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  • Issue no. 14 - Agency relationships and tax invoices

    14.1 Can a tax invoice include amounts collected as agent for a principal?

    Division 153 of the GST Act contains special rules about tax invoices and agents. They reflect the position at common law that a supply or acquisition an agent makes on a principal's behalf is no different from a supply or acquisition that a principal makes themself.

    These rules enable a principal to comply with the attribution rules about tax invoices in Division 29 when you make a taxable supply or a creditable acquisition through an agent. They permit a principal to claim an input tax credit for a creditable acquisition you make through your agent, providing you or your agent holds a tax invoice for the acquisition. Similarly, a principal will satisfy their obligation to issue a tax invoice for a taxable supply made through an agent if it is issued by either the principal or the agent.

    Goods and services tax ruling GSTR 2000/17 further discusses the requirements of agents and tax invoices:

    35. Division 153 has special rules about tax invoices and agents. It reflects the position at common law that a supply or acquisition your agent makes on your behalf is no different from one that you make yourself. Accordingly, if you make a taxable supply through an agent, your agent can issue a tax invoice for you.8 Similarly, you may claim an input tax credit for a creditable acquisition you make through your agent if your agent holds the tax invoice.9

    36. Where this Division applies, the Commissioner will treat a document as a tax invoice if it shows your agent's name and address or ABN instead of your name and address or ABN.10 This will apply whether you are the supplier or the recipient of the supply. It will align the tax invoice requirements with the existing commercial practices of many agents.

    The issue of tax invoices where multiple supplies are made through a single agent is dealt with at question 62.2

    14.2 Where a tax invoice includes amounts collected as agent for a principal, are the amounts to be shown on the agent's Business Activity Statement, or are they excluded altogether from the BAS of the agent?

    Ordinarily a supply or acquisition made by a principal through an agent would not appear on the agent's BAS.

    However subdivision 153B of the GST Act allows principals and agents to enter into agreements under which the principal and agent treat the supply of goods or services as 2 separate supplies or acquisitions as though principal and agent were acting as principal to principal.

    A written agreement must be entered into to allow for this type of arrangement under which:

    • the agent agrees that they are making supplies and/or acquisitions on behalf of the principal
    • the kind of supplies/acquisitions are specified
    • the agent will be treated as a principal in making supplies or acquisitions
    • the agent will issue tax invoices and adjustment notes to third parties in the agents name and the principal will not issue such documents
    • both parties must be registered.

    Under the arrangement, the principal will be taken to have made a taxable supply to the agent, the value of which is determined by reference to the amount the agent is actually required to pay the principal. Usually this amount will be the amount the third party is charged for the supply less the amount the agent is permitted, under the contract with the principal, to keep as a commission or similar payment for agency services.

    As the supply by the principal to the agent would be considered a taxable supply under the arrangement, the principal will be required to remit 1/11 of the price of the supply (which may have been adjusted to take into account the commission payment to the agent) to the ATO. The agent will be able to claim 1/11 of the amount as an input tax credit. When the agent sells the goods to the third party, the supply is a taxable supply made by the agent and the agent will be required to remit to the ATO 1/11 of the price they charged the third party. The agent will therefore include this amount on their Business Activity Statement under G1.

    Subdivision 153-B applies in a similar way in relation to creditable acquisitions. When an agent makes a creditable acquisition from a third party on behalf of the principal the agent will be taken to have made an acquisition in its own right. The agent will be entitled to claim input tax credits on that acquisition. Where the agent has a tax invoice in respect of the acquisition, they would include this amount in their Business Activity Statement under G11. The agent then makes a taxable supply to the principal, for which the agent must remit 1/11 of the price to the ATO.

    The rules regarding GST and agents make no distinction between disclosed and undisclosed agents.

    14.3 How do the tax invoice rules work for invoices issued by an agent who agrees under new subdivision 153B to become a 'principal'?

    The agent may enter an arrangement under proposed Subdivision 153-B with the principals whereby an agent will be treated as a supplier or acquirer (that is, they will be treated as though they were a principal in there own right). The subdivision will treat the supply by the principal to the agent and the agent to the third party separate taxable supplies, the tax invoice requirements will apply separately to each supply.

    14.4 Subdivision 153-B and GST-free supplies

    In some cases there are sales made by an agent on behalf of a principal with the remittance back to the principal being the sales proceeds less selling expenses incurred on behalf of the principal in relation to the sale and also less an agent's commission. However, the goods sold are primary produce that is GST-free and I believe that the use of Division 153B may be denied in these circumstances.

