Australia: Australian GST Update - Full Federal Court considers credit cards and charge cards

Last Updated: 26 October 2010
Article by Jonathan Ackerman and Nicole Kassis


The case involved two Amex entities, American Express International Inc (Amex) and American Express Wholesale Currency Services Pty Limited, however, it is not necessary to differentiate between these entities for the purpose of the decision and this article refers only to Amex. Amex provided credit cards and charge cards to cardholders. Charge card holders were obligated to pay an identified amount as "liquidated damages" if payments to Amex were not made on time. Similarly, credit card holders were liable for a "late payment fee" in certain circumstances (together the fee payments).

The case concerned Amex's entitlement to input tax credits on its various expenses. Amex made various types of supplies, including taxable and input taxed supplies, and therefore calculated its entitlement to claim input tax credits (referred to as its extent of creditable purpose or ECP in section 11-30(3) of the GST Act) using the following formula:

Recovery rate = [1 - (revenue derived from input taxed supplies / total revenue)] x 100

This formula is based on a formula approved by the Commissioner in GST ruling GSTR 2000/22 (later replaced by GST ruling GSTR 2006/3, which contains minor changes to the formula). The parties agreed that the formula was a fair and reasonable method to determine Amex's ECP.

At first instance, the parties had equated revenue with consideration in the above formula and the case centred on whether the fee payments were consideration for input taxed financial supplies made by Amex. There is a complex definition of financial supplies in the GST Regulations (Regulation 40-5). Relevantly, a financial supply requires that there is the provision, disposal or acquisition of an interest in or under a credit arrangement or right to credit (regulation 40-5.09, emphasis added). However, the supply of, or the supply of an interest in or under, a payment system is excluded from the definition of 'financial supply (Regulation 40-5.12, emphasis added).

Emmett J held that the fee payments were not consideration for input taxed financial supplies. This was on the basis that there had not been any provision of credit merely as a result of the benefit derived from the cardholder in deferring the time when the cardholder must depart with money for the purchase of goods. Accordingly, the fee payments were not consideration in connection with the supply of a debt, credit arrangement or right to credit. Instead, the fee payments were better characterised as payments for a failure to perform the cardholder's obligations. In any event, Emmett J held that the fee payments were consideration for a supply made in or under a payment system and were therefore not a financial supply.

On appeal, the Commissioner changed tack and instead sought to argue that the relevant issue was whether the fee payments constituted 'revenue derived from input taxed supplies' (based on the ECP formula set out above), regardless of whether the fee payments were consideration for financial supplies.


A preliminary issue for the Court to decide was whether the Commissioner should be granted leave to argue that the fee payments constituted 'revenue derived from input taxed supplies' (leave was needed since the Commissioner had not raised this argument at first instance). The majority of the Court (Kenny and Middleton JJ) permitted the amendment, while Dowsett J (in dissent) refused the Commissioner leave to amend.

The divergence of the Court on this issue meant the majority was required to consider whether the fee payments were 'revenue derived from input taxed supplies' so as to be included in the numerator of the fraction. In contrast, Dowsett J was required to consider whether the fee payments were consideration for input taxed financial supplies.

Both the majority and minority judges considered the following issues:

  1. Whether the supplies of the cards by Amex were input taxed supplies, namely, financial supplies. This involved a consideration of:
    1. whether Amex's supply of the right to use the charge cards and credit cards was the supply of an interest; and
    2. If so, whether it was the supply of an interest in or under a 'credit arrangement or right to credit'; and
  2. Whether the interest supplied by Amex was an interest in or under a 'payment system' (in which case, Amex's supplies would be excluded from the definition of financial supplies).

The majority also had to consider whether the fee payments were revenue derived from those input taxed (financial) supplies, while Dowsett J had to consider whether the fee payments were consideration for those financial supplies.


The majority identified Amex's supply as "the cardholder's right to present the card as payment to a merchant for goods and services without having to part with money until paying Amex Intl at a later date".

An interest is defined in the GST Regulations as anything that is recognised at law or in equity as property in any form (Regulation 40-5.02). The majority applied a broad interpretation to the term 'interest' and 'property' and held that the cardholder's contractual rights in relation to the card (including the right to present the card as payment and incur a corresponding obligation to pay Amex at a later date) constituted an 'interest'.

The majority further decided that Amex's supply of the right to use the charge card and credit cards to cardholders was the supply of an interest in or under a credit arrangement or right to credit. This interpretation was consistent with the language and examples of credit in the GST Regulations and with ordinary usage of the word 'credit'. Excluding Amex's supply from the definition of financial supply would effectively render these examples in the GST Regulations 'otiose'.

Accordingly, the majority concluded that Amex's supply was a financial supply.

