No GST payable on credit card late payment fees

In one of his interviews last week Peter Costello said the hardest thing he had done as Treasurer was the introduction of the GST.

It is incredibly complicated and technical and there isn't a lot of case law.

In American Express International Inc v Commissioner of Taxation [2009] FCA 683, Amex asked the Federal Court to decide whether payments made by the holders of credit cards and charge cards to the issuers of such cards, following default by the holders, constitute consideration for a “financial supply” within the meaning of s 40-5 of the GST Act and r 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (the GST Regulations).

The issue is important in the calculation of Amex's input tax credits.

The Court decided that "while the obligation to make Fee Payments to a card issuer would not arise unless there was the Credit Card Facility or Charge Card Facility in place between the card holder and the card issuer, the liability to make the Fee Payments arises because the card holder has failed to perform that card holder’s obligations under the Credit Card Terms and Conditions or the Charge Card Terms and Conditions, as the case may be. They are not consideration in connection with opening, keeping, operating, maintaining or closing the relevant facility. A card holder becomes liable to make the Fee Payment only because that card holder has failed to discharge, that is, has breached, the card holder’s contractual obligations under the relevant facility. "

The late payment fee was not consideration in connection with the provision, acquisition or disposal by the card issuer of an interest. Accordingly, the fee payments were not consideration in connection with a financial supply.

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