Edited version of your written advice

Authorisation Number: 1012856352891

Date of advice: 10 August 2015

Ruling

Subject: GST and accounting for GST in a principal/agency relationship

Question 1

Are you liable for GST on the total sales made through an agent where the agent receives total consideration for the sale, retains a commission and forwards the balance to you?

Answer

Yes.

Question 2

Are you entitled to an input tax credit (ITC) in regard to the amount retained by the agent as commission?

Answer

Yes

Relevant facts and circumstances

You are registered for GST effective from 1 July 2000.

You carry on an enterprise of operating a buffet style/all you can eat restaurant business.

You (as Principal) engage an agent (Intermediary) to sell goods (restaurant vouchers) on your behalf to customers.

The vouchers entitle the holder to entry into your restaurant.

The Intermediary sells two classes of vouchers:

• A $xx voucher entitling the holder to entry for Saturday night dinner; and

• A $xx voucher entitling the holder to entry for Sunday lunch.

The cost of entry for persons without a voucher is $xx (Saturday night) and $xx (Sunday lunch) respectively.

The Intermediary is registered for GST.

The Intermediary receives the total payment from the customer for the goods.

The Intermediary retains a set percentage amount of $20% as commission and forwards the balance of the amount received (80%) to you.

You have not entered into a Subdivision 153-B of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) agreement with the Intermediary.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-40

Subdivision 153-A

Subdivision 153-B

Reasons for decision

Note: In this reasoning, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

You have provided a number of examples in regard to contractual arrangements between a principal and an intermediary to determine the amount retained by an intermediary as commission.

Please note that regardless of the actual amount retained by an intermediary under an agreement with a principal, the principles contained in the reasoning below will apply consistently to any such agreements.

For the purposes of this explanation, the following example is used to illustrate the principles involved:

Price of voucher to consumer $110

Amount retained by intermediary $22

Amount paid to principal $88

Both the principal and intermediary are registered for GST.

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 provides 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 the indirect tax zone, and

• you are registered, or required to be registered for GST.

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

In this case you are making a supply of a restaurant voucher through an agent /intermediary. Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) describes what is meant by principal/agent relationships ('agency relationships') and explains the operation of Subdivisions 153-A (General) and 153-B (Principals and intermediaries as separate suppliers or acquirers).

An entity may be authorised by another party to do something on that party's behalf. Generally, the authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal.

For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal.

In this case, you have authorised another entity (agent or intermediary) to sell restaurant vouchers on your behalf. Therefore, under the principles described above, you are considered to be making a taxable supply of the voucher where the requirements of section 9-5 are satisfied.

In regard to the reference of 'consideration' in paragraph 9-5(a), consideration includes any payment in connection with a supply of anything.

As GST is a transaction based tax, each transaction is considered in isolation when determining whether a taxable supply has been made. In the example above, there are two supplies being made:

1. A supply by the principal (you) of a voucher to the end consumer; and

2. A supply by the agent/intermediary of a service to you.

In this case, the consideration received for your supply of the voucher to the end consumer is $110. As the supply of the voucher is a taxable supply, you will have a GST liability of $10 being 1/11^th of $110.

This will be the case regardless of the fact that you do not receive the full amount of $110 from the agent (due to the agent retaining an amount of commission for providing their services to you). On this point, if you have made a creditable acquisition of the agent's services, you will be entitled to an input tax credit (ITC) of $2 (i.e. 1/11^th of $22). After taking your acquisition into account, you will have a net GST payable of $8.

Subdivision 153-B

The provisions contained in Subdivision 153-B (153-B) alter the general rules for accounting for GST in agency relationships simplifying the way both parties account for transactions.

Under 153-B, a principal and an intermediary may enter into an arrangement under which the intermediary will be treated as a separate supplier or acquirer (i.e. the intermediary is treated as though they were a principal in their own right). To enter this arrangement there must be a written agreement detailing certain specifics of the arrangement.¹

In this case you have not entered into a written agreement with the intermediary in respect of an arrangement covered under 153-B. However, the following explanation is provided for your information.

Please note that the extract you quoted in your submission (the Bill and Jenny example) illustrates an arrangement covered by 153-B and will not be applicable in your case.

Under a 153-B arrangement (and using the same example as previous), there will be two supplies made:

1. The principal is deemed to make a supply to the intermediary.

The consideration for this supply is taken to be the amount payable by the intermediary to you (the principal). In the example in this case, the amount payable to you by the intermediary is $88. Therefore, you would have a GST liability of $8 in regard to your supply to the intermediary.

2. The intermediary is deemed to make a supply to the end consumer.

The consideration for the deemed supply made by the intermediary to the end consumer is $110. As such, the intermediary would have a GST liability of $10 (i.e. 1/11^th of $110).

The intermediary would also be entitled to an ITC of $8 in respect of the acquisition from you. As such, the net GST amount payable by the intermediary is $2 ($10 GST payable less the ITC of $8).

Please note that in your case, and in the case of the intermediary, the net amount of GST payable is the same under both scenarios of whether or not a 153-B arrangement is in effect.

¹ GSTR 2000/37 paragraph 76

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