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ATO Interpretative Decision

ATO ID 2001/687 (Withdrawn)

Goods and Services Tax

GST and an allowance paid to a company director
FOI status: may be released
  • This ATO ID is a straight application of the law and does not contain an interpretative decision.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 25 November 2005
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a company director, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives an allowance from its employer?

Decision

No, the entity is not making a taxable supply under section 9-5 of the GST Act when it receives an allowance from its employer.

Facts

The entity is a company director. The entity is an employee of the company. The entity receives an allowance from its employer to cover certain expenses that the entity incurs in its capacity as an employee. The entity does not refund, to its employer, any unexpended amount from this allowance.

The entity is not registered for goods and services tax (GST).

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•
it makes the supply for consideration;
•
the supply is made in the course or furtherance of an enterprise that it carries on;
•
the supply is connected with Australia; and
•
the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Of relevance, in this case, is whether the entity is making a supply in the course or furtherance of an enterprise that it is carrying on when it receives an allowance from its employer.

Under subsection 9-20(1) of the GST Act, the definition of 'enterprise' is very broad. However, paragraph 9-20(2)(a) of the GST Act provides that an enterprise does not include an activity or series of activities done as an employee.

The entity receives an allowance from its employer to cover expenses that it incurs in its capacity as an employee. In accordance with paragraph 9-20(2)(a) of the GST Act, these activities do not fall within the definition of 'enterprise'.

The entity is not registered for GST and the activities, for which the allowance is received, are not made in the course or furtherance of an enterprise that the entity is carrying on. Therefore, the entity is not making a taxable supply under section 9-5 of the GST Act when it receives an allowance from its employer.

[Note: Under Division 111 of the GST Act, an employer may be entitled to input tax credits for some reimbursements made to an employee.
However, where an amount is paid to an employee to cover certain expenses and the employee is not required to refund any unexpended amount, this is an allowance not a reimbursement.
In this case, Division 111 of the GST Act does not apply and the employer is not entitled to any input tax credits for the amount paid to the employee.]

Date of decision:  31 October 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   subsection 9-20(1)
   paragraph 9-20(2)(a)
   Division 111

Keywords
Goods & services tax
GST supplies & acquisitions
GST enterprise
Taxable supply

Business Line:  GST

Date of publication:  30 November 2001

ISSN: 1445-2782

history
  Date: Version:
  31 October 2001 Original statement
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