Joint submission on GSTD 2011/D5 - retail foreign currency exchange transactions

On 17 February 2012, the professional bodies lodged a joint submission on Draft Goods and Services Tax Determination GSTD 2011/D5 (Draft determination) concerning whether acquisitions related to retail foreign currency exchange transactions with customers in Australia are made solely for a creditable purpose under section 11 15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

In summary, the submission stated that we do not agree with and do not support the approach and conclusions contained in the Draft Determination. The Draft Determination takes the view that the sale of foreign currency notes, for GST purposes, constitutes two supplies:

• The provision of foreign currency (FX);
• The acquisition of AUD.

The consequence of this approach is that input tax credits for the acquisitions made in making the supply of FX are partially denied because the acquisitions will partially relate to the input taxed acquisition supply of the money that is given as consideration for the FX.

We do not support the proposed view of the treatment of FX transactions contained in the Draft Determination in that:

• The payment made as consideration for the supply of FX is not a financial supply under the A New Tax System (Goods and Services Tax) Regulations 1999 (the Regulations);
• Alternatively, if the consideration given for the foreign currency is a financial supply under the Regulations, the acquisition supply is GST-free because it is made 'in relation to rights ... for use outside Australia'. 
• Further, if the consideration given for the foreign currency is a financial supply under the Regulations, the acquisitions made by the provider of FX in carrying on its enterprise do not relevantly relate to the financial supply merely because the consideration given for the FX is in the form of currency. 
• The decision in Travelex Ltd v Commissioner of Taxation [2010] HCA 33 proceeded on the agreement of the parties that 'for use' was to be interpreted as 'intended use'. The term 'for use' should not be interpreted as being the subjective intention of the purchaser. Rather, the context of item 4 and a consistency of approach with the definition of 'residential premises' would indicate that in choosing the words 'for use' in relation to rights, 'the draftsman was concerned to describe the attributes of the property which he was seeking to identify'.

As a general observation, we consider that the approach adopted in the Draft Determination fails the tests of 'practicality' and 'commonsense' and takes the concept of an 'acquisition supply' to a level of difficulty that is at odds with the purpose and object of the Act.

Article last Updated 20 February 2012