Miscellaneous Taxation Ruling

MT 2007

Bank account debits tax : Vostro accounts

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FOI status:

PREAMBLE

This office was asked to consider whether "vostro" accounts are subject to the bank account debits tax.

FACTS

2. Banks operating outside Australia may keep Australian dollar accounts, known as vostro accounts, with Australian banks for foreign exchange settlement transactions. Debits to vostro accounts include debits in respect of telegraphic transfers, mail payment transfers and on-demand drafts drawn on the Australian bank by the overseas bank.

RULING

3. The bank accounts to which the legislation applies are those to which payments by the bank in respect of cheques drawn on the bank by the account holder may be debited. A "cheque" is defined for the purposes of the legislation as, broadly, an order in writing drawn on a bank by an account holder requiring the bank to pay on demand a sum of money to a specified person or to the bearer.

4. As an on-demand draft issued by an overseas bank on an Australian bank satisfies the definition of "cheque", it follows that vostro accounts to which payments are debited in respect of on-demand drafts are accounts as defined in sub-section 3(1) of the Bank Account Debits Tax Administration Act 1982. In addition, it is understood that cheques in the usual sense may (although not commonly) be debited to vostro accounts and that in itself would cause the accounts to be within the scope of the legislation.

5. Accordingly, debits to vostro accounts kept in Australia are subject to the tax unless the exemption available in the law for inter-bank accounts is applicable. That exemption is available only if the account holder is a bank which carries on banking business in Australia through the same legal entity. Therefore, only those foreign banks which carry on banking business in Australia (at present, two foreign banks have a licence to carry on banking business in Australia) are entitled to have certificates of exemption issued in respect of any vostro accounts conducted by them with Australian banks.

6. The above rulings apply where the account holder and the bank with which the vostro account is kept are separate legal entities (including cases where they are separate subsidiaries of the same parent bank).

7. Where, however, a foreign or Australian bank carries on banking business both in Australia and overseas in the name of the same legal entity, any vostro accounts kept with the bank in Australia in the name of the same legal entity of which the Australian operation is a branch are not "accounts" for the purposes of the bank account debits tax law. In these cases, an on-demand draft drawn on the vostro account is not a "cheque" as defined because both the drawer (i.e. the account holder) and the drawee is the bank concerned. The definition of "cheque" contemplates a three party transaction in the form of an order to a bank by the account holder to pay an amount to a third person.

COMMISSIONER OF TAXATION
16 MAY 1984

References

ATO references:
NO 16.82/4816

Date original memo issued:
22.02.83

Related Rulings/Determinations:

MT 2007W

Subject References:
BANK ACCOUNT DEBITS TAX
VOSTRO ACCOUNTS

Legislative References:
BANK ACCOUNT DEBITS TAX ADMINISTRATION ACT 1982 3(1)