    Section 153-55(1) only refers to taxable supplies that a principal makes through an agent. The definition of taxable supply excludes GST-free supplies.

    Can Division 153B apply in circumstances where the principal makes GST-free supplies through an agent?

    If so, will the deemed supply the principal makes to the agent under section 153-55(2) also be GST-free?

    Will the recoupment of expenses incurred on behalf of the principal fall under section 153- 55(2) or section 153-60(2)?

    If there are separate deemed supplies and deemed acquisitions will these be permitted to be netted off as a single GST-free transaction?

    An example of this situation is set out below
    The Principal ('P') is a primary producer. All goods are GST-free. P markets his produce through an Agent ('A'). In connection with the sale of the produce A incurs expenses as an agent for P (for example, transportation). A recoups these expenses from P at the time of remitting the proceeds of sale to P. A is entitled to a commission on the sale and that commission is also recouped at the time of making the remittance of the sale proceeds to P.

    The agency is only part of the business conducted by A. A acts as an agent for other Principals and also conducts its own trading operations. It is possible that an expense, for example, transport, will be incurred partly as an agent for P and partly relating to A's own trading operations.

    A sells produce for $100,000 on behalf of P. In the course of making the sale A incurs expenses of $5,500 on behalf of P. A is entitled to a commission of $3,300 on the sale.

    Accounting without Division 153B
    BAS of P:
    GST-free supplies $100,000 Acquisitions $8,800
    GST payable 0 Input tax credits 800
    Net amount ($800)
    BAS of A:
    Taxable supplies $3,300 Acquisitions 0
    GST payable 300 Input tax credits 0
    Net amount $300

    A has a practical problem with his accounting system in connection with the expenses incurred on behalf of P. A must be able to identify at the time of processing these transactions that there is no entitlement to an input tax credit.

    A must process documentation relating to agency transactions differently from transactions relating to his own business.

    The remittance that A will send to P in connection with the sale will be $100,000 - $5,500 - $3,300 = $91,200. After receiving his net BAS refund, P's total proceeds will be $92,000.

    Accounting using preferred method of interpreting Division 153B

    The deemed supply from P to A should be GST-free, it remains a supply of goods that are GST-free. The deemed consideration received from A will relate solely to a GST-free supply. The consideration would be $100,000 - $5,000 - $3,000 = $92,000. P would have a Nil BAS.

    Alternatively, there is a deemed GST-free supply from P to A for consideration of $100,000 - 3,000 = $97,000 with a deemed acquisition from A for $5,500 (the expenses incurred by A on behalf of P). The BAS of P would have a net amount of ($500).
    BAS of A:
    GST-free supply $100,000 Acquisition $5,500
    GST payable 0 Input tax credit 500
    Net amount ($500)

    This result would enable A to more easily process the expenses incurred as an agent of P. The net result from the point of view of the revenue remains at a net amount of ($500) and the need for tax invoices between A and P is removed together with the cash flow obligations imposed on P under the application of the general law.

    Alternatively, if there is a deemed supply to P in relation to the acquisition, A would have a net amount of $0.

    Interpretation of Division 153B

    Section 153-55 refers only to taxable supplies that a principal makes to a third party through an agent. It is questionable whether Division 153B has application to GST-free supplies a principal makes through an agent.

    The process that has been established by Division 153B appears to be a simplification arrangement designed to make the accounting process easier for both principals and agents. This need for simplification applies both where the subject of the transaction is taxable and where it is GST-free.

    There is nothing in section 153-55 that prohibits the application of Division 153B to GST-free supplies, the section is silent on the application of the Division in those circumstances and only refers to taxable supplies made by an Agent on behalf of a Principal.

    ATO position

    Subdivision 153-B simplifies the way you can account for GST by allowing an option for entities to enter into an arrangement under which an agent is treated as a separate supplier and/or acquirer. The general effect of entering into these arrangements in respect of both supplies and acquisitions is that the principal and agent are treated as acting as between a principal and another principal.

    The ATO has issued a ruling, GSTR 2000/37: Goods and services tax: agency relationships and the application of the law (the 'ruling') which describes what is meant by principal/agent relationships. It also explains the operation of Subdivisions 153-A and 153-B (Agents and insurance brokers), Division 57 (Resident agents acting for non-residents) and Division 111 (Reimbursement of employees, agents, etc.) of the A New Tax System (Goods and Services Tax) Act 1999.

