ATO Interpretative Decision
ATO ID 2003/952
Goods and Services Tax
GST and amount for a permit included in price charged to customer for the supply of servicesFOI status: may be released
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With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entire fee collected by the entity, a supplier of services, consideration for a taxable supply it makes under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the fee:
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- includes an amount for a permit that the customer is legally required to obtain; and
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- is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act?
Decision
No, the entire fee collected by the entity is not consideration for a taxable supply it makes under section 9-5 of the GST Act, where the fee includes an amount for a permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act.
The amount for the permit is not consideration for the entity's taxable supply of services to the customer.
Facts
The entity is a supplier of services. The entity makes a taxable supply of its services to a customer under section 9-5 of the GST Act. As part of this supply the entity, on behalf of the customer, obtains a permit that the customer is legally required to obtain from the relevant authorities.
The permit is issued in the name of the entity's customer.
The permit is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act (Treasurer's Determination). The relevant authority does not apply goods and services tax (GST) to the amount charged for the permit.
In its total fee to the customer the entity includes the fee for the permit and the costs incurred in the provision of its services. These items are separately identified on the invoice given to the customer.
The entity is registered for GST.
Reasons for Decision
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
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- it makes a supply for consideration; and
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- the supply is made in the course or furtherance of an enterprise that it carries on; and
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- the supply is connected with Australia; and
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- the entity is registered or required to be registered for GST.
The entity is making a taxable supply of services to its customer for consideration under section 9-5 of the GST Act. However, it needs to be established whether the entire fee charged by the entity is consideration for its supply.
Under section 9-15 of the GST Act, consideration includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything.
The total fee paid by the customer includes amounts for the permit and costs incurred in providing the services. These items are separately identified on the invoice given to the customer. The payment for the cost incurred to perform the services is connected with the entity's supply of services and is therefore consideration. However, it needs to be determined whether the part of the fee that is for the permit is also consideration for the entity's supply. That is, is the customer paying the entity for its services or is it paying the relevant authority for the permit.
The customer is legally required to obtain the permit, which is issued by the relevant authority in the customer's name. Therefore, the supply of the permit is made by the relevant authority to the entity's customer and not to the entity. When the entity pays for the permit it is acting as a paying agent for its customer.
Paragraph 49 of Goods and Services Tax Ruling GSTR 2000/37 outlines the GST consequences where one entity, a solicitor, acts as a paying agent for a client and on charges the amount paid:
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.
This example is similar to the entity's arrangement. The entity, in its capacity as paying agent for its customer, pays the relevant authority for the permit. The permit to which the payment relates is supplied by the relevant authority to the customer, not to the entity.
Therefore, the amount paid by the customer to the entity for the permit is a reimbursement, which forms no part of the consideration payable to the entity for the supply of services.
As such, the entire fee collected by the entity is not consideration for its taxable supply under section 9-5 of the GST Act, where the fee includes an amount for a permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination. The amount for the permit is not consideration for the entity's supply of services to the customer.
Note 1: As the portion of the fee that is for the permit is not consideration for the entity's supply to the customer, the entity does not include this amount when calculating the GST payable on the supply under section 9-70 of the GST Act.
Note 2: Where an entity personally incurs the Australian tax, fee or charge that is listed in the Treasurer's Determination and then on-charges it to its customer, the amount on-charged for the tax, fee or charge is part of the consideration for the entity's supply. In this situation the tax, fee or charge loses its character as a tax, fee or charge for the purposes of the Treasurer's Determination and becomes a business cost of the entity's enterprise. Refer to ATO ID 2001/133.
Date of decision: 3 December 2001
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-15
section 9-70
Division 81
Related Public Rulings (including Determinations)
GSTR 2000/37
ATO ID 2001/133
ATO ID 2002/877
Keywords
Goods and services tax
GST payment of taxes
State & local government taxes
GST supplies and acquisitions
GST consideration
Taxable supply
ISSN: 1445-2782