In the case of Travelex Ltd v Commissioner of Taxation, the High Court of Australia held that the sale of foreign currency on the departure side of the Customs barrier was a goods and services tax (GST) free supply. A majority of the court found that the value of bank notes is in the rights that attach to them.
The rights consisted of the ability to use the currency in the overseas country. Thus the supply involved a supply of rights for use outside Australia and therefore was GST-free. The High Court’s decision overruled the decision of the primary judge and the decision of the Full Court of the Federal Court, which also was a majority decision.
These decisions highlight the complexity of determining whether a supply is of rights for use outside Australia. Accordingly it is welcome that the Commissioner of Taxation plans to issue further guidance on when supplies of foreign exchange and payment related products will be GST-free. As financial supplies are otherwise likely to be ‘input taxed’, the practical significance of GST-free treatment is that it increases the recovery of GST on related expenses.
It is proposed that the guidance will cover products such as: international bank drafts, traveller’s cheques, credit cards, foreign currency loans and a range of forex derivatives such as forwards, swaps and options.
It is timely to revisit your treatment of forex products and consider the potential impact of the changes, which are generally anticipated to lead to increased GST recovery.
It will be important to be informed in order to effectively participate in any further consultation that may take place beyond the current limited industry consultation. Also consideration should be given to strategies aimed at preserving entitlements in prior periods, so as to enable retrospective recovery of GST on related acquisitions.