Decision impact statement
Travelex Ltd v Commissioner of Taxation
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Court Citation(s):
[2010] HCA 33
2010 ATC 20-214
76 ATR 329
(2010) 270 ALR 253
(2010) 241 CLR 510
Venue: High Court
Venue Reference No: S79 of 2010
Judge Name: French CJ, Hayne, Heydon, Crennan and Bell JJ
Judgment date: 29 September 2010
Appeals on foot:
No
Impacted Advice
Relevant Rulings/Determinations:
Subject References:
Goods and services tax (GST)
GST-free supplies
Financial supply
Supply of foreign currency to overseas traveller for use outside Australia
Meaning of 'supply that is made in relation to rights'
Whether supply of foreign currency for use outside Australia is a supply in relation to rights
Decision Outcome
Taxpayer's appeal allowed
Précis
Outlines the ATO response to the decision of the High Court in respect of the GST treatment of the supply of foreign bank notes by Travelex to a customer on the departures side of the Customs barrier at Sydney International Airport.
Brief summary of facts
Travelex Ltd ('Travelex') operates a shopfront on the departure side of the Customs barrier at Sydney International Airport. One of the transactions conducted at this shopfront is the sale of foreign currency to outgoing travellers. To access the shopfront, travellers need to have a valid boarding pass for an outbound international flight and must have cleared the Customs barrier, or must have arrived in Australia on an international flight and be awaiting an outbound international flight.
Travelex sought a declaration that the sale by Travelex 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 (Good and Services Tax) Act 1999 ('the GST Act'). Just prior to his departure for Fiji, Mr Urquhart purchased 400 Fijian dollars for A$339.65 including an A$8 dollar commission.
At first instance, Emmett J found that the supply was not GST-free. Travelex's appeal to the Full Federal Court was dismissed. Travelex appealed against that decision to the High Court.
Issues decided by the court
The High Court decided that the supply of the Fijian banknotes was a GST-free supply on the basis that it was 'a supply that is made in relation to rights' within the meaning of item 4(a) in the table in subsection 38-190(1) of the GST Act.
It was common ground between the parties that the supply of the Fijian bank notes was a financial supply as defined in regulation 40-5.09 of A New Tax System (Good and Services Tax) Regulations 1999 and that the notes were for use outside Australia.
A supply that is made in relation to rights
The majority decision
The majority held that the supply of Fijian banknotes (a financial supply) was 'a supply that is made in relation to rights.'
French CJ and Hayne J found that the relevant financial supply, being the disposal (by Travelex) of an interest in (here, the ownership of) the currency of a foreign country, was not sufficiently described as a sale of the particular tokens. Those tokens had value because they are currency and currency has value only because of the rights that attach to it. The rights that attach to currency are passed upon negotiation of the currency by delivery. In transferring the currency to the acquirer, the seller disposes of the rights that attach to the currency by transferring those rights to the acquirer. This is the evident purpose of the transaction.
Because the supply is a supply of property in the currency, their Honours found that the supply is a supply in relation to the rights that attach to the foreign currency, without which property in the currency would be worthless.
French CJ and Hayne J considered whether a supply that is made in relation to rights required, as found by Emmett J at first instance, that the supply of rights must bind the parties in some way. Their Honours considered that the consequence of such a requirement appeared to be that there could be a supply, 'in relation to' rights, only where the supplier can, and does, transfer the rights in question to the acquirer. Their Honours noted that a distinction of this kind might be made more readily if the requirement was that there be a supply "of" rights, as distinct from a supply "in relation to" rights. Their Honours went on to say that:
[w]hether a distinction of the kind posited must always be made in deciding whether there is a supply "in relation to" rights may be a large question, but it is not one which must be decided in the present case. For present purposes, it is sufficient to observe that, when a seller of foreign currency transfers the currency to the acquirer, the seller transfers (that is, "disposes" of or "supplies") title to the currency tokens to the acquirer by delivering the tokens (be they notes or coins) to the acquirer. And the seller disposes of the rights that attach to the currency by transferring those rights to the acquirer. At least in that sense, the supply "binds" the parties.
Heydon J found that Mr Urquhart acquired an interest in property (namely ownership of those statutory rights of action and negotiation). That interest in property was identical with, evidenced by, and not capable of disaggregation from, an interest in or under the currency of a foreign country. To acquire an interest in the currency was to acquire an interest in the intangible rights connected with it, and vice versa.