    The ruling explains that nothing in section 153-50 prohibits supplies and acquisitions that are either GST-free, input taxed supplies or subject to the determination of the Treasurer under Division 81 from being included in such an arrangement. Also, the nature of these supplies and acquisitions, as between the principal and the third party, is not changed by entering into a Subdivision 153-B arrangement. For example, an acquisition by a principal from a third party that is either not a creditable acquisition or an exempt tax, fee or charge under Division 81 will not be deemed to be a creditable acquisition because of the arrangement.

    However, the ruling outlines the ATO view that sections 153-55 and 153-60, that provide for the GST effects for the transactions between the principal and their agent, only apply to taxable supplies and creditable acquisitions. Hence, for supplies and acquisitions that are not taxable supplies or creditable acquisitions that have been included in a Subdivision 153-B arrangement, their GST treatment is determined by the application of the relevant provisions of the GST Act.

    14.5 Does a supplier satisfy the requirement of paragraph 29-70(1)(a) when a tax invoice is prepared by an agent appointed for the purpose of invoicing for supplies to third party recipients?

    A tax invoice for a taxable supply must be issued by the supplier. As noted at 14.1 above this requirement is satisfied where either the principal or an agent issues a tax invoice for supplies made through an agent. The requirement may also be satisfied where invoices are prepared by, but the supplies are not made, through an agent.

    An agent can be appointed for the sole purpose of preparing tax invoices. An agreement that appoints an agent for the purposes of invoicing is effective for GST purposes because, under agency law, the principal is bound by the actions of an agent who is acting within its authority. A tax invoice that is prepared by an agent appointed solely for that purpose is, therefore, 'issued' by the supplier to the third party recipient.

    Please note that paragraph 29-70(1)(b) of the GST Act requires the Australian Business Number (ABN) of the entity (that is, the supplier) that issues the tax invoice and subregulations 29-70.01(2)(c) and 29-70.01(3)(c) of the A New Tax System (Goods and Services Tax) Regulations 1999 requires the name of the supplier. The name and ABN of the invoicing agent are not required to be shown on the tax invoice.

    As 'agent' means one person acting on behalf of another, an agency arrangement necessarily involves third parties. Under agency law, an agent cannot represent a principal in respect of the principal's transactions with the agent. The tax invoice requirements therefore can only be satisfied when a tax invoice is prepared by an agent in respect of supplies made to third parties.

    14.6 Agency relationships

    Issue

    Can a Division 153-B agreement be put in place where the arrangement between the parties is that the agent will pay accounts received on behalf of a principal; and

    If such an agreement can be put in place, what are the tax invoice requirements for the agent who has made the deemed acquisition to claim input tax credits?

    There are circumstances where a Principal will put into place supply arrangements with a supplier but invoices for those supplies will either be addressed care of an Agent or will be forwarded by the Principal to an Agent for payment.

    Can a Division 153-B agreement be put into place to deem an acquisition from the supplier by the Agent and an on-supply by the Agent to the Principal?

    The supply arrangements are between the supplier and the Principal. The tax invoice issued by the supplier will be issued to the Principal although in some instances the address to which the tax invoice is issued may be care of the Agent.

    If a Division 153-B agreement is in place, can the Agent (the deemed acquirer) claim an input tax credit for the deemed acquisition on the basis of a tax invoice issued to the Principal?

    ATO response

    Question 1

    Can a Subdivision 153-B agreement be put in place where the arrangement between the parties is that the agent will pay accounts received on behalf of a principal?

    No, Subdivision 153-B only applies to situations where an agent on behalf of a principal makes supplies to third parties or makes acquisitions from third parties. In the scenario above the agent is not making an acquisition on the principal's behalf but is merely paying an account on behalf of the principal. As such the agent and principal do not satisfy the requirements in section 153-50 and would not be able to enter into a Subdivision 153-B arrangement.

    Paragraph 45 of Goods and Services Tax Ruling GSTR 2000/37, Goods and Services Tax: agency relationships and the application of the law explains when transactions are made through an agent:

    'When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.'

    The principal will need to hold a tax invoice before claiming input tax credits for their acquisitions. The special rules in Subdivision 153-A will not apply to this situation. Even though the entity paying the accounts on behalf of the principal is described as an 'agent' they are not an agent for the purposes of Subdivision 153-A. The creditable acquisition is not made through an agent. The normal tax invoice rules in section 29-10 will apply requiring the principal to hold the tax invoice before an input tax credit can be claimed.

      Last modified: 22 May 2014QC 28063