GST Q&A regarding PayPal Fees

We recently received a Q&A about whether PayPal fees include GST. It prompted us to look at the various aspects, and fees, imposed when undertaking transactions, particularly where third parties are involved in the payment process.

A simple example would be where goods are sold to a customer, and the customer uses PayPal to pay the invoice. Assume the following:

• The Vendor is GST-registered and is selling the goods for $110 including GST of $10.
• The amount paid by the Customer is $110.
• The Vendor has the account with PayPal.
• PayPal charges the Vendor a 3% fee.
• The Vendor receives $106.70, which is $110 less $3.30 (being 3% x $110).

As the Vendor is making a taxable supply, it will need to include GST of $10 in its BAS.

Can the Vendor claim any GST credit on the PayPal fee?

A GST credit can only be claimed if the acquisition is a ‘creditable acquisition’, one of the conditions being that the thing being supplied to you is a taxable supply.

A ‘financial supply’ is input taxed and therefore does not include any GST. Therefore, if the PayPal fee is an input-taxed financial supply, you will not be entitled to claim any GST credit.

To assist in identifying whether PayPal fees are financial supplies or subject to GST, we found the following links on the PayPal website:

A. https://www.paypal.com/au/business/paypal-business-fees

B. https://www.paypal.com/au/legalhub/paypal/cfsgpds-full?locale.x=en_AU#int_18_Fees_and_charges

Link A only identifies three monthly fees under the heading ‘Other fees for using PayPal Online Card Payment Services’ that are subject to GST.

Link B (a document specific to Australia) makes the following statements at the clauses as numbered below:

12.2 Unless otherwise expressly set out in this PDS, our fees are GST exempt.

…

18.23 Virtual Terminal and PayPal Payments Pro – Hosted Solution and API incur a monthly fee. The monthly fee includes GST.

The supplies mentioned in clause 18.23 are the same three supplies referred to in Link A. If PayPal are charging you this fee, you would be entitled to claim a GST credit (provided you are GST-registered and making a creditable acquisition).

Based on the comments from Link B, it appears that only the three specific items are subject to GST, and that all other PayPal fees are ‘GST exempt’. There is no further guidance on the reasoning for this ‘GST exempt’ treatment (for example, whether the supplies are input taxed financial supplies, or otherwise).

However, as PayPal is making this statement as part of its Product Disclosure Statement, entities that pay fees to PayPal should be able to rely on it. Based on this, no GST credit would be available for the payment of such PayPal fees.

Comments

We note that the above is limited to PayPal fees. Other transactions involving other payment providers, may result in different GST outcomes. For example, where a bank charges merchant fees for the use of a payment processing system, such fees generally include GST.

See also the following previous TaxEd articles regarding credit card surcharges here and here:

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This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.