Thus, Heydon J held that the transaction should be characterised as the supply of rights, being the rights enjoyed by the holder of the currency as created by the statute law of Fiji. Those rights constituted the 'pith and substance' of the transaction. The transfer of bank notes being a supply of rights fell within the wider expression 'supply that is made in relation to rights'.
Rights for use outside Australia
As noted above, it was common ground between the parties that the supply of the Fijian banknotes by Travelex to Mr Urquhart was for use outside Australia.
French CJ and Hayne J stated that where it is evident that the currency is to be used overseas, the rights that attach to the currency are for use outside Australia. Heydon J stated that the rights evidenced by the currency were for use outside Australia: Mr Urquhart acquired the currency with the intention of spending it in Fiji, and that intention was confirmed by the fact that he did spend it there.
Tax Office view of Decision
Supply that is made in relation to rights
The Commissioner considers that the decision of the High Court means that the expression 'a supply that is made in relation to rights' in item 4 in the table in subsection 38-190(1) of the GST Act covers the supply of a thing (other than goods or real property) such as foreign currency where the thing supplied only has value because of rights that attach to it and those rights are transferred.
While the supply of that thing does not need to be characterised as a supply of rights, nevertheless, the supply has to encompass the transfer of rights and the value of the supply needs to be in the rights. As per French CJ and Hayne J at paragraphs 26-27:
... Currency has value only because of the rights that attach to it.
When the supplier sells the foreign currency to the acquirer, the acquirer obtains the rights that attach to, or are constituted by, the ability to use the currency.
As the High Court decision is different in this respect from the ATO view expressed in public ruling GSTR 2003/8 that a supply that is made in relation to rights only covers a supply that is the creation, grant, transfer, assignment, or surrender of a right, the Commissioner has issued an addendum to GSTR 2003/8 on 21 December 2011.
The addendum to GSTR 2003/8, which takes into account the High Court's decision, adopts a broader view of the range of supplies that fit within the expression 'a supply that is made in relation to rights' (and which may therefore qualify for GST-free treatment) to also include:
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- supplies of 'things' that derive their value exclusively, or almost exclusively, from attached rights (for example, shares), or
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- supplies of services that are directly connected with rights (for example, brokerage services supplied in relation to shares).
For use outside Australia
Whether rights are for use outside Australia is a question of fact. French CJ and Hayne J stated that where it is evident that the foreign currency is to be used overseas, the rights that attach to the currency are for use outside Australia (at paragraph 35).
Foreign currency
The decision of the High Court means that a supply of foreign currency may be characterised as a supply that is made in relation to rights for the purposes of item 4 in the table in subsection 38-190(1).
The Commissioner 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 decision of the High Court is in respect of supplies of foreign currency in a currency conversion transaction effected by the delivery of the foreign currency in the form of notes. 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 our position in relation to this issue.
Money
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 characterised as a 'supply that is made in relation to rights' for the purpose of item 4 in the table in subsection 38-190(1). Whether that characterisation can be made in respect of any particular transaction depends on the nature and substance of that transaction. The views of industry and tax practitioners are being sought in respect of the characterisation of particular transactions.
Acquisition-supplies
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. However, the Commissioner considers that, to the extent acquisitions relate to this transaction, they may be treated as relating solely to the GST-free supply of the foreign currency and are therefore fully creditable. See GSTD 2012/5.
Administrative Treatment
The ATO has reviewed and amended GSTR 2003/8 and GSTR 2002/2, taking into account the reasoning of the High Court in Travelex.
The ATO has also now published GSTD 2012/5 which provides the ATO view on whether acquisitions related to an entity's retail foreign currency exchange transactions with customers in Australia are made solely for a creditable purpose.
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.
Implications on current Public Rulings & Determinations
The ATO has reviewed and amended GSTR 2003/8 and GSTR 2002/2, taking into account the reasoning of the High Court in Travelex.
Implications on Law Administration Practice Statements
None
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
9-5
9-10(2)
9-10(4)
9-30
38-190
40-5
195-1
A New Tax System (Goods and Services Tax) Regulations
40-5.02
40-5.09(1)
40-5.09(3)
40-5.11
Case References:
HP Mercantile Pty Ltd v Commissioner of Taxation
(2005) 143 FCR 553
2005 ATC 4571
60 ATR 106
Other References:
ATO ID 2006/65
ATO ID 2006/202
ATO ID 2006/203