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GST issues for buy-now, pay-later providers

James Morris
Published by:
James Morris
Published on:
June 01, 2022
Modoras Accounting (QLD) Pty Ltd ABN 81 601 145 215
GST issues for buy-now, pay-later

Specific guidance on the GST implications for buy-now, pay-later providers has been published on the ATO legal database. The key issue in this area is determining the nature of the supplies made by these businesses and the impact this might have on claiming input tax credits.

The ATO indicates that buy-now, pay-later providers would typically make two common types of supplies:

  • Input taxed supplies of credit when a customer initiates the provider’s provision of payment to the merchant in exchange for the customer’s obligation to repay the provider at a later date.
  • Taxable supplies of services to merchants in enabling them to accept payment using the provider’s facilities, with the provider then becoming liable to make payment to the merchant (and the customer’s obligation to pay the merchant being discharged). These supplies are made in exchange for merchant fees, charged on a purchase transaction-by-transaction basis.

Input tax credits are generally not available on acquisitions to the extent that they relate to the making of input taxed supplies. The main exception to this is where the taxpayer does not exceed the Financial Acquisitions

Threshold or where an acquisition relating to financial supplies qualifies for a reduced input tax credit.

The guidance includes examples of common expenses incurred by businesses in this area:

Only relating to input taxed supplies

  • Debt collection costs
  • Advertising to originate new credit contracts
  • Customer service for customers
  • Merchant fees and processing costs for recovering payments from customers
  • Customer credit checks / authorisation and fraud tools

Acquisitions that relate only to taxable supplies

  • Advertising to originate new merchant agreements
  • Customer service for merchants
  • Costs for integration with merchant systems

Acquisitions that relate to both supplies

  • Processing costs for payments to merchants when customers initiate the provision of credit

In cases involving businesses that make input taxed financial supplies, the critical issue for acquisitions that relate to both input taxed and taxable or GST-free supplies is determining an apportionment method that provides a fair and reasonable reflection of the extent of the relationships between those acquisitions and supplies.

On this point, the ATO considers that the use of a revenue-based apportionment methodology gives rise to a significant risk that input tax credits may be overclaimed. Due to the nature of the business where complying customers are not charged interest, there is typically limited input taxed revenue to reflect the extent to which acquisitions relate to input taxed supplies of credit. However, the ATO doesn’t really provide an example of a low-risk approach.

Tax practitioners with clients in the buy-now, pay-later space should review the guidance in detail to confirm whether their clients are accounting for GST correctly and to assess the likelihood of the ATO seeking to query or challenge the existing GST treatment.

Related information: GST consideration for buy-now, pay-later providers

IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (QLD) Pty. Ltd. ABN 81 601 145 215. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (QLD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (QLD) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (QLD) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (QLD) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.

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