Further, the majority decided that, although Amex operated a payment system, Amex's supply of an interest in or under a payment system was not provided to cardholders. This interpretation was primarily based on the examples of interests in payment systems in the GST Regulations. In particular, the cardholder did not have the requisite interest in the 'payment system' operated by Amex as intended by the Regulations. Rather, it was the merchant that had an interest in or under the payment system (by agreeing to accept Amex's cards and the right to receive payment from Amex).

The final issue for the majority was whether the fee payments were 'revenue derived from input taxed supplies'. The majority held the payments plainly derive from Amex's supplies to cardholders and were therefore revenue derived from input taxed supplies.


Dowsett J, in dissent, applied a narrow interpretation of the term 'interest' in the GST Regulations and held that there was no supply of an 'interest' on the basis that the supply of a purely contractual right could not constitute property. In his Honour's view, the cardholder acquired 'possession' of the card (not 'ownership') which is not transferrable and which might be revoked by Amex. His Honour therefore adopted a highly legalistic approach to the concept of an interest under the GST Regulations and expressly discounted the examples of financial supplies in the GST Regulations. As a result, Dowset J concluded that since there is no provision, acquisition or disposal of an 'interest', there could be no financial supply.

Interestingly, absent the requirement that Amex supply an interest, Dowsett J suggested that Amex provides credit to the cardholder and that the fee payments would be consideration for financial supplies (subject to the payment system exception).

Dowsett J also decided that Amex's supply was an interest in or under a payment system. This was primarily on the basis of the decision in Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300, which had considered a similar definition of "payment system" under the Payment Systems (Regulation) Act 1998.


There are a number of implications of the decision, which are discussed below.

Approach to GST interpretation

The decision does not resolve the ongoing debate over whether the GST law should be interpreted in a technical legal way or in a more purposive and policy oriented manner. Dowsett J adopted a legalistic approach to the interpretation of the financial supply provisions. His Honour's interpretation of the concept of an 'interest' in the GST Regulations relied on common law and equitable notions of property and expressly ignored the examples of financial supplies in the Schedules to the GST Regulations. A similar analysis was adopted in relation to the interpretation of a payment system in the GST Regulations, regardless that such a conclusion is clearly inconsistent with the examples in the Schedules to the GST Regulations.

In contrast, the majority interpreted the concepts of interest, credit and payment system by reference to the context in which those terms appear in the GST Regulations and their legislative purpose (including the examples in the Schedules to GST Regulations).

The difference in the judgments can be seen in their Honours' comments on Visa International Service Association v Reserve Bank of Australia (2003) 131 FCR 300. That case considered a similar definition of "payment system" under the Payment Systems (Regulation) Act 1998. Dowsett J decided that the Visa case was directly relevant to the interpretation of the phrase 'payment system' in the GST Regulations (and therefore Amex supplied an interest in or under a payment system to the cardholder). In contrast, the majority adopted a different interpretation of the phrase (leading to the opposite conclusion), justified by reference to the statutory context of the GST Regulations.

The GST treatment of damages and compensation Payments

Further, none of the judges analysed the most interesting aspect of the first instance judge's (Emmett J's) decision, namely, his Honour's conclusion that the fee payments by cardholders were not consideration in connection with the supply of a credit arrangement, right to credit or a debt. His Honour held that the obligation to make the fee payments only arose because the cardholder failed to perform that cardholder's obligations under the credit card terms and conditions or the charge card terms and conditions, that is, the default by the cardholder was a "novus actus interveniens" giving rise to the obligation to pay the fee.

The majority did not need to consider the issue on the basis that the relevant issue was whether the fee payments were 'revenue derived from input taxed supplies' (not consideration for financial supplies). However, the majority's reasoning suggests that their Honours may well have concluded that the fee payments were also 'consideration' for Amex's financial supplies. Further, while Dowsett J concluded that Amex did not supply any interest to the cardholder, his Honour commented that, had Amex supplied an interest to cardholders, the fee payments would have been treated as consideration for Amex's supplies of credit to cardholders, as discussed above.

Emmett J's reasoning is analogous to the reasons why damages payments and payments that are compensation for loss are not subject to GST. Historically, the argument has been that such payments are not subject to GST on the basis that such payments are not consideration for any supply. Nevertheless, this approach is being slowly eroded by both the courts and the ATO. While we are not yet at the point where damages payments are subject to GST, parties involved in settlements of disputes should consider whether the decision impacts on their settlements and how those settlements should be treated for GST purposes.

Lessons for apportionment methodologies

Finally, the decision illustrates the clear distinction between a taxpayer's extent of creditable purpose (ECP) as determined under the GST Act and the taxpayer's ECP based on its particular apportionment methodology, the latter being a proxy or indirect method of approximating the taxpayer's credit entitlement. In the light of the decision, taxpayers will no doubt focus on how their apportionment methodologies are developed and whether revenue is an appropriate method in particular circumstances.

© DLA Phillips Fox

DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.