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Edited version of your written advice
Authorisation Number: 1051325357396
Date of advice: 9 January 2018
Ruling
Subject: GST and reimbursement
Question
For goods and services tax (GST) purposes, should the reimbursement of the custom duty and GST paid to the Department of Immigration and Border Protection (DIBP), air and seas freight received from the customers be included when you calculate your annual GST turnover?
Advice
No. For GST purposes, you have not made any supply to the customers when you receive reimbursements of the customs duty and GST paid to DIBP, air and seas freight from the customers. The reimbursements for these payments should not be included when you calculate your annual GST turnover.
Relevant facts
You carry on your business in Australia as a customs and forwarding agent and it is your practice to pay out substantial amount on behalf of clients prior to receive reimbursement. You are registered for GST.
The disbursements you receive from your customers are mainly customs duty and GST paid to DIBP and sea and air freight charges.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-10
A New Tax System (Goods and Services Tax) Act 1999 section 9-15
Reasons for decision
There is a distinction between an entity incurring expenses on a client matter as an agent for a client and as a principal in the ordinary course of providing their services to the client.
The GST consequences of disbursements are discussed at paragraphs 48 and 49 of Goods and Services Tax Ruling GSTR 2000/37.
Paragraphs 48 and 49 of GSTR 2000/37 state:
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.
The GST implication on the disbursement payments you received from your customers depends on whether you are acting as an agent for the customers or it is part of the consideration for the supply of your services to the customers.
You advised that the reimbursements received for the customers consists mainly of customs duty and GST paid to DIBP, and air and sea freight which are a direct cost for the customers.
For these above expenses, we consider that you are acting as a paying agent for the customers when incurring them since they are expenses which the customers are personally liable to pay for when they brought the goods to Australia. You, in your capacity as a paying agent for the customers pay the relevant entity the expenses applicable to the customers for bringing the goods to Australia.
In this instance, the reimbursements you receive from the customers form no part of the consideration payable by the customers for your supply of services to them. You therefore have not made any supply upon receipt of the reimbursements and should not include the reimbursement amount when calculating your GST turnover. Further you should not report these reimbursements in your BAS.
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