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Ruling

Subject: GST and reimbursement of expenses

Question

Is goods and services tax (GST) payable on the reimbursement received by an Australian entity from an Australian company ('entity A') for the expenses incurred by the entity A?

Answer

No, where you are acting a paying agent for another Australian entity, the reimbursements for the expenses does not form part of the consideration for a taxable supply that you make and therefore, GST is not payable on the reimbursements of these expenses.

Relevant facts and circumstances

You are an Australian entity which is registered for goods and services tax (GST).

The entity A is an Australian company which is registered for GST in Australia. The entity A exports products from Australia to overseas.

You are authorised to act as an agent for the entity A to process and pay its invoices.

You receive a commission from the entity A for processing and paying the expenses incurred by the entity A. You charge GST for your supply of the agency services to the entity A.

You do not have any formal written agreement with the entity A in relation to your supply of agency services. However, the entity A has issued a letter of authority to you which state that the entity A appoints you to make payments of monies due to entities which are exporting products on behalf of the entity A.

The expenses are incurred by the entity A as a principal. The expenses are invoiced to the entity A. You pay for the expenses and get reimbursed by the entity A for the expenses paid by you as the agent for the entity A.

You issue tax invoices to the entity A for the commission which you receive from the entity A. The reimbursements are separately itemised.

You do not claim input tax credits (ITC) for the expenses incurred by the entity A. The entity A as a principal claims the input tax credits for the expenses.

You have not entered into to any arrangement with the entity A under which you are required to make supplies on behalf of the entity A to third parties; or make acquisitions from third parties; or make both supplies to third parties and acquisitions from third parties.

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 9-70

A New Tax System (Goods and Services Tax) Act 1999 Section 29-70

Reasons for decision

GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia; and

(d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Based on the facts provided, your supply of agency services satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(e) you make the supply of the agency services to the entity A for consideration (by way of commission); and

(f) the supply is made in the course or furtherance of an enterprise (business) that you carry on; and

(g) the supply is made through a business that you carry on in Australia (and therefore the supply is connected with Australia); and

(h) you are registered for GST.

Your supply of agency services is neither GST-free nor input taxed under any of the provisions under the GST Act. Therefore, your supply of agency services to the entity A is a taxable supply under section 9-5 of the GST Act.

However, we need to determine whether the reimbursement of expenses by the entity to you forms part of consideration for your supply of agency services. .

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.

Goods and Services Tax Ruling GSTR 2000/37 titled 'Goods and services tax: agency relationship and the application of the law' explains the GST implications arising from situations involving agency relationships.

The GST consequences of disbursements made by agents and their subsequent reimbursements by customers are discussed at paragraphs 48 and 49 of GSTR 2000/37.

Paragraphs 48 and 49 of GSTR 2000/37 state:

48. 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.

49. 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. 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 solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

The GST implication on the reimbursements you received from the entity A depends on whether you are acting as an agent for the entity A or it is part of the consideration for the supply of your agency services.

Based on the information provided, the entity A has authorised you to make payments to the third party for the expenses incurred by the entity A in its business. Hence you are considered acting as a paying agent for the entity A. You in your capacity as the paying agent for the entity A, pay the relevant entity for the expenses incurred by the entity A. It is the entity A, who is personally responsible to pay for the expenses. The acquisitions to which the reimbursement relates are supplied to the entity A by the third party, not to you.

Therefore the money paid by the entity A to you is a reimbursement of expenses incurred by the entity A, which forms no part of the consideration payable by the entity A for your supply of agency services. The consideration for your supply of agency services is your commission paid by the entity A. You do not make taxably supply for which you receive the reimbursement payment from the entity A. Consequently, GST is not payable on the reimbursement payment which you receive from the entity A.