• GST: supplies made through agents and other intermediaries

    Definition of principal and agent

    A principal is a party who authorises an agent to act on their behalf.

    An agent under the common law is a representative of the principal and must be authorised to act on behalf of the principal so as to create or affect legal relations between the principal and the third parties.

    An intermediary is generally considered as a ‘transaction facilitator’. They need not be agents under the common law.

    When we say you, we are referring to you as a principal, an agent or an intermediary.

    General principles of agency

    Under the general principles of agency, if you are a principal making taxable sales or taxable importations through an agent, you are responsible for the GST on those sales or importations, not the agent.

    The agent facilitates the sale in return for an agreed amount as a commission or similar payment for agency services.

    Example

    Bill (the principal) is a GST registered dive boat operator who engages Jenny (the agent) as a GST registered agent to sell trips to the Great Barrier Reef on his behalf.

    Bill makes taxable sales to the customer via Jenny who facilitates the sale. Jenny supplies agency services to Bill.

    Bill charges $220 (including GST) for each trip. Jenny charges Bill a GST -inclusive commission of 20% ($44) for every trip she sells on his behalf.

    Bill must pay GST to the value of $20 to us for every trip sold ($220/11 = $20). However, Bill can claim a GST credit to the value of $4 ($44/11 = $4) for the GST component of the commission he pays to Jenny for each trip she sells on his behalf.

    Jenny must pay GST to the value of $4 for every commission payment she receives from Bill.

    Bill and Jenny can receive payments from the customer in several ways:

    Customer pays deposit ($44) to agent. Customer pays the balance owing ($176) to principal.

    Customer pays full amount ($220) to agent. Agent pays principal full amount less commission ($220 - $44 = $176).

    Customer pays the full amount ($220) to principal. Principal pays commission ($44) to agent.

    For each of the three payment methods, Bill and Jenny must report the following amounts on their activity statement:

    Bill (principal)

    Total sales (G1)

    $220

    Non-capital purchases (G11)

    $44

    GST payable amount (1A)

    $20

    GST paid amount (1B)

    $4

    Jenny (agent)

    Total sales (G1)

    $44

    Non-capital purchases (G11)

    $0

    GST payable amount (1A)

    $4

    GST paid amount (1B)

    $0

    End of example
    Attention

    Either the agent or the principal may issue a tax invoice to the purchaser, but they cannot both issue separate tax invoices relating to the sale..

    End of attention

    If you are the principal, you can claim a GST credit for the amount of GST you pay for the services of the agency. However, if the cost of the agency services is greater than $82.50 (GST inclusive), you will need to hold a valid tax invoice in order to claim a GST credit. As the GST-inclusive value of the agency services in the example above is less than $82.50, a tax invoice is not required.

    (Refer GST definitions: sales, purchases.)

    Principal – intermediary taxable supply arrangement

    As the principal you may enter into a written agreement with the intermediary by which the intermediary becomes a part of the chain of supply for GST purposes. In that case, you are treated as making taxable sales to the intermediary and the intermediary is treated as making the corresponding taxable sales to the customer.

    Under the arrangement, you are required to account for the amount of GST payable on the sale, being 10% of the value which equals the price to the customer less the commission payable to the intermediary.

    The range of entities that can access these simplified GST accounting arrangements include intermediaries that facilitate transactions for example, paying agents, billing agents and commission agents.

    Example

    Bill and Jenny decide to enter a principal - intermediary taxable supply arrangement. The price of the reef trip is $220 and Jenny's commission is $44 as in the previous example. Bill and Jenny must report the following amounts on their activity statement:

    Bill is taken to have made a taxable supply to Jenny with the value of 10/11 of the amount payable to Bill which equals the price to the customer less the commission to Jenny (ie, value = 10/11 x ($220-$44) = $160). Bill is liable to pay the GST of $16 on the taxable supply to Jenny (ie, 10% of the $160). Jenny makes a taxable supply to the customer having a price of $220 including GST payable of $20 (1/11 x $220). Jenny is entitled to a GST credit of $16 included in her acquisition from Bill.

    Bill and Jenny must report the following amounts on their activity statement:

    Bill (principal)

    Total sales (G1)

    $176

    Non-capital purchases (G11)

    $0

    GST payable amount (1A)

    $16

    GST paid amount (1B)

    $0

    Jenny (agent)

    Total sales (G1)

    $220

    Non-capital purchases (G11)

    $176

    GST payable amount (1A)

    $20

    GST paid amount (1B)

    $16

    End of example

    More information

    For more information refer to:

      Last modified: 31 Mar 2014QC 17617