Australia: GST on acquisitions and supplies in retail banking sector
18 December 2018
The Australian Taxation Office (ATO) updated its website to notify taxpayers of two new guidance products targeting contentious areas of goods and services tax (GST) compliance within the retail banking sector.
The ATO’s advice under development – GST issues webpage relates to GST on transaction accounts or deposits business and to GST on assignment of income streams. These products will be companion pieces to the GST on a draft relating to credit card issuing businesses (October 2018) expected to be released for comment later this month. Collectively, these announcements represent a turning point by the ATO concerning the retail banking sector’s approach to determining the creditable purpose of acquisitions made in carrying on their activities. The ATO has expressed doubts concerning the industry’s approaches to determining the creditable purpose of costs, including reliance upon costing systems—particularly when the ATO considers costs are directly attributable only to activities that are input taxed.
With each of these guidance products, it is expected that the ATO will be expressing its view on how to apply principles of determining “creditable purpose” to a range of identified acquisitions made by retail banks in carrying on their credit card and transaction, deposit banking, and home loan securitisation activities. Additionally, the ATO will be explaining how the views expressed in GSTR 2008/1 (“when do you acquire anything or import goods solely or partly for a creditable purpose?”) apply in each specific context.
- In the context of credit card and transaction banking business costs, the ATO is primarily concerned with approaches that recognise relationships to payments system activities (generating taxable interchange revenues) when the ATO considers the costs are directly attributable to making financial supplies.
- In the home-loan securitisation context, the issue is similar with the ATO being concerned with approaches that identify relationships with between certain costs and the provision of “servicer” services.
Notwithstanding the utility of a retail bank adopting, for example, a costing system approach to determining creditable purpose, the ATO believes, in each instance, that connections are being erroneously established to broader enterprise purposes. Consequently, the ATO guidance material is expected to assert, in relation to designated costs, when it is appropriate to recognise such connections and when it is not.
There are reports that the ATO will be accompanying this guidance with legislative determinations and that the ATO intends to unilaterally and mandatorily prescribe the way in which retail banks will determine the extent to which creditable acquisitions are made for a creditable purpose in each of these contexts.
KPMG observation
These developments represent a significant change in the ATO’s relationship with the financial services industry concerning the allocation and apportionment of costs. Furthermore, the pace of these coming changes indicates that banking sector taxpayers need to be vigilant in watching for ATO announcements and the opportunities for ATO consultations.