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Ruling

Subject: GST and reimbursements

Question 1

Are the medical services that you acquire as a principal under the Agreement, for medical examinations required for the job candidates of a specified entity (entity X), taxable supplies to you?

Answer

Yes.

Question 2

Are you entitled to claim an input tax credit for the acquisition of the medical services?

Answer

Yes.

Question 3

In relation to the on-charging of expenses by you to entity X under the Agreement, does the GST legislation require you to calculate the GST payable on the reimbursement based on the GST-inclusive cost of the relevant expense where you are entitled to an input tax credit for the relevant expense?

Answer

There are no provisions in the GST legislation that require the supplier to calculate the GST payable on the reimbursement based either on the GST-inclusive or the GST-exclusive cost of the relevant expense. This is a business decision and a contractual matter between the parties.

Relevant facts and circumstances

You are registered for GST.

You and entity X entered into an agreement (the Agreement) with effect from a specified date.

You have provided a copy of the unexecuted Agreement.

The Agreement provides that you are to provide human resources and recruitment services expertise as described in the Agreement.

The Agreement sets out your responsibilities which include, amongst other things, managing third party vendors including medicals and drug screens for newly appointed employees. As directed by entity X, you are to make appointments/place orders to third party vendors and pay their invoices. All invoices from the third party suppliers are to be sent and paid by you. You are to collect all invoices and create a new invoice for entity X. These invoices will be reimbursed by entity X following the conclusion of each recruitment.

The Agreement provides that:

· Subject to the proper supply of the services, entity X will pay you a specified amount as set out in the Agreement.

· The specified amount cannot be varied without the parties prior written agreement.

· You agree that the specified amount is the only remuneration or financial benefits to which you are or may become entitled.

· On satisfactory proof of payment, you will be reimbursed all out-of-pocket expenses reasonably and properly incurred in providing the services and that are incurred with entity X's prior consent.

The Agreement provides that the relationship of the parties is that of independent contractors and you are not entity X's agent for any purpose. You are not authorised to do business in entity X's name or to bind entity X in any way, or hold yourself out as having the capacity to do so except and only to the extent where permission has expressly been given by entity X in writing.

You confirmed that under the Agreement you are not acting as an agent for entity X when you incur costs for acquisitions that you make from third parties.

There is no dispute between you and entity X in respect of your relationship. You are both in agreement that you are not acting as entity X's agent when making acquisitions from third parties.

Some of the expenses incurred by you are in relation to the medical examinations of entity X's job candidates. In these cases, a medical practitioner examines entity X's job candidates and prepares a report for you. The medical practitioner is registered for GST. A Medicare benefit is not payable for the supply made by the medical practitioner to you. The medical practitioner charges GST on the servicers supplied to you. You claim the GST component of the price as an input tax credit. There is no dispute between you and the medical practitioner in respect of the GST status of these supplies.

In relation to the reimbursements paid by entity X to you under the Agreement, you have been recovering or seeking to recover reimbursements from entity X on the basis of the GST-inclusive amount of the expense in circumstances where you are also entitled to claim an input tax credit in relation to the relevant expense.

In relation to on-charging of the expenses, you are also grossing up the GST-inclusive cost of the relevant expense by an additional amount in respect of GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 38-7

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

Questions 1 and 2

Summary

The medical services that you acquire are taxable supplies to you.

You are entitled to an input tax credit for the acquisition of the medical services.

Detailed reasoning

Input tax credit

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

(* denotes a term defined in section 195-1 of the GST Act)

For an acquisition to be a creditable acquisition all the requirements of section 11-5 of the GST Act must be met.

Paragraph 11-5(a) of the GST Act requires that you make an acquisition for a creditable purpose.

Subsection 11-15(1) of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, according to subsection

11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that the acquisition:

(a) relates to making supplies that would be input taxed, or

(b) is of a private or domestic nature.

You meet the requirement of paragraph 11-5(a) of the GST Act as you acquire the medical services solely for a creditable purpose.

You also meet the requirements of paragraphs 11-5(c) and 11-5(d) of the GST Act. This is because, you provide and are liable to provide consideration for the supply and are registered for GST.

What is left to determine is whether the requirement of paragraph 11-5(b) of the GST Act is also met. Paragraph 11-5(b) of the GST Act requires that the supply of the thing to you is a taxable supply.

Taxable supply

Whether or not a supply is a taxable supply depends on the supplier's circumstances. A supplier will make a taxable supply if all of the requirements of section 9-5 of the GST Act are met.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) 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.

In your case, based on the information provided, the supply made by a medical practitioner to you meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· the medical practitioner examines the job candidates of entity X and prepares a report for you, for consideration

· the supply is made in the course of an enterprise that the medical practitioner carries on

· the supply is connected with Australia, and

· the medical practitioner is registered for GST.

The supply of the medical practitioner's services to you is not an input taxed supply under any provision of the GST Act or under a provision of another Act. Therefore, what is left to consider is whether the supply is GST-free.

GST-free supply

Section 38-7 of the GST Act provides that a supply of a 'medical service' is GST-free.

'Medical service' is defined in section 195-1 of the GST Act as:

· a service for which medicare benefit is payable under Part II of the Health Insurance Act 1973; or

· any other service supplied by or on behalf of a *medical practitioner or *approved pathology practitioner that is generally accepted in the medical profession as being necessary for the appropriate treatment of the *recipient of the supply.

Any service that falls within either the first or second limb of the definition of medical services is GST-free.

You confirmed that a Medicare benefit is not payable for the medical services that the medical practitioners supply to you. Therefore, the services are not covered under paragraph (a) of the definition of medical services in section 195-1 of the GST Act.

Issue 1.a.19 of the Health Industry Partnership - Issues Register deals with examinations conducted by medial practitioners for the purposes of preparing a report for a third party. Issue 1.a.19 states in part:

1.a.19. What is the GST position of an examination for the purpose of preparing a report, prepared by a medical practitioner for a third party (that is not the patient but entities such as insurance companies, workers compensation providers, prospective employers, Government Departments etc) where the report is paid for by, and completed, for the third party?

A service for which a Medicare benefit is payable, is GST-free under the first limb.

However a service for which a Medicare benefit is not payable, must be addressed under the second limb. It is the ATO view that provision of a report will not be GST-free under the second limb, as it is not for the 'appropriate treatment of the recipient of the supply'.

You are the recipient of the supplies made by the medical practitioners. The services supplied by the medical practitioners to you do not constitute appropriate treatment of the recipient of the supply. Accordingly, the medical services that you acquire are not GST-free under the second limb of the definition of medical services in section 195-1 of the GST Act. Consequently, the medical services are not GST-free under section 38-7 of the GST Act.

Furthermore, the medical services are not GST-free under any other provision of the GST Act or a provision of another Act. The services are taxable supplies as they meet all the requirements of section 9-5 of the GST Act.

As the medical services that you acquire are taxable supplies to you, the requirement of paragraph 11-5(b) of the GST Act is also met. You are therefore entitled to an input tax credit for the acquisition of the medical services under section 11-20 of the GST Act as the acquisition meets all the requirements of section 11-5 of the GST Act.

Question 3

Summary

There are no provisions in the GST Act that deal with how a supplier should determine the price when on-charging a business expense. This is a contractual matter between the parties.

Detailed reasoning

Whether or not you can charge an additional 10% on the GST-inclusive price of your business acquisitions when you on-charge your expenses, is a pricing issue.

The Australian Taxation Office cannot comment on pricing issues. A pricing dispute should be resolved either by negotiation between the two parties or through normal commercial law processes.

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