Edited version of private ruling

Authorisation Number: 1011473833489

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Ruling

Subject: GST and on-charging

Question

Are you making a separate taxable supply when you on-charge travel allowances or expenses incurred by your employees, while providing consultancy services to an organisation in Australia?

Answer

No, you not making a separate taxable supply when you on-charge the travel expenses incurred by your employees whilst supplying consulting services to an organisation in Australia. The on-charging of the expenses forms part of the supply of your consulting services which is a taxable supply.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an Australian Company which is registered for goods and services tax (GST).

You provide your employees to clients in Australia. The ultimate client in this case is a third party. However, you do not have any contracts with the third party.

You and Company A are a labour hire firms.

You have entered into a contract to provide labour, that is, you have provided an employee of yours to Company A.You have provided a copy of this contract.

You have also provided a copy of the contract between you and your employee (employee).

Company A has a separate agreement with the third party, however, you are not a party to that agreement.

You invoice Company A for the time that your employee is appointed.

Your employee was required to travel for work for a period. Accordingly, you incurred travel allowances for meals and incidentals for your employee and calculated the amounts based on the third party's authorised calculator, and on-charged these amounts to Company A. Your employee also incurred taxi expenses including GST, which were also on-charged. The travel occurred within Australia.

You raised an invoice to Company A for the travel allowances plus GST and the taxi fares.

Reasons for decision

Under section 9-5 of the GST Act you make a taxable supply if:

· you make the supply for consideration;

· the supply is made in the course or furtherance of an enterprise that you carry on;

· the supply is connected with Australia; and

· you are registered or required to be registered.

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

You have stated that you provide labour (employees) to Australian organisations.

In this situation, Company A engaged your services in which you provided an employee to provide consulting services. Company A in turn offered their services to a third party. You do not have an agreement with the third party. Your agreement is with Company A.

In providing the consulting services, the employee was required to travel within Australia.

From the information received, your supply of labour to provide consulting services satisfies paragraphs (a) to (d) of section 9-5 of the GST Act as:

· you receive consideration for the supply

· the supply is made in the course of your enterprise

· the supply is connected with Australia as you carry on your enterprise in Australia, and

· you are registered for GST.

Therefore, the supply of your employee's labour to provide consulting services will be a taxable supply, and you will have to remit 1/11^th of the consideration for the supply to the Australian Taxation Office (ATO).

You have stated that apart from the labour hire, you will be on-charging the costs for travel, meals and other incidentals that the consultant incurs to Company A. We will now consider the GST implications in relation to these expenses.

On-charging of incidental expenses

According to Goods and Services Tax Ruling GSTR 2001/8, a composite supply is a supply that contains a dominant part and the supply includes something that is integral, ancillary or incidental to that part. You should treat a composite supply as a supply of a single thing.

The on-charging of expenses, like travel and administrative costs is not a supply for GST purposes in its own right. The on-charging of these expenses is considered to be part of your supply labour to Company A and is a composite supply.

Expenses, like travel and administrative costs, are incidental to the contracted supply of labour to Company A. We consider that there is no additional supply.

Thus, as the supply of labour is taxable, the travel and incidental expenses which relate to that supply will be taxable. Accordingly, the amounts on-charged to Company A for the travel and incidental expenses form part of the composite supply of labour services and therefore, the supply is taxable.

Please note that it does not matter whether the on-charging is invoiced with or separately from the supply of the labour services, the on-charging of expenses is incidental to the supply of the labour services.

Accordingly, you are liable for GST on the whole amount received which includes the consideration for the supply of the employee and the travel allowances and incidentals. You will have to remit 1/11^th of the payments received to the ATO.

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