1051378361933 | Legal database

Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051378361933

Date of advice: 25 May 2018

Ruling

Subject: GST and on-charged costs

Question

Is the cost that you incurred in the course of making a supply to your customer subject to GST when you on-charge it?

Answer

The cost of that you incurred in the course of making a supply to your customer is subject to GST when you on-charge it, provided your supply is a taxable supply.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are carrying on an enterprise of providing your services.

You made an acquisition in the course of providing your services. As you do not have an agency agreement with your customer, you made the acquisition in your own right.

You charge your client for the cost of your acquisition.

The price of things that you acquire, the price did not include 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 9-15

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

Reasons for decision

GST is payable on a taxable supply. The amount of GST on a taxable supply is 10% of the value of the taxable supply or 1/11^th of the price.

Section 9-75 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) provides that ‘price’ is the sum of:

(a) so far as the consideration for the supply is consideration as an amount of money – the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b) so far as the consideration is not consideration expressed as an amount of money – the GST inclusive market value of that consideration.

‘Consideration’ is defined in section 9-15 of the GST Act to include:

● any payment, or any act or forbearance, in connection with a supply of anything; and

● any payment, or any act or forbearance in response to or for the inducement of a supply of anything.

Is the payment made by your customer for the cost of your acquisition consideration for your supply of services?

Where you make an acquisition on behalf of the recipient, the payment made by the recipient to reimburse you for the acquisition is not consideration for your supply to the recipient.

You make an acquisition on behalf of the recipient if it is the recipient that is legally liable to the terms of the acquisition; and you merely facilitate the acquisition or make a payment on behalf of the recipient

In contrast, where you make an acquisition in your own right in the course of making the supply to the recipient, the payment made by the recipient to reimburse you for the acquisition is consideration for your supply to the recipient.

You advised that you do not have an agency relationship with your customer for you to establish a legal contract between your customer and the supplier. Therefore, you made the acquisition in your own right in the course of providing your services to your customer. As such, when you on-charge the cost of your acquisition, the payment made by your customer is consideration for your supply of services.

Is the payment made by your customer for the cost of your acquisition subject to GST?

When you make an acquisition in the course of making a supply and you on-charge the cost of your acquisition, the acquisition loses its character and takes the GST treatment of your supply. This means that it would not matter whether the thing that you acquire is supplied to you without GST. Where your supply is subject to GST, the amount on-charged would also be subject to GST as that amount is consideration for your supply. In the case where your supply is not subject to GST, the amount on-charged would not be subject to GST even if the thing you acquire is supplied to you with GST.

As the payment made by your customer for the cost of your acquisition is consideration for the supply of your services, the payment is subject to GST if your supply is a taxable supply.

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).