Key News Summary – The ATO has issued a draft determination that ‘credit card providers’ acquisitions are only partly creditable, as the supply of the credit to the customer is input taxed (as a financial supply) but the supply of payment services, to the merchant, is not.
On Wed 19.12.2018, the ATO issued Draft GST Determination 2018/D1 saying that credit card providers’ acquisitions are only partly creditable.
The draft provides guidance to financial supply providers who issue credit cards or charge cards in a 4-party (open loop) payment system. Various supplies may be made in a 4-party payment system, the key ones being:
- the supply of the credit card facility, which is an input taxed financial supply (except to the extent that it is GST-free). The ATO says that each credit card transaction, where the cardholder exercises contractual rights, forms part of the supply of the credit card facility, and is not a separate supply in itself; and
- the supply of interchange services to an acquiring entity, which is a taxable supply.
The draft states that an acquisition will be partly for a creditable purpose, if it has a relevant connection, to both of these supplies (or to the supply of the credit card facility only).
However, the ATO rejects the proposition that all acquisitions in a credit card issuing business will have a relevant connection to both supplies.
PROPOSED DATE OF EFFECT: tax periods starting after the final determination is issued.
COMMENTS are due by 15 February 2019.
[ATO website: GSTD 2018/D1; LTN 245, 19/12/18; Tax Month – December 2018]
FJM 24.1.19
CPD (comprehension) questions
- Why is there an ‘input tax credit’ issue, in the supply of credit cards?
- What might the other argument have been?
- So who else, to credit card companies make supplies to?
- Is this supply input taxed (as a financial supply)?
- Are the acquisition of inputs only partly creditable?
