Edited version of private advice

Authorisation Number: 1051706779534

Date of advice: 26 June 2020

Ruling

Subject: GST consequences on the payment of an allowance under labour hire service

Question

Is GST payable on the travel allowance component that forms part of the payment for the labour hire services?

Answer

Yes.

Relevant facts and circumstances

·         You are a GST registered and Australian labour hire services provider.

·         You are engaged by Entity to provide labour hire services under the Contract.

·         The temporary workers providing the labour hire services under the Contract are your employees or independent contractors. Entity has no contractual relationship with the temporary workers.

·         Under the Contract, the price of the labour hire services is determined by adding the hourly rate for the relevant role title, superannuation, payroll tax, workers compensation, insurance and contractor mark-up.

·         Under the Contract, an allowance may be payable by Entity to you in certain circumstances if the temporary worker is required to travel.

·         Under the Contract, you are to pay the allowance at your own cost and expense to the temporary worker.

·         Entity calculated the allowance based on GST-inclusive price of accommodation and other costs.

Relevant legislative provisions

Sections 9-5, 9-70 and 9-75 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

The legislative background

·         GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines what is a taxable supply and provides that it is a supply that is

-    made for payment

-    made in the course of an enterprise

-    connected to the indirect tax zone

-    made by a supplier that is registered for GST or required to be registered for GST; and

-    a category of supply that is not (to any extent) GST-free or input taxed (that is, categories of supplies where GST are not payable).

If a supply is wholly taxable and not partly GST-free or input taxed, GST will be calculated on 1/11^th of the price.

·         A supplier may incur expenses or costs as an agent of their client or as a principal when making a taxable supply to a client. When a supplier acts as an agent, the general law of agency applies so that the supplier is 'standing in the shoes' of the client. As an agent, the supplier may incur expenses on a client's behalf or act the capacity as a paying agent when paying for the expense. In such instance, GST is not payable on the payments made by the client to provide the funds or to reimburse the supplier. This is because the good or services to which the funds or reimbursement relate to, are not supplied by the supplier but by the third party to the client. The supplier is merely acting as an agent or paying agent in the transaction. The funds or reimbursement forms no part of the consideration payable by the client for a taxable supply made by the supplier.

·         There a supplier incurs expenses as a principal rather than an agent (that is, act on their own standing), GST is payable on any reimbursement by the client for expenses incurred on those goods or services. That is, the supplier will need to report the GST on the reimbursement in their activity statement. It does not matter whether the reimbursement is separately itemised or included as part of the supplier's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the supplier.

Application to the facts

·         The supply of labour hire services is a taxable supply as the requirements for a taxable supply are met under section 9-5. You are a GST registered entity who supplied the labour hire service as part of your enterprise carried out in Australia. The supply of labour hire service is not GST-free or input taxed. GST will therefore be calculated on the price of the supply, that is, 1/11th of the price.

·         Under the Contract, the consideration or price for the supply of labour hire services is calculated by adding the hourly charge rates including the pay rate of the relevant job role, superannuation, payroll tax, workers compensation, insurance and contractor mark-up.

·         If an allowance was payable, this is an additional cost which is added to the hourly charge rate and accordingly GST must be calculated on the total price of the labour hire service which includes the allowance.

·         The Contract did not show that you acted as an agent to hire the temporary workers on Entity's behalf nor that you act as a paying agent for Entity in relation to the payment of allowance to the temporary worker.

·         Without a contractual relationship with the temporary worker, Entity had no contractual liability to pay the allowance to the temporary worker. Therefore, the payment of the travel allowance was made by you as principal and not as paying agent to the temporary worker. This is supported by the fact that the Contract makes it clear that Entity must pay the allowance to the temporary worker at its own cost and expense.

·         It does not matter that Entity had used the GST-inclusive price of accommodation and other expenses to determine the amount of the allowance. The allowance is a cost that is used by you to calculate the price of their labour hire service. As such, GST is calculated on the price of the labour hire service which includes the allowance.

Please refer to following publication for more information:

Goods and Services Tax Determination GSTD 2000/12 Goods and services tax: is the provision of labour hire services a taxable supply in terms of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?

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