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Ruling

Subject: GST and property services

Question

Are you required to charge goods and services tax (GST) when you invoice your client where you obtain services from a tradesperson who is not registered for GST?

Answer

Yes

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a company registered for GST.

You provide a property service to your clients where you enter into a service agreement with your clients. The service you provide to your clients includes:

· arrange a real estate agent to take possession of a property.

· arrange for that agent to have works carried out such as cleaning, painting, gardening and repairs on the property prior to putting it on the market

· manage the agent's performance in selling the property

· ensure the maintenance or repairs are carried out satisfactorily and that the property is well presented

· provide advice on the sale price and advertising campaign to be used

· Accept/ decline offers on the property and sign contracts for sale under authorization from your client.

· As part of your services you are expected to achieve various outcomes and achieve the sale of the property.

· You are paid a fee for your service per property and charge GST on your service fee accordingly.

After receipt of satisfactory client approvals, you appoint a real estate agent to market the property for sale. You do not use yourself or an associated person to market the property without first obtaining the consent of your Client. You appoint a marketing agent as agent for your Client to market the property for sale on the basis of who in its reasonable expert opinion is a most suitable agent to sell the property. You only use a Letter of Appointment of real estate agent in accordance with your standard template or that set down in statute. The marketing costs and agents commission are in accordance with the approvals received from your Client.

When a service (such as cleaning or maintenance) is performed on the property, you and not your client engage a tradesperson to perform the service.

You receive an invoice from a tradesperson who you have appointed and are liable for the payment of the invoice. It is agreed with your client that you will pay the tradesperson directly and then you invoice your client for the cost of this service with no mark up. You also charge an accounting fee for processing the invoice.

This tradesperson charge is billed to your client on a separate invoice from your fee for service. You claim the GST on the tradesperson's invoice and then charge GST to your client which is remitted on your BAS. A copy of the tradesperson's invoice is attached to your invoice and sent to your client to substantiate the amount you are charging to your client.

Example:

We arrange (via our agent) for Cleaner A to clean a house in a particular city. Cleaner A sends an invoice to us for $100 free of GST. We pays Cleaner A $100 and charges client ABC $110 including GST plus an accounting fee of $11 (including GST).

· You advise that normally the tradesperson 'addresses' the invoice to your client and not to you.

· You have provided a copy of your current service agreement between yourself and your major client.

· You have also provided a copy of the standard Description of Services you send to new or potential clients to explain your service.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 11-5

Subdivision 153-B

Reasons for decision

Issue 1

Question 1

Summary

The payments to tradepersons (regardless of whether the tradeperson is registered or not) forms part of your consideration for the provision of your services and therefore includes GST.

Detailed reasoning

Please note that in this ruling all reference material referred to are available on the Australian Taxation Office website .ato.gov.au

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply where all of the following conditions are met:

· you make the supply for consideration

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

· the supply is connected with Australia; and

· you are registered or required to be registered for GST.

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

The term 'supply' is broadly defined in section 9-10(1) of the GST Act to include (amongst other things):

· a supply of goods (paragraph 9-10(2)(a)

· a supply of services (paragraph 9-10(2)(b)

On the facts provided you are engaged to achieve various outcomes and achieve the sale of the property. You provide these services for consideration and the supplies are made in the furtherance of your enterprise and occur within Australia. Therefore all the elements of section 9-5 of the GST Act are met.

There are not any sections in the GST Act that would make the supply of your services GST-free or input taxed.

You have advised that you provide the following services to your clients in accordance with your services agreement and statement of works:

· A Taking Possession of the Property

· B Obtaining Valuations and Marketing Appraisals

· C Appointing & Managing Agent

· D Setting Price/ Contract Acceptance

You are paid a fee for your service per property and charge GST on your service fee accordingly.

In some instances you may be requested to pay all invoices concerning fees, costs and disbursements incurred by it to locksmiths, tradespeople, Panel Agents, conveyancers and the like that you have engaged up to a mutually agreed maximum per individual invoice. In this instance you are required to provide on a weekly basis a consolidated disbursement statement invoice for each loan account with a copy of the paid invoices attached.

