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Edited version of your private ruling
Authorisation Number: 1012567753764
Ruling
Subject: GST treatment of travel expenses
Question
Are you liable for GST on travel expenses which you on-charge to a client as part of the fee for the services you provide?
Answer
Yes, you are liable for GST on the travel expenses on-charged to a client as they are part of the consideration for a taxable supply.
Relevant facts and circumstances
· You are registered for GST.
· You provide services to a client under a contract.
· The services are not GST-free.
· Some of the services are provided interstate and in these instances, you seek reimbursement of travel expenses.
· The travel expenses are not paid as an agent of the client.
· On the tax invoice that you supplied to the ATO, the cost for delivering the services and the various travel expenses has been separately itemised.
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 9-15.
Reasons for decision
Summary
You are liable for GST on the travel expenses on-charged to a client as they are part of the consideration for a taxable supply of services. As such, you are liable to remit GST amounting to 1/11th of the total consideration you receive for the services provided to the client.
Detailed reasoning
Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on a taxable supply. Section 9-40 of the GST Act provides that an entity is liable to pay GST on any taxable supply that it makes.
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.
(* denotes a term defined in section 195-1 of the GST Act)
The facts show that your supply of services is made in the course of your enterprise, the supply is connected with Australia as the services are provided in Australia and you are registered for GST. In addition, there are no provisions in the GST Act that would make the supply of your services input taxed and you have advised that the services are not GST-free. Therefore, your supply of services will be a taxable supply if the services are being made for 'consideration' as per the requirement in paragraph 9-5(a) of the GST Act.
Paragraph 9-15(1)(a) of the GST Act provides that 'consideration' includes any payment in connection with a supply of anything.
In this case, you invoice your client for the delivery of the service and the payment you receive will amount to consideration for the purposes of paragraph 9-15(1)(a) of the GST Act. Therefore, you are making a taxable supply which is subject to GST when you provide services to the client.
However, where applicable, you also invoice the client for the reimbursement of the travel expenses incurred and you have advised that these travel expenses are not paid as an agent of the client. Therefore, it is necessary to determine if the reimbursement of these travel expenses forms part of the consideration for your taxable supply of services to the client.
The treatment of disbursements and reimbursements is considered in Goods and Services Tax Ruling GSTR 2000/37. Paragraph 49 of GSTR 2000/37 states:
If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the 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 or services, whether the reimbursement is 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 services supplied by the solicitor.
Further guidance on the manner in which GST is applied to expenses incurred by a solicitor when invoicing a client for legal services is outlined in paragraph 53 of GSTR 2000/37 which states:
The following are examples of costs that a solicitor may incur in carrying on the business of providing a legal service to the client. GST is payable on any subsequent payment by the client to the solicitor for the supply of the legal service for:
· telephone expenses;
· postage expenses;
· photocopying expenses;
· courier expenses;
· word processing expenses; and
· travel expenses of the solicitor and staff.
It is clear therefore that when a professional provides a service for a fee to a client, any travel expenses incurred in providing that service are regarded as 'business costs' and, when on-charged, will form part of the consideration for that service.
In other words, when a supplier on-charges a business cost to its customer, the business cost loses its character as a distinct and separate expense item and instead becomes part of the price for the service provided. This is the case even where the expense being on-charged is an input taxed supply in the hands of the supplier or a GST-free tax, fee or charge within the scope of Division 81 of the GST Act.
The fact that a service is being provided in this case, rather than a legal service, does not alter the fact that the travel expenses are a business cost component of the services being provided to the client. Therefore, when you on-charge the travel expenses to the client, the client is simply paying for an itemised business cost that you incurred in providing the services.
This payment to reimburse you for the travel expenses is an additional payment for the services that you supply to the client and as such, the reimbursement forms part of the total consideration payable by the client for the services supplied by you. Accordingly, GST will be payable by you on this additional amount regardless of whether the reimbursement is separately itemised or included as part of your overall fee for the services.
You will therefore be liable to remit to the ATO, GST of 1/11th of the total consideration received.
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