ATO amendments clarify how to recover GST for home loan originators

The ATO recently amended GSTR 2004/4 Assignment of payment streams including under a typical securitisation arrangement (GSTR 2004/4) to clarify how the ATO permits GST recovery for a home loan originator. The changes took effect from 1 October 2020.

This amendment provides advice on determining whether a home loan lender is entitled to GST credits for common acquisitions made to arrange home loans when these are securitised as part of a typical securitisation arrangement. It includes examples of common acquisitions under these circumstances.

Who does this effect?

These changes impact GST recovery on acquisitions made by home loan originators, retail banks and mortgage bankers who make financial supplies of home loans to borrowers and subsequently enters into a securitisation arrangement of these mortgages.   

Why does it matter?

As a result of these amendments, existing GST apportionment methodologies implemented to determine GST recovery will need to be reviewed and possibly revised.

Background

This release follows similar amendments that were released in draft in 2019 impacting businesses offering transaction accounts and those issuing credit cards. These amendments have now been finalised in GSTR 2020/1 and GSTR 2019/2, respectively and are also effective 1 October 2020.

Please see references to our earlier articles on and on these amendments.

Essentially, the amendments to GSTR 2004/4 narrow the assessment of ‘creditable acquisition’ to an objective assessment of the ‘relevant connection’ or ‘real and substantial connection’ to taxable supplies. Thus, the Commissioner asserts that the subjective intention or actual purpose for making the acquisition, as well as the relationship between the acquisition and the broader commercial objectives of the enterprise, are not relevant.

The Commissioner has detailed his view on common acquisitions made by home loan originators, separating acquisitions as they relate to loan origination, pre-securitisation servicing and post-securitisation servicing.

Specifically, the Commissioner has determined that acquisitions relating to the origination of the loan, such as mortgage broking services, give rise to a relevant connection with the input taxed financial supply of the loan to the borrower.

Where a loan originator intends to securitise the loans through a Special Purpose Vehicle (SPV), acquisitions relating to the service functions it performs in the pre-securitisation period, such as payment processing and statement preparation, will also relate to the input taxed financial supply of the loan to the borrower.

Once assignment of the loans have been settled, the originator typically makes a taxable supply of servicer services for those receivables.  However, it is important to note that the creditable purpose of the post-securitisation servicing acquisitions depends on the functions that the originator performs under the taxable supply of servicer services, and under the supply of the loan to the borrower. These functions need to be determined on a case-by-case basis, taking into consideration relevant contractual relationships.