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Edited version of private ruling

Authorisation Number: 1011443710215

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Ruling

Subject: GST and value of supply

Question 1

What is the value of the supply of debt collection services you provide to your client?

Answer

The value of the supply is price x 10/11.

Question 2

What is your GST liability on the supply of debt collection services provided to your client?

Answer

Your GST liability on the supply is 10% of the value of the supply, or price x 1/11.

Relevant facts and circumstances

Your ruling is based on the following facts.

You carry on a business which includes supplying a service of collecting client's debts (the service).

You are registered for GST.

You wish to clarify the correct method of charging GST on your supply of the service to a client. For this purpose you have provided the following example:

ABC is your client and is owed $10,000 by a debtor (XYZ), which includes the GST amount charged by ABC.

You supply the service to ABC by collecting $10,000 from XYZ.

Your commission for the supply of the service to ABC is 20% of the total amount collected from XYZ, plus GST. You charge ABC $2,200 being the price of your supply calculated as follows:

($10,000 x 20%) + ($2,000 x10%)

ABC suggests that you should charge your commission on the amount collected from XYZ less the GST component, namely $9,090.91. That is, the price/commission that you should charge ABC is $2,000 calculated as follows:

($9,090.91 x 20%) + ($1,818.82 x10%).

Both ABC and XYZ are in Australia.

Reasons for decision

Questions 1 & 2

The A New Tax System (Goods and Services Tax) Act 1999 (GST Act) does not specify how the prices are to be determined by the suppliers. The GST Act only specifies how the value and the amount of GST on a supply is calculated.

The value of a taxable supply is defined in subsection 9-75(1) of the GST Act as:

Under section 9-70 of the GST Act the amount of GST payable on a taxable supply is 10% of the value of the taxable supply.

You advise that the commission that you charge ABC is 20% of the total amount collected from their debtor XYZ plus GST.

Your rate of commission and whether that rate should be applied to the total amount collected or a different amount is a pricing issue which is a contractual matter between you and your client. The ATO cannot comment on contractual issues.

In the example that you have provided, if the price for the supply of the service to ABC is $2,200, then the value of the taxable supply to ABC is $2,000 ($2,200 x 10/11th) and the amount of GST on the supply is $200 (10% of $2,000). Therefore, your GST liability on the supply made to ABC is $200.

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