ATO Interpretative Decision

ATO ID 2001/579 (Withdrawn)

Goods and Services Tax

• 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.

Issue

Is the entity, a supplier of management services, 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 a separate payment for its services which it uses to pay the salary and wages of its employees?

Decision

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it receives a separate payment for its services which it uses to pay the salary and wages of its employees.

Facts

The entity is a supplier of management services. It employs staff to provide those services. It does not employ the staff as agent for the recipient. The entity contracts with the recipient and is paid for its management services. The recipient pays a separate amount that the entity uses to pay its employees' salary and wages.

The entity is registered for goods and services tax (GST). The transaction is for consideration. The transaction is made in the course or furtherance of an enterprise carried on by the entity in Australia.

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;

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the supply is connected with Australia; and

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it is registered, or required to be registered.

The existence of a 'supply' itself is an essential element in determining whether the transaction is a taxable supply under section 9-5 of the GST Act.

Section 9-10 of the GST Act discusses the meaning of the word 'supply' for GST purposes. Paragraph 9-10(2)(b) of the GST Act states that a supply includes a supply of services.

In this case, the entity uses its employees to provide management services. Therefore, when the entity receives payment from the recipient which it also uses to pay the salary and wages of its employees, the recipient is in fact making a payment for management services, not a payment for salary and wages. Furthermore, the recipient is not reimbursing the entity because the entity does not employ staff on behalf of the recipient. The entity employs staff in the course of providing management services.

'Consideration' is defined in paragraph 9-15(1)(a) of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything. The payment that the entity receives from the recipient is consideration.

The entity is registered for GST and the transaction is a 'supply' that fulfils all of the requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply of management services under section 9-5 of the GST Act when it receives a separate payment that is used to pay the salary and wages of its employees.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-10
   paragraph 9-10(2)(b)
   paragraph 9-15(1)(a)
   Division 38
   Division 40

Keywords
Goods and services tax
Taxable supply
GST supply
GST consideration

Business Line:  GST

Date of publication:  15 November 2001

ISSN: 1445-2782