Card Issuer and Card Holder
36 In so far as a fee is paid to establish a facility between card holder and card issuer, the fee would be consideration for the supply of the credit card. Further, an annual fee payable by a card holder to the card issuer as consideration for the rights conferred on the cardholder under the Charge Card Terms and Conditions or the Credit Card Terms and Conditions would be consideration in connection with the operating or maintaining of the facility.
37 Clearly enough, in the case of the Credit Card Facility, there will be a credit arrangement or a right to credit in relation to the deferral, after the due date for payment of the minimum amount, of the payment of the balance after payment of the minimum amount. As I have said, there is no issue about the payment of interest in relation to that deferral, which would be consideration in connection with the operation of the credit card facility.
38 When the card holder discharges the obligation to pay the price for goods supplied or services provided by the merchant, by means of producing the card and signing the record of charge form, the card holder obtains an advantage. That is to say, the card holder is not required to pay any amount to the card issuer until the due date shown in the monthly statement. The advantage derived by the card holder is that the card holder has the benefit of the goods or services from the merchant without having to part with any money until that due date.
39 The Commissioner contends that, under both the Charge Card Facility and the Credit Card Facility, the card holder is afforded credit, because the card holder is not required to make immediate payment for the goods supplied or the services provided to the cardholder by the merchant. The Commissioner says that, in the understanding of business people and people of commerce, the period, from the time of the supply of goods or the provision of services to the time when a payment is required to be made, would be regarded as a period of credit for the card holder.
40 The Commissioner says that the card issuer offers a service whereby the card holder can settle a debt with the merchant unconditionally yet can defer payment for a period thereafter. The card holder pays a fee for that service, as well as interest under the Credit Card Facility, and only pays more, by way of the Fee Payments, if full payment is not made by the required date in the case of a Charge Card Facility or the minimum amount is not paid by the required date in the case of a Credit Card Facility. The merchant, on the other hand, receives the service of assuring payment that is offered by the card issuer and is willing to pay the merchant fee in return for that service.
41 The Commissioner says that, from the point of view of the card issuer, the service provided by it is a commercial opportunity to profit both from the card holder and from the merchant. In doing so, the card issuer assumes a debt obligation to the merchant, which is balanced by the assumption by the card holder of a debt obligation to the card issuer. In that way, the Commissioner says, the card holder gets credit in the form of time to make a payment in respect of the acquisition of goods or services from the merchant. By using the card, the cardholder minimises the need to carry cash and obtains at least a period of "free credit" until payment is due to the charge card issuer or the minimum payment is due to the credit card issuer (see In Re Charge Card Services [1989] Ch 497 at 509G).
42 The examples of financial supply given in Part 2 of Schedule 7 include opening, keeping, operating, maintaining and closing a charge card facility or a credit card facility. Another example is the supply of a credit card. The Commissioner says that it is to be inferred, from the fact that a reduced input tax credit is available under r 70-5.02 for "processing, settling, clearing and switching… charge, credit and debit card transactions", that, for the purposes of the GST Act, the interest that the card issuer supplies to a card holder is a supply under a credit arrangement. The Commissioner contends that the card holder, by granting to the card issuer an interest in the cardholder's debt, places the card issuer in the position of making an acquisition supply of such an interest and therefore of making a financial supply.
43 A debt owing by the card holder to the card issuer will be created at some point in the course of the process described above. No later than the time when the card issuer forwards a monthly statement to the card holder, a debt will exist. Indeed, it may be that the debt is created at the time when the merchant submits a charge to the card issuer, thereby creating an entitlement, on the part of the card issuer, to debit the account of the card holder with the amount of the charge. On the other hand, the debt that is then created will not be payable until the time when the card issuer forwards the monthly statement to the card holder.
44 In a commercial context, credit is trust or confidence in a buyer's ability and intention to pay at some future time, exhibited by entrusting the buyer with goods or services without requiring present payment in return (see OED Definition 9a). Similarly, a person may have a reputation of solvency and probity, such that a supplier of goods or provider of services might be prepared to trust that person with the goods or services without payment, in the expectation that payment will be made in the future. Alternatively, a person's reputation of solvency and probity may be such that a person will be trusted with money in the expectation that the money will be repaid in the future (see OED Definition 9b). Again, a sum of money placed at a person's disposal in the books of another person, such as a banker, against which that person may draw to the extent of the amount might constitute a credit (OED Definition 10a). Each of those cases might involve a credit arrangement or right to credit.