You have advised that the work mentioned above can be carried out by both GST registered and unregistered tradespeople. You contract these tradespeople solely and not on behalf of your clients and it is you that is legally responsible for payment of the invoices.

What needs to be considered is if you obtain these services in your own right or on behalf of your clients.

The issue of on-charged expenses that do not include any GST component has been discussed in Goods and Services Tax Determination GSTD 2000/10. This public ruling deals with the on-charging of expenses that are not subject to GST or are GST-free by landlords to tenants. However, the principles outlined are also relevant in this situation.

Paragraph 2 of GSTD 2000/10 provides that the consideration for the supply of premises by a landlord includes amounts which are paid by the tenant under the lease:

· to the landlord for amounts for which the landlord is liable; or

· directly to a third party where the tenant is in satisfaction of the landlords liability.

The GST principals are illustrated in Example 8 in the Determination.

Example 8 - the outgoing is GST-free under Subdivision 38-I of the GST Act

29. On 1 July 2000 Vanessa leases a shop to John. The consideration under the lease agreement consists of $1,000 base rent per month plus Vanessa's expenses relating to the water supplied to the property. Under the agreement Vanessa can recoup from John any GST payable by her in relation to the lease.

30. Vanessa pays the local authority $ 220 for water for July. The supply of water to Vanessa is GST - free under Subdivision 38 - I of the GST Act.  She is not entitled to an input tax credit in relation to the acquisition of water. The supply of water by Vanessa, even if metered to John, is incidental to, and cannot be separated from the supply of the premises. Vanessa invoices John for $1,342. This amount is made up of $1,000 base rent, $220 outgoings and $122 GST.

Applying the principles contained in paragraphs 2 and 3 of the Determination, the consideration for the supply of your services to your client includes amounts for which you are liable and which are paid by you.

Where you incur costs in relation to your supply of services the cost of acquisitions that you make on your own behalf in the course or furtherance of your enterprise forms part of the cost structure of your enterprise and not that of your clients.

In your case you advise that you provide property maintenance services to your clients and those services are subject to GST. In some cases, in carrying on the services provided to your clients you obtain the services of tradespersons who are not registered for GST.

When the costs are business costs that you incur in providing a service to your clients, then the amount payable by your clients to reimburse you for these costs will form part of the consideration for the supply of your services which is subject to GST. In that event, you will be liable for GST when you on-charge these amounts.

You have provided the following example:

Example:

We arrange (via our agent) for Cleaner A to clean a house in a particular city. Cleaner A sends an invoice to us for $100 free of GST. You pays Cleaner A $100 and charges Bank ABC $110 including GST plus an accounting fee of $11 (including GST).

Taking the above analysis into account and applying it to your situation the GST implications are as follows:

In the above example you are liable for the payment of the invoice as it is you (and not your client) for which the supply of the cleaner's services are provided.

You further advise that when a service (such as cleaning or maintenance) is performed on the property, you receive an invoice from a tradesperson who you have appointed via your agent. You also advise that it is agreed with your client that you will pay the tradesperson directly and then you invoice your client for the cost of this service with no mark up. You also charge an accounting fee for processing the invoice. The mere fact that you chose not to increase the fee charged to your clients to include the GST does not make this supply of the service out of scope for GST.

Where you incur such expenses in your own right in the course of providing a service, the subsequent payment by your client forms part of the consideration for a taxable supply you have made. Accordingly, you will have a liability for GST on this payment.

On the facts provided whilst you have an agreement with your client which provides that you may be required to obtain the client's consent to all expenses or you may be authorised to spend up to an agreed amount without obtaining the consent of client it is our opinion that this does not indicate that you are acting as an Agent for your clients but merely indicates that it is an arrangement based on efficiency to allow you to conduct your property maintenance services with limited disruption to your clients.

A clause in your agreement clearly indicates that there is not an agency relationship between the parties and therefore the creditable acquisitions you obtain (such as the employment of tradespersons) are obtained independently from the client and you merely on charge that cost to your client.

Accordingly in the above circumstances the amount that you charge your clients for your services, including amounts paid in relation to tradespersons not registered for GST should include GST on the total amount including your accounting fee.