply through an enterprise 72 Example 8: Acquisition-supply made through an enterprise carried on in Australia 77 Supply is of a right or option to acquire another thing and the supply of the other thing would be connected with Australia 77A Recipient of the supply is an Australian consumer 77B What is an 'interest' in relation to a financial supply? 78 Interest in or under 82 Example 9: Single supply of an interest in a table item of subsection 40-5.09(3) 89 Mixed and composite supplies 91 Example 11: Composite supply 93 Example 12: Mixed supply 95 Money or digital currency as consideration for money or digital currency 99 Example 13: Money is not a supply 100 Example 14: Digital currency is a supply 101 Financial supply provider or financial supply facilitator 103 Financial supply provider 104 Financial supply facilitator 107 Acquisition of a financial interest 110 Why is an acquirer also a financial supply provider? 111 Example 15: Supply and acquisition-supply 113 Who is the recipient of the acquisition of a financial interest? 114 Section 40-5.10 – What is an incidental financial supply? 117 Composite supply versus incidental financial supply 119 When is something 'directly in connection with' a financial supply? 126 Example 16: Directly in connection with a financial supply 131 Example 17: Not directly in connection with a financial supply 132 When is a supply 'incidental' to a financial supply? 133 When is something provided not for separate consideration? 136 Example 18: Different consideration not separate consideration 137 Example 19: Separate consideration 138 What amounts to usual practice? 139 Example 20: Usual practice established 141 When is something provided in the ordinary course of the entity's enterprise? 142 Financial supplies for consumption outside Australia 144 Supplies that are both GST-free and input taxed 145 Subsection 38-190(1) – GST-free supplies 146 Table item 2 146 Example 21: GST-free supply of services 149 Example 22: GST-free supply of a financial supply 150 Is the recipient registered or required to be registered? 151 Table item 3 156 Example 23: Effective use or enjoyment takes place outside Australia 157 Table item 4 158 Example 24: GST-free supply in relation to rights 159 Determining the residency and location of the recipient 166 Supply not GST-free if supplied under agreement and provided to an entity in Australia – subsection 38-190(3) 170 Intangible supplies from Offshore – 'Reverse charge' 171 Example 27: Acquisition from offshore not for a creditable purpose 175 Example 28: Financial supply not connected with Australia 180 Transfers between branches (not being GST branches) of the same entity 181 Section 40-5.12 – What are not financial supplies 184 Something that is both a financial supply and not a financial supply 186 Example 29: Section 40-5.12 prevails 187 Example 30: Section 40-5.10 prevails 188 Recovery and oncharge 191 Reduced credit acquisitions – section 70-5.02 198 Meaning of 'account' 202 Is subsection 70-5.02(1) inclusive or exclusive? 208 Internally generated management and support services by a non-resident parent entity 217 Closely related 220 Differentiating between mixed and composite acquisitions 223 Example 31: Acquisition of more than one thing 226 Reduced credit acquisition is acquired together with something that is not a reduced credit acquisition 228 Mixed acquisition – separately identifiable parts 235 Example 32: Mixed acquisition 246 Composite acquisition 247 Example 33: Composite acquisition 251 Example 34: Composite acquisition 252 Example 35: Specific exclusion 254 Example 36: No exclusion 256 What is a financial supply facilitator? 257 Example 37: Financial supply facilitator 262 Example 38: Bringing about supply for financial supply provider 264 When does an acquisition relate to making a financial supply? 265A Example 39: Acquisitions leading up to making a financial supply 268 Example 40: Acquisitions leading up to the making of a financial supply where the transaction is not completed 270 Example 41: Success fee – single payment for services that partly relate to making a financial supply 272 Something acquired to make a reduced credit acquisition is not a reduced credit acquisition 275 Example 42: Something acquired to make a reduced credit acquisition 276 Example 43: Something acquired to make a reduced credit acquisition – no need to separately identify 278 Tax Invoices 279 What this Ruling does 282 Schedule 1 282 Schedule 2 284 How to read Schedule 2 of the Ruling 286 Requirements for financial supply 286 Requirements for Incidental Financial supply 291 Requirements for non-financial supply 294 Definitions 300 Detailed contents list 301