45 Thus, credit entails the giving of time to pay a financial obligation or forbearance in respect of payment of an obligation, or an arrangement under which money is payable where time to pay that money or some part of it has been deferred, the forbearance carrying interest or attracting a payment of consideration for that benefit from the debtor. A vendor who agrees to accept his price by instalments can fairly be said to be giving credit. On the other hand, a loan is not relevantly the giving of credit, even if it is obtained as an alternative to seeking deferment of the payment of the price of goods. A bank affording overdraft accommodation to enable goods to be purchased does not give credit to the customer (see UG Insurances Pty Ltd v Commissioner of Stamp Duties for the State of New South Wales (1973) 128 CLR 353 at 360).
46 Upon the supply of goods or provision of services by a merchant to a card holder, by use of a charge card or credit card, the merchant accepts the obligation of the card issuer in full satisfaction of any obligation of the cardholder to pay the price. The card holder becomes indebted to the card issuer, pursuant to Credit Card Terms and Conditions or the Charge Card Terms and Conditions, for the relevant amount shown in the monthly statement sent by the card issuer to the cardholder upon receipt of the monthly statement. The contract between the card issuer and the card holder is not for the provision of credit by deferring the obligation of the cardholder to pay the card issuer.
47 The debt that is discharged by the payment made by the card issuer to the merchant is the debt of the card issuer. It is not a debt of the card holder to the merchant, since the liability of the card holder to the merchant to pay the price is extinguished when the merchant accepts the card and the signature of the record of charge form as the method of paying the price. The card holder assumes a direct liability to the card issuer for the charges that appear on the monthly statement, although those amounts will differ from the amount actually paid to the merchant by the card issuer, after deducting the merchant fee. The Credit Card Terms and Conditions and the Charge Card Terms and Conditions contain no provision for any advance to or on behalf of the card holder by the card issuer (see American Express Case at [17]).
48 A short period of grace may be allowed before the card holder is regarded as being in default under the Charge Card Terms and Conditions or the Credit Card Terms and Conditions. However, the obligation to pay is fixed by the contract between the card holder and the card issuer. The terms of that contract give the card holder a reasonable opportunity to make payment before the card holder is in default and before the card holder becomes liable to pay one or other of the Fee Payments. However, there is no forbearance by the card issuer to require payment of money owing. There is, from the outset, an agreement between the card issuer and the card holder as to the time for payment. The card issuer does not exercise any forbearance. The contract between the card issuer and the card holder is not one under which the obligation of the card holder to pay an amount to the card issuer is deferred. Accordingly, there is no credit arrangement (see American Express case at [18] and [21] and Prime Wheat Association Limited v Chief Commissioner of Stamp Duties (1997) 42 NSWLR 505 at 512).
49 The Commissioner contends that the legislative history of the relevant provisions indicates a legislative intention that the Fee Payments should be treated as consideration for a financial supply. In the original form in which s 40-5 of the GST Act was introduced into the Parliament on 2 December 1998, the section provided for the making of regulations to define the treatment of financial services. A table to s 40-5(2) in its original form contained an exhaustive list of financial supplies. Under that, charge cards were covered by Item 1 as dealing with money, including:
· lending or borrowing money,
· creating or transferring a debt or an interest in a debt, and
· making any advance or granting credit.
Item 12 in that table included incidental supplies, amongst others, as supplies of anything directly in connection with a supply covered by Item 1, but only if the same supplier made both the supply incidental to the supply in Item 12 and the supply in Item 1. Thus, the supplier of a credit facility could include a number of incidental things apart from the provision of an interest in a credit arrangement or debt.
50 Para 5.143 of the explanatory memorandum circulated in connection with the original form of the GST Act contained a number of examples of the activities intended to be covered by Item 1. An example that deals with lending was as follows:
Unauthorised borrowing, interest and charges, including charges for overdrawn accounts and demands for repayment.
The Commissioner draws attention to the words "and charges" in that example. He says that the word charges is broad enough to cover the Fee Payments and that the clear intention of the Parliament was that payments such as the Fee Payments were simply an aspect of a lending arrangement being a financial supply. Before commencement of the GST Act, the provisions were repealed and replaced with the provisions described above. The Commissioner says, however, that the provisions that were enacted should be construed to the same intent as the repealed provision.
51 I do not consider that the legislative history bears on the construction of the words of the relevant provisions as they were actually enacted. In complex and technical taxation legislation such as the GST Act, only the words actually used must be given effect. There will be no credit, in the relevant sense, arising under either the Charge Card Facility or the Credit Card Facility by reason only of the benefit derived by a card holder in deferring, by use of a card, the time when the card holder must part with money, in some form, in respect of the supply of goods or the provision of services by a merchant.