Commissioner issues GST Determination and four draft Determinations

Yesterday the Commissioner issued a final GST Determination on retail foreign exchange transactions and four draft GST Determinations on telecommunications supplies.

In GSTD 2012/5 Goods and Services tax: are acquisitions related to an entity’s retail foreign currency exchange transactions with customers in Australia made solely for a creditable purpose under section 11-5 of the GST Act, the Commissioner has retreated from his draft position that suppliers of currency on “outbound transactions” would only be entitled to partial input tax credits.

The Determination provides guidance on the creditable purpose of acquisitions relating to currency exchange transactions, in light of the decision of the High Court in Travelex Ltd v Commissioner of Taxation [2010] HCA 33.

The Determination distinguishes between “outbound transactions” (where the the currency is intended for use outside Australia) and “inbound transactions” (where the currency is intended for use in Australia).  For both transactions, the entity is regarding has having made two supplies, being currency in exchange for currency (FX in exchange for AUD – outbound; AUD in exchange for FX – inbound) and also an input taxed financial supply (an acquisition supply) of the interest in the AUD and FX respectively.

The treatment of each transaction is outlined as follows:

Outbound transactions

4. The entity’s supply of FX is a financial supply, and is also a supply that is made in relation to rights.  Hence, the supply is GST-free where the customer’s intention is to use the FX outside Australia.

5. When the entity supplies FX in exchange for AUD, it also makes an input taxed financial supply (an acquisition-supply) of the interest in the AUD.

6. To the extent that acquisitions made by the entity relate to outbound transactions, they relate solely to the GST-free supply of the FX.  Consequently, to this extent, these acquisitions are made solely for a creditable purpose.

Inbound transactions

7. The entity’s supply of AUD is an input taxed financial supply.  It is also a supply made in relation to rights, but to the extent that the rights are not intended for use outside Australia, it will not have the additional character of a GST-free supply.

8. When the entity supplies AUD in exchange for FX, it also makes a financial supply (an acquisition supply) of the interest in the FX.

9. To the extent that acquisitions made by the entity relate to inbound transactions, they relate solely to the input taxed supply of the AUD.  Consequently these acquisitions are not made for a creditable purpose.

The Determination was issued in draft as GSTD 2011/D5 and my post on that draft can be accessed here.  Importantly, the Commissioner has retreated from his draft view that for outbound transactions, acquisitions by the supplier relating to those transactions “relate equally” to the GST-free supply of the foreign currency and input taxed “acquisition supply” of the interest the AUD.  The effect of this view was that suppliers’ input tax recovery on foreign exchange transactions of the type considered in Travelex would have been halved.  Those suppliers will now get a full recovery of credits.

Draft determinations on telecommunication supplies

The Commissioner has issued four draft Determinations involving telecommunication supplies:

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