ATO Rulings and Determinations
GST: cancellation fees
29.04.2009
The Commissioner has released a final ruling which considers the GST consequences resulting from payments made when an arrangement under which a particular supply was intended to be made (intended supply) does not proceed or does not proceed in the manner originally contemplated. These payments can include the forfeiture of all or part of the consideration for the intended supply (GSTR 2009/3). These payments are referred to in the ruling as “cancellation fees”.
The Ruling focuses on arrangements that are cancelled by or on behalf of a recipient or intended recipient. A supplier may also cancel an arrangement. However, in the latter case a cancellation fee is usually not charged. Therefore, the ruling does not deal with cancellations made by a supplier except in relation to a ticketed arrangement for the supply of performances, events or similar arrangements.
In considering the GST consequences of cancellation fees, the ruling principally examines whether there is a supply for which a cancellation fee is consideration. The ruling also discusses the interaction between security deposits and cancellation fees as well as the circumstances in which a cancellation fee is not consideration for a supply.
The ruling does not deal with:
- payments of fines and penalties arising from a breach of a statutory law or a set of rules imposed by a body such as an unincorporated association;
- early termination fees for the cancellation of financial supplies;
- payments on early termination of a lease of goods; and
- payment of taxes, fees and charges to which Div 81 GSTA applies.
