ATO Interpretative Decision

ATO ID 2004/224 (Withdrawn)

Goods and Services Tax

• This ATO ID is withdrawn. Guidance on the interpretative issue contained in this ATO ID can be found at the following; GSTR 2000/37.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the entire fee collected by the entity, an information broker, consideration for its taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when the fee includes an amount to cover the cost of search fees that:

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the entity incurred and is legally liable to pay, and

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is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act?

Decision

Yes, the entire fee collected by the entity is consideration for its taxable supply under section 9-5 of the GST Act where the fee includes an amount to cover 'search fees' that the entity incurred and is legally liable to pay, and the search fee is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act.

Facts

The entity is an information broker. The entity makes a supply of publicly available information (search information) to its client. This supply is a taxable supply under section 9-5 of the GST Act.

The entity acquires the search information through a government authority (licensor). The entity has entered into a licensing agreement with the licensor for the right to access this information. The licensing agreement between the entity and the licensor includes the following restrictive covenants:

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the entity is personally liable to pay all fees and charges for the licence to access the search information. Where payment by the entity is not made, future access to the search information may be suspended until payment is made

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the entity is required to provide a bank guarantee equal to the fees charged by the licensor to the entity for a period to be determined by the licensor, and

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the entity does not act as agent of the licensor in any dealings.

The search fee is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act.

The entity places terms and conditions on the supply of the search information to its client. These terms and conditions state that the entity acts as the client's agent when acquiring the search information on the client's behalf.

The entity receives a payment from the client that consists of an amount for the work performed plus a separate amount as 'reimbursement' for the costs incurred to obtain the search information from the licensor.

The entity is 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:

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the entity makes a supply for consideration

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the supply is made in the course or furtherance of an enterprise that the entity carries on

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the supply is connected with Australia, and

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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.

The entity is making a taxable supply of search information to its customer for consideration under section 9-5 of the GST Act. However, it needs to be established whether the entire fee charged by the entity is consideration for its supply.

Under section 9-15 of the GST Act consideration includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

The entity receives a payment from the client that consists of an amount for the work performed and a separate amount as 'reimbursement' for the costs incurred in obtaining the search information from the licensor. The amount received in respect of the work performed is connected with the entity's supply of the search information and is therefore consideration for that supply. However, it needs to be determined whether the reimbursement also forms part of the consideration for the entity's supply.

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 perform 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 the services supplied by the solicitor [emphasis added].'

Therefore, whether the amount is part of the consideration for the entity's supply depends on whether the supply by the licensor is to the entity or to the entity's client.

The entity enters into a licensing agreement with the licensor. The entity does this in its own right. The entity is also personally liable to provide a bank guarantee. In the event of non-payment, the entity may be denied access and the licensor has a contractual right to pursue payment from the entity. As such, the entity purchases the search information from the licensor as a principal and not as an agent of its client. This applies even though the entity is referred to as the client's agent in its terms and conditions. This agreement between the entity and the client does not affect the contractual agreement between the entity and the licensor.

The entity subsequently on-supplies the search information that it has acquired, as principal, to its client. This supply is not the supply of an administrative or agency service, rather, it is the supply of search information.

As the supply of search information is made by the entity to its client, and not by the licensor to the entity's client, the part of the fee collected by the entity in respect of the search fee is consideration for the taxable supply made by the entity. Therefore, the entire fee collected by the entity is consideration for its taxable supply under section 9-5 of the GST Act, where the fee includes an amount to cover 'search fees' that the entity incurred and is legally liable to pay, and the fee is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-70
   paragraph 9-15(1)(a)
   Division 81
   subsection 81-5(2)

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2000/37

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

Business Line:  Indirect Tax

Date of publication:  12 March 2004

ISSN: 1445-2782