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ATO Responds To Travelex Decision

Mary Swire, Tax-News.com, Hong Kong

24 December 2010


The Australian Tax Office has delivered its response to the recent decision by the High Court in the case of Travelex Ltd vs Commissioner of Taxation.

Travelex, which sells foreign currency to outgoing travellers, sought a declaration that the sale of 400 Fijian dollars in bank notes to Mr Urquhart, an employee of Travelex, on the departures side of the Customs barrier at Sydney International Airport, was a supply of or in relation to rights and, therefore, a GST-free supply by reason of item 4(a) of the table in s38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 ('the GST Act'). Just prior to his departure for Fiji, Mr Urquhart purchased 400 Fijian dollars for AUSD339.65 including an AUSD8 commission.

At first instance, it was found that the supply was not GST-free, and Travelex's appeal to the Full Federal Court was dismissed. The company then appealed against that decision to the High Court, and this appeal was allowed.

The Commissioner of Taxation accepts that the decision of the High Court is not confined to supplies of foreign currency in a currency conversion transaction that takes place on the departures side of the Customs barrier: a supply of foreign currency in a currency conversion transaction that takes places elsewhere in Australia is GST-free, if the foreign currency is for use outside Australia. Whether the foreign currency is for use outside Australia in any particular transaction is a question of fact.

The Commissioner is currently considering what the decision means for a currency conversion transaction that is effected in electronic form. The views of industry and tax practitioners will be sought in the course of determining its position in relation to this issue.

The Commissioner considers that the High Court decision, while only relating to supplies of foreign currency, may have wider application in respect of other forms of money and financial instruments. However, the Commissioner does not accept as a general proposition that all supplies of other forms of money (as defined in the GST Act) are necessarily characterized as a 'supply that is made in relation to rights' for the purpose of item 4 in the table in subsection 38-190(1). The views of industry and tax practitioners are being sought in respect of the characterization of particular transactions.

The Commissioner notes that when supplying foreign currency in a currency conversion transaction in Australia, the supplier of the foreign currency also makes an acquisition of an interest in Australian currency. This acquisition will be a financial supply that is input taxed where the acquisition is made for consideration. Input tax credits are not available to the extent that acquisitions relate to making that acquisition-supply. The Commissioner is presently consulting with industry and tax practitioners with respect to the implications of such acquisition supplies.

The Tax Office intends to review and amend GSTR 2003/8, taking into account the reasoning of the High Court in this case. The ATO will also consider whether it is necessary to amend the Schedule to GSTR 2002/2.

Where it is necessary for the Commissioner to form and publish a view about the application of the High Court decision to other transactions involving foreign currency and other forms of money, that view will be developed in consultation with industry and tax practitioners in the usual way.

TAGS: tax | mining | interest | Australia | Fiji | tax credits | currency

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