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Ruling

Subject: GST and Reimbursement

Question 1

Is the taxpayer required to impose GST on the GST inclusive costs or the GST exclusive costs it incurs and passes on to its client?

Answer

The taxpayer is required to impose GST on the taxable supply.

Relevant facts and circumstances

You operate a business of supplying labour services on a contractual basis to your various clients.

In many instances, the contractor will travel to the work site by aeroplane.

For some clients, you arrange the flights for your contractors and directly pay the airline for the flights.

In return for supplying labour, you invoice your clients an amount based on the number of hours worked by your contractors at a set hourly rate and the recovery costs incurred, such as the flights that have been paid for, plus a booking fee when paid by credit card, plus an administration charge.

You asked whether you are required to impose GST on the GST inclusive costs or the GST exclusive costs.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5.

Section 9-15.

Section 9-75.

Section 11-5.

Section 11-20.

Reasons for decision

Creditable acquisitions

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are entitled to an input tax credit for any creditable acquisition that you make. In your case, it is clear that you make a creditable acquisition for a creditable purpose when you acquire transport for contractors as part of the agreement with your clients.

Where all the requirements of section 11-5 of the GST Act are satisfied, you are able to claim input tax credits for the GST incurred on the air fares.

Taxable supplies

You have entered into contracts to provide labour services to your clients. GST is payable on the supply of your services if it is a taxable supply under section 9-5 of the GST Act.

In this case, your supply of services to your clients satisfies all the requirements of section 9-5 of the GST Act as:

· you make the supply for consideration;

· the supply is made in the course of your business;

· the supply is connected with Australia as your services are performed in Australia and they are made through an enterprise you carry on in Australia; and

· you are registered for GST.

Further, your supply of services to your clients is neither GST-free under Division 38 nor input taxed under Division 40.

Subsection 9-15(1) of the GST Act states that 'consideration' includes:

· any payment, or any act of forbearance, in connection with a supply of anything; and

· any payment, or any act of forbearance, in response to or for the inducement of a supply of anything.

In this case, the supply you provide is arranging the flight for your client, while the consideration you receive is a monetary payment for your services. The consideration you receive from your client for arranging the flight may equate to the value of the cost of the flight, the booking fee and the administration fee. However, you are able to charge what you believe is appropriate; the service you provide is itself taxable.

As expressed in Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (GSTR 2001/6), in determining whether a payment is consideration for a supply, the test is whether there is a sufficient nexus between the supply and the payment made.

In this case the payment of a reimbursement of your expenses on transport will be made in response to you providing the service of arranging the flight. These reimbursements represent additional costs for the supply of your labour services. Accordingly, the payment you receive as reimbursement for these expenses is part of the consideration for the taxable supply of your services. GST is therefore payable on this reimbursement amount.

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make. The amount of GST is calculated in accordance with section 9-75 of the GST Act, which states:

The value of a *taxable supply is as follows:

Price x 10

11

where:

price is the sum of:

(a) so far as the *consideration for the supply is consideration expressed as an amount of *money - the amount (without any discount for the amount of GST (if any) payable on the supply); and

(b) so far as the consideration is not consideration expressed as an amount of money - the *GST inclusive market value of that consideration.

However, you are able to charge any amount you deem appropriate for the provision of your services to your client. GST equates to 10% of this figure.