Edited version of private ruling

Authorisation Number: 1011677211390

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Ruling

Subject: GST and reimbursement

Question

Are you making a taxable supply when you charge an Australian entity (entity A) for the reimbursement of expenses incurred in the course of providing consulting services?

Answer

Where your supply to an entity A is a taxable supply, the oncharging of reimbursements is also taxable.

Relevant facts and circumstances

Your ruling is based on the following facts.

· You provide consultancy services to clients in Australia. You are registered for the goods and services tax (GST).

· You have stated that the consultancy services you provide are a taxable supply and have provided a copy of the tax invoice for your supply of consultancy services to a recruitment agency.

· The recruitment agency is an Australian entity. You supplied the services of a consultant to the recruitment agency (entity A) which they on-hired to another entity (entity B). You have provided a copy of the contract covering this arrangement. There is no separate arrangement between you and entity B for this supply.

· As part of your supply of consultancy services the consultant was required by entity B to travel overseas for work purposes for a short period of time during the contract period. Expenses relating to this overseas trip, such as meals, were incurred by your consultant during this period. You claimed a separate reimbursement, including GST, for these expenses from
entity A. You have provided a copy of this tax invoice.

Reasons for decision

Detailed reasoning

Reimbursement of expenses

The oncharging of expenses is not a supply for GST purposes in its own right.

In order to determine if the reimbursement of these expenses is GST-free or taxable it is necessary to consider whether reimbursement of these expenses by entity A will form part of the consideration for your services.

Paragraph 9-15(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) specifies that the consideration for a supply includes any payment in connection with a supply of anything.

The treatment of disbursements and reimbursements is considered in Goods and Services Tax Ruling GSTR 2000/37. Paragraph 49 of GSTR 2000/37 states, in part:

49 …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.

In your case, when providing your consulting services to entity A, you incurred expenses for which you can claim reimbursement. When these expenses are oncharged by you, either as part of your overall request for payment or as a separate request for payment, the reimbursement by entity A will form part of the consideration payable by them for the supply of services provided by you.

Therefore, even if the overseas travel expenses are GST-free when supplied to you, the reimbursement of these expenses still forms part of the consideration for your supply of the consulting service.

Accordingly, applying the principle in GSTR 2000/37, the payment you will receive from entity A for expenses incurred will form part of the consideration provided for your supply of consulting services. The reimbursement will be GST-free or taxable only if your supply of consulting services is GST-free or taxable.

Where your supply to entity A is a taxable supply, the oncharging of reimbursements is also taxable. Accordingly, in this situation the amount of GST payable on your services is calculated on the amount received for the work performed as well as the reimbursement of the expenses incurred in carrying out this service.