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Ruling

Subject: GST and reimbursement of expenses

Question

Is a goods and services tax (GST) payable on the reimbursement received by you from your client, for the expense of the permit levy incurred by you, acting as an agent on behalf of your client?

Answer

No, where you are acting as an agent for a client, the reimbursement for the expense of the permit levy does not form part of the consideration for a taxable supply that you make and therefore, GST is not payable on the reimbursement of this expense.

Relevant facts and circumstances

You are an Australian entity which is registered for GST.

Your annual GST turnover is more than $2 million. You account for GST on an accruals basis.

You supply surveying services to domestic and commercial clients in Australia and receive consideration for this supply.

The building surveying services are provided throughout the design and construction stages of the proposed development.

When the client engages you to supply the building surveying services, you are required to apply for the permits on behalf of the client from the relevant councils.

The levy is payable by the applicant (client) for a building permit and must be paid before the permit can be issued. The permits are then issued in the name of the client. You need to obtain the permit before any building surveying services are rendered and have a statutory obligation to pay for the levy before any surveying services commence.

You act as a paying agent when you pay the levy for building permits on behalf of the client. You are then reimbursed by the client for the levy paid by you.

You issue an invoice to the client for the supply of surveying services and reimbursement for the permit levy prior to the supply of any building surveying services. You issue the invoice for your services and disbursement together, before the services commence in order to receive reimbursement from the client for the permit levy.

As you account on an accrual basis and the invoice is issued for the supply prior to actually making the supply, you are required to attribute GST payable in the tax period which the invoice is issued even though the supply is not made. This places a significant cash flow burden on your business.

You have requested that the Commissioner consider due to timing of the invoice, whether the GST is attributable in the tax period in which the payment for the supply is received.

You incur the expenses for permit levies as the agent for the clients not as a principle.

The reimbursement of the permit levy is not a part of the consideration payable for your supply of surveying services.

You issue the tax invoice to the client for your supply of services and the reimbursements are separately itemised.

You do not claim input tax credits (ITC) for the expenses incurred by the client.

The average timeframe from the time an invoice is issued and the payment received is 60-90 days.

The timing for the domestic jobs between the date an invoice is issued and when building surveying services commence, is approximately 1 month as you are required to wait for a building permit to be issued before the surveying services commence.

The timing for the commercial jobs between the date an invoice is issued and when building surveying services commence, is open ended. It can be up to two years if there are variations on the project.

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

Reason for decisions

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:

· you make the supply for consideration; and

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

· the supply is connected with Australia; and

· 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 surveying services satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act as:

· you make the supply of the surveying services to clients for consideration; and

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

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

· you are registered for GST.

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

However, we need to determine whether the reimbursement of expenses for the permit levy by the client to you forms part of consideration for your supply of surveying 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 client depends on whether you are acting as an agent for the client or it is part of the consideration for the supply of your surveying services.

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

Therefore the money paid by the client to you is a reimbursement of expenses incurred by the client, which forms no part of the consideration payable by the client for your supply of surveying services. You do not make a taxable supply for which you received the reimbursement payment from the client. Consequently, GST is not payable on the reimbursement payment which you receive from the client for the permit levy