Edited version of private advice

Authorisation Number: 1012626375771

Ruling

Subject: Goods and services tax (GST) and legal services

Question 1

Are you entitled to an input tax credit on the acquisition of the services from the overseas non-resident legal representative?

Answer

No.

Question 2

Is GST payable by you on the reimbursement you received from your clients?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You operate a legal firm from an office in Australia only.

You act for a number of Australian resident companies, which are registered for GST.

You performed legal services for your clients in Australia.

The communications you have had with your clients did not refer to you as being their agent.

Your clients commenced proceedings in an Australian court against an overseas non-resident supplier/defendant.

The overseas non-resident defendant has a witness whose evidence was taken in an overseas country via a video conference link with the Australian court. You, on behalf of your clients, engaged an overseas non-resident legal representative to attend the video link on behalf of its client to ensure the proper conduct of the evidence taking. The overseas non-resident legal representative provided advice and assistance on instructions from you to your clients. Your clients gave you specific approval to engage the overseas non-resident legal representative for this purpose. Your email to the overseas non-resident legal representative requesting their services stated that 'we' (you) act on behalf of (names of your clients).

The overseas non-resident legal representative billed you for their services. Your clients reimbursed you for the amount of this bill.

The overseas non-resident legal representative is not registered or required to be registered for GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-70

A New Tax System (Goods and Services Tax) Act 1999 section 9-75

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

Reasons for decisions

Question 1

Summary

You are not entitled to an input tax credit on your acquisition of the overseas non-resident legal representatives services because the overseas non-resident legal representativer is not registered or required to be registered for GST.

Detailed reasoning

You are entitled to input tax credits for your creditable acquisitions.

You make a creditable acquisition where you meet the requirements of section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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)

Section 11-15 of the GST Act explains when an acquisition is made for a creditable purpose.

Subsection 11-15(1) of the GST Act states:

You acquire a thing for a creditable purpose to the extent that you

acquire it in *carrying on your *enterprise.

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the

extent that:

(a) the acquisition relates to making supplies that would be *input

taxed; or:

(b) the acquisition is of a private or domestic nature.

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which 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.

Paragraph 45 of GSTR 2000/37 discusses the situation where an agent undertakes a transaction in the capacity of agent for a principal. It states:

45. Divisions 57 and 153 apply when a principal makes a relevant transaction (i.e., taxable supply, taxable importation, creditable acquisition or creditable importation) through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

Paragraphs 48 to 51 of GSTR 2000/37 discuss the situation where a solicitor incurs a disbursement that relates to a client's case/matter. They state:

Agency relationship and disbursements

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. 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.

50. The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for:

• application fees;

• registration fees;

• court fees;

• barrister's fees when the barrister is engaged by the client;

• incorporation fees;

• most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations;

• fines, penalties, stamp duty and taxes; and

• probate fees.

51. The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor:

• search fees;

• municipal search fee (eg rates; zoning; permits);

• birth/death/marriage certificate fees;

• barrister's fees when the barrister is engaged by the solicitor;

• witness fees;

•  fees for recording court proceedings;

• service of document fees;

• fees for expert report or attendance in court; and

• fees to obtain court transcript.

The situation in question is similar to the scenario at the fourth dot point in paragraph 51 of GSTR 2000/37. You have incurred an expense, being a legal professional's fee and this expense relates to a court case that your clients are parties to. You engaged the overseas non-resident legal representative to provide their services. Therefore, you did not act in the capacity of a paying agent for your clients when you paid the overseas non-resident legal representative. Hence, in accordance with paragraph 49 of GSTR 2000/37, the overseas non-resident legal representative supplied their services to you, for GST purposes.

You acquired the overseas non-resident legal representatives services in carrying on your enterprise. This acquisition does not relate to making input taxed supplies and was not of a private or domestic nature. Therefore, you acquired these services for a creditable purpose. Hence, you meet the requirement of paragraph 11-5(a) of the GST Act.

The overseas non-resident legal representative is not registered or required to be registered for GST. Therefore, the requirement of paragraph 9-5(d) of the GST Act is not met. Hence, the overseas non-resident legal representative did not make a taxable supply because not all of the requirements of section 9-5 of the GST Act were met. Therefore, you have not met the requirement of paragraph 11-5(b) of the GST Act.

As you have not met all of the requirements of section 11-5 of the GST Act, you have not made a creditable acquisition of the overseas non-resident legal representatives services. Therefore, you are not entitled to an input tax credit on your acquisition of these services.

Question 2

Summary

The reimbursement forms part of the consideration for your taxable supplies of legal services to your clients. Therefore, GST is payable by you on the reimbursement.

Detailed reasoning

You meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act because:

• you have supplied legal services to your clients for consideration; and

• you supplied your legal services in the course or furtherance of an enterprise that you carry on; and

• your supply of the legal services is connected with Australia; and

• you are registered for GST

There are no provisions in the GST Act under which your supplies of legal services to your clients are GST-free or input taxed.

Therefore, you made a taxable supply of legal services to your clients. In accordance with paragraph 51 of GSTR 2000/37, the reimbursement in question forms part of the consideration for your supply of legal services to your clients. Hence, GST is payable by you on the reimbursement.

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