Edited version of private ruling

Authorisation Number: 1011656582523

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Ruling

Subject: GST and fees

Questions

1. Is the fee (Fee) you currently include in the asking price for your services subject to goods and services tax (GST)?

2. Can the Fee be treated by you as a reimbursement from your customer that does not form part of the consideration payable for your services?

3. If yes to question 2, what are the GST consequences for you in treating the Fee as such?

Answers

1. Yes.

2. Yes, provided you act as a paying agent for your customer.

3. As the Fee would not be part of the consideration you receive for your services, no GST would be payable by you on the reimbursement of the Fee.

Relevant facts and circumstances

You are registered for GST.

You supply taxable services in relation to a particular industry (Industry), including one service where a customer can request a certain type of certificate (Certificate).

The Certificates are necessary for your customers and are used only by them to complete their business.

You pay various Government Authorities the Fee for the Certificates and currently treat this payment as part of the asking price for your taxable supplies.

You levy and remit GST on the Fee but are finding yourself at a competitive disadvantage against similar industries who are not levying GST on this Fee.

The majority of the Government Authorities in the state where the Certificates are issued do not levy GST on their certificates.

Reasons for decision

Summary

The Fee is subject to GST as it currently forms part of the consideration for your services. If you become your customer's paying agent then this Fee will not form part of the consideration for your services and hence, will not be subject to GST.

Detailed reasoning

Is the Fee you currently include in the asking price for your services subject to GST?

Paragraph 9-15(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that consideration includes any payment in connection with a supply of anything. In the case of a Government tax, fee or charge, it is the view of the Australian Tax Office (ATO) that when a supplier on-charges such a payment, it loses its character as a tax, fee or charge and becomes part of the consideration to meet the business cost incurred in carrying on the supplier's enterprise.

In your case, you make taxable supplies of services in relation to an Industry, including one service where a customer can request a Certificate. To obtain the certificates, you pay various Government Authorities the Fee. This Fee is then treated by you as part of the asking price (consideration) for your taxable supplies.

Therefore, when you on-charge this Fee by making it part of your asking price for your services, your customer is no longer paying the Fee to a Government Authority but rather they are paying for one of your costs in carrying on your enterprise. As such, the payment by your customer amounts to consideration under paragraph 9-15(1)(a) of the GST Act and is therefore taxable (albeit that the tax, fee or charge may be GST-free if paid direct to the Government Authority).

Can the Fee be treated by you as a reimbursement from your customer that does not form part of the consideration payable for your services?

The ATO view on agency relationships and disbursements (illustrated through the relationship between a solicitor and their client) is contained in paragraphs 48 to 54 of Goods and Services Tax Ruling GSTR 2000/37 (copy was provided to rulee). These paragraphs state:

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.

If a disbursement is made by a solicitor and incurred in the solicitors 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 solicitors overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for:

· application fees;

· registration fees;

· court fees;

· barristers fees when the barrister is engaged by the client;

· incorporation fees;

· most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations;

· fines, penalties, stamp duty and taxes; and

· probate fees.

The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor:

· search fees;

· municipal search fee (eg rates; zoning; permits);

· birth/death/marriage certificate fees;

· barristers fees when the barrister is engaged by the solicitor;

· witness fees;

· fees for recording court proceedings;

· service of document fees;

· fees for expert report or attendance in court; and

· fees to obtain court transcript.

The above GST treatment of disbursements is consistent with the income tax treatment of disbursements as explained in Taxation Ruling TR 97/6.

The following are examples of costs that a solicitor may incur in carrying on the business of providing a legal service to the client. GST is payable on any subsequent payment by the client to the solicitor for the supply of the legal service for:

· telephone expenses;

· postage expenses;

· photocopying expenses;

· courier expenses;

· word processing expenses; and

· travel expenses of the solicitor and staff.

Paragraphs 50 and 51 of GSTR 2000/37 provide examples of the types of costs for which a customer could be liable and which may be paid for by the supplier as a paying agent of their customer. We consider that in this case, the Fee is a type of cost having the characteristics of those provided by paragraphs 50 and 51 and is one that could be expected to be met by your customer and not by you. This view is supported by the fact that the Certificate is necessary for your customer and is used by them solely for their business needs with your involvement being merely to provide an easy and quick method of ordering the Certificate. It is certainly not a cost of a type provided by paragraph 53 of GSTR 2000/37, these being simple costs that would and should be absorbed in any enterprise's overall service fee.

Whether you are acting as a paying agent in incurring the Fee will of course depend on the arrangement between you and your customer. Consequently, provided your arrangement is one where you act as a paying agent in respect of the Fee, you can treat the payment of the Fee by your customer as a reimbursement to you that does not form part of the consideration payable for your services.

How you and your customer come to agree to you being a paying agent on their behalf is a contractual matter between yourself and your customer. However, paragraph 28 of GSTR 2000/37 does provide some guidance as to the factors indicating such an arrangement. It states:

In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

Given these indicators, the arrangement may be determined, for example, through information provided by your website, your fee structure or any other relevant documentation that provides information to your customer that they are entering such an arrangement.

If yes to question 2, what are the GST consequences for you in treating the Fee as such?

If an agent incurs expenses in its capacity as a paying agent on behalf of a customer, there are no GST implications for the agent arising on the repayment received from the customer. The disbursements made by the agent will not form part of the consideration payable by the customer for the supply of services by the agent. This is because the goods or services to which the disbursements relate are supplied to the customer, not to the agent.

In your case, if the Fee is treated as a reimbursement it would not form part of the consideration for your services under paragraph 9-15(1)(a) of the GST Act and hence no GST would be payable by you on the reimbursement.

It is also important that any tax invoice you issue to your customer shows clearly that the payment of the Fee by them is a reimbursement and not part of the consideration for your services.