ATO Interpretative Decision

ATO ID 2002/265 (Withdrawn)

Goods and Services Tax

• The ATO view for this issue is covered in Goods and Services Tax Ruling GSTR 2000/37.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does the government department's 'reimbursement' of travel and incidental expenses incurred by the entity, a contractor, in carrying out its project work activities, form part of the consideration for a taxable supply of the entity's project work services under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Decision

Yes, the government department's 'reimbursement' of travel and incidental expenses incurred by the entity, a contractor, in carrying out its project work activities, does form part of the consideration for a taxable supply of the entity's project work services under section 9-5 of the GST Act.

Facts

The entity is a contractor that is carrying on an enterprise in Australia. The entity is engaged by a government department to provide project work services. The entity's supply of the project work services to the government department is a taxable supply under section 9-5 of the GST Act.

The entity incurs travel and incidental expenses in carrying out the project work activities.

The entity presents the government department with an invoice that contains an amount for the work performed plus a separate amount as 'reimbursement' for travel or incidental expenses that the entity incurred in carrying out the project work activities. The entity receives payment from the government department for the total amount of the invoice.

The entity is not an employee, an associate of an employee, agent, partner or officer of the government department.

The entity and the government department are both 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 a 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, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

The entity is making a taxable supply of project work services to the government department. Under section 9-40 of the GST Act, the entity must pay the GST payable on this taxable supply.

Section 9-70 of the GST Act provides that the amount of GST on a taxable supply is 10% of the value of the taxable supply. This amount is equal to 1/11th of the consideration for the supply (section 9-75 of the GST Act).

Under paragraph 9-15(1)(a) of the GST Act, consideration includes any payment in connection with a supply of anything. The entity receives a payment from the government department that consists of an amount for the work performed plus a separate amount as 'reimbursement' for the travel or incidental expenses that it incurred in carrying out the project work activities. Therefore, it is necessary to determine whether the reimbursement forms part of the consideration for the supply of the entity's project work services.

The treatment of disbursements and reimbursements is considered in Goods and Services Tax Ruling GSTR 2000/37. Paragraph 49 of GSTR 2000/37 provides that:

'..[I]f goods and services are supplied to a solicitor to enable the solicitor to performs services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods and services, whether separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor [emphasis added].'

The entity incurred the travel and incidental expenses in carrying out the project work activities. Applying the principle in GSTR 2000/37, the 'reimbursement' of the travel and incidental expenses incurred by the entity forms part of the consideration provided for the entity's taxable supply of the project work services. Accordingly, the amount of GST payable on the entity's taxable supply of its project work services is calculated on the amount received for the work performed as well as the 'reimbursement' of the travel and incidental expenses incurred in carrying out the project work activities.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   paragraph 9-15(1)(a)
   section 9-40
   section 9-70
   section 9-75
   section 11-5
   section 11-20
   section 11-25
   Division 111

Related Public Rulings (including Determinations)
GSTR 2000/37

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

Business Line:  GST

Date of publication:  22 March 2002

ISSN: 1445-2782