ATO Interpretative Decision
ATO ID 2006/202
Goods and Services Tax
GST and acquisition of legal tender for possible re-sale as collectable coins and notes
FOI status: may be released
Status of this decision: Decision Current
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Is an entity, a GST registered dealer in collectible coins and banknotes, which acquires currency at face value with a view to possible re-sale as collectible notes and coins, entitled to input tax credits on its acquisitions under Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
No, a GST registered entity which acquires currency at face value with a view to possible re-sale as collectible notes and coins, is not entitled to input tax credits for such acquisitions under Division 66 of the GST Act.
The entity carries on an enterprise of selling banknotes and coins as items of interest distinct from their face value and use as currency. The entity purchases Australian coins and notes at face value and then selects the coins and/or notes which may be fit for re-sale at a price exceeding the face value. The remaining coins and notes are exchanged at face value.
The entity purchases coins and notes from any type of dealer or entity, but does not acquire coins as a first supply from the Royal Australian Mint.
Reasons for Decision
Division 66 of the GST Act applies to an acquisition of second-hand goods for the purposes of sale or exchange (but not manufacture) in the ordinary course of business. Subsection 66-5(1) of the GST Act qualifies the operation of Division 11 of the GST Act by allowing an input tax credit for the acquisition of second-hand goods even though the supply of the goods is not a taxable supply.
Subsection 66-5(2) of the GST Act limits the operation of section 66-5 of the GST Act by providing that section 66-5 does not apply if:
- the acquisition of the second-hand goods is by way of a taxable supply or a GST-free supply
- the acquirer imports the goods
- the supply to the acquirer is by way of hire
- Subdivision 66-B of the GST Act applies to the acquisition, or
- the acquirer makes a supply of the goods that is not a taxable supply.
That is, for section 66-5 of the GST Act to apply, the subsequent supply by the acquirer must be a taxable supply.
The entity is not entitled to an input tax credit as a result of the operation of Division 66 of the GST Act in relation to its acquisition of banknotes and coins unless they are:
- second-hand goods, and
- acquired for the purposes of sale or exchange (but not for manufacture) in the ordinary course of business.
Thus, for Subdivision 66-A of the GST Act to apply to these acquisitions, as a starting point it would be necessary to find that the banknotes and coins in question are 'goods' for GST purposes.
Section 195-1 of the GST Act defines 'goods' to mean any form of tangible personal property.
Section 195-1 of the GST Act defines 'money' to 'include ... currency (whether of Australia or of any other country)....' The definition also explicitly excludes:
- a collector's item
- an investment article
- an item of numismatic interest, or
- currency the market value of which exceeds its stated value as legal tender in the country of issue.
Thus, while money may take a number of forms, only cash (that is, banknotes and coins) is 'money in a tangible form'. That is, banknotes and coins may be considered chattels. However, 'goods and chattels' are usually construed so as to exclude money, whether in a physical or in any other form.
Banknotes and coins placed into currency circulation by the Reserve Bank of Australia and the Royal Australian Mint are legal tender for payment of money in Australia, subject to limitations placed by the Currency Act 1965 on amounts that may be paid with coins. As a medium of exchange, they represent purchasing power of the holder. However, a person in possession of money is not legally bound to buy anything, or to exchange his money for goods or services. In such a sense, money does not become valueless merely because it is not in use as a medium of exchange. It serves as a store of value or wealth for the holder.
Under the GST Act definition of money above, a banknote or coin that is purchased for its rarity or curiosity value at a price above its face value cannot be regarded as money in relation to that specific transaction, even though it may otherwise retain its formal status as legal tender. In such a case, the note or coin is the object of the exchange, rather than the medium of exchange.
In the facts of this case, the dealer entity acquires banknotes and coins that are in currency circulation, at face value (that is, they are exchanged for money in other forms or denominations), with the hope or intention that some of the notes or coins may be subsequently identified as having a higher value than their face value. In the Tax Office view, such acquisitions are not acquisitions of goods for GST purposes.
However, if the dealer entity acquires banknotes or coin that are sold to it as items of rarity, curiosity, or some other characteristic attractive to coin and note collectors (other than the currency value of the note or coin), the dealer entity is acquiring goods.
Where notes and coins which, having been acquired by the dealer entity, are subsequently identified and sold by it for a price above their face value, the supply is a supply of goods.
Subsection 9-10(4) of the GST Act states:
However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money.
Subdivision 40-A of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) is about financial supplies. Subregulation 40-5.09(1) of the GST Regulations states the requirements for a supply to be a financial supply. It states:
- The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if:
- the provision, acquisition or disposal is:
- for consideration; and
- in the course of furtherance of an enterprise; and
- connected with Australia; and
- the supplier is:
- registered or required to be registered; and
- a financial supply provider in relation to supply of an interest.
The interests itemised at subregulation 40-5.09(3) of the GST Regulations include, at item 9, 'an interest in or under Australian currency, the currency of a foreign country or an agreement to sell currency of either kind'.
In the Tax Office view, the GST regulations are clear in the way they intend a transaction involving the exchange of coins and/or notes for money in another form to be characterised for GST purposes. Provided the coins and/or notes have a market value that does not exceed their stated value as legal tender, such a transaction involves the provision, acquisition and/or disposal of an interest in currency and is a financial supply by the entity where the requirements of subregulation 40-5.09(1) of the GST Regulations are satisfied. Subsection 40-5(1) of the GST Act provides that a financial supply is input taxed.
In conclusion, the Tax Office considers that the acquisition of coins and/or banknotes on an exchange of currency basis (that is, at their face value), is not an acquisition of goods, but an acquisition of money and a financial supply if subregulation 40-5.09(1) of the GST Regulations is satisfied. As a result, there is no entitlement to input taxed credits under Division 66 of the GST Act.
This conclusion is consistent with the policy as set out paragraph 6.69 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 , which states:
If you acquire second hand goods from an unregistered entity, that entity has paid GST on the supply of the goods to them. They were not entitled to an input tax credit. There is therefore some GST included in the price you pay for those second hand goods. If you subsequently supply those goods in a taxable supply, GST is payable on the supply. This would mean that there is GST charged on GST.
In this case, the entity that supplied the notes and coins to the dealer entity would not have paid GST on the supply previously made to them. This is because the supply to that entity was a supply of money, which was either not a supply at all for GST purposes under subsection 9-10(4) of the GST Act, or an input taxed supply of an interest in currency, if it was provided in exchange for money in other forms or currency denominations.
Date of decision: 24 July 2006
A New Tax System (Goods and Services Tax) Act 1999
A New Tax System (Goods and Services Tax) Regulations 1999
subregulation 40-5.09(3) table item 9
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2002/2
Goods and Services Tax Ruling GSTR 2004/1
Goods and Services Tax Ruling GSTR 2005/3
Paragraph 6.69 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999
Coins & medallions
Goods and services tax
GST financial supplies
GST second hand goods
Date of publication: 4 August 2006