Edited version of your private ruling

Authorisation Number: 1012478567676

Ruling

Subject: GST and reimbursement of expenses

Question

Is GST payable when you seek reimbursement for the cost of training the staff?

Answer

No.

Relevant facts and circumstances

You are a supplier of human resource services to a variety of clients. Your services include industrial relations advice, occupational health and safety (OH&S) advice and maintenance of labour services.

You have been contracted to maintain the personnel requirements of a particular office site on behalf of the owner (Client) and also provide recruitment, reference checking of the Client's candidates, industrial relations and OH&S services to the Client.

You are required to ensure that the staff are appropriately trained, by, arranging the appropriate training to enable them to fulfil the Client's requirements on the project.

You are also required to arrange flights and transportation, medical appointments, accommodation, immigration services and any other activities and duties required by the Client in connection with the office and its personnel.

In relation to the staff, you advised that the Client selects the staff and requires you to arrange for their training. The Client has provided a list of Registered Training Organisations (RTO) that offers the courses that are most suitable for their project. Where location permits, you arrange for the staff to be trained by these RTO and pay the account for the training.

The courses required to be undertaken by the workers for the Client include tertiary courses required for the project.

The supply of the course by the RTO is GST-free. However, GST is payable on the course materials.

You are paid a service fee plus a reimbursement of any direct expenses such as the training costs, airfare, transport etc.

The Client is a resident of Australia.

You are registered for GST and have included GST when you seek reimbursement of the training costs.

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.

Reasons for decision

Summary

GST is not payable when you seek reimbursement for the cost of training the staff.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:

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.

(*Denotes a term defined in section 195-1 of the GST Act)

You satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. This is because:

· you supply your services of maintaining the accommodation vessel including providing competent personnel for consideration

· you supply these services in the course or furtherance of an enterprise that you carry on

· the supply of the these services is connected with Australia as the services are done in Australia and made through an enterprise that you carry on in Australia, and

· you are registered for GST.

There are no provisions in the GST Act or any other act under which the supply of your services is input taxed or GST-free.

Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the supply of your services to the Client is a taxable supply. Hence, GST is payable on the supply.

Reimbursement of training costs

You have advised that you are paid a service fee plus a reimbursement of any direct expenses including the training costs.

GST is payable on the reimbursement of the training costs if the subsequent payment by the Client for these costs forms part of the consideration for the taxable supply of your 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, which is available from the ATO website www.ato.gov.au, outlines the application of the GST law in relation to agency relationships.

Paragraph 15 of GSTR 2000/37 provides that when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal.

It follows therefore that when you acquire training in the capacity of agent then the supply of the training is treated as being directly from the RTO to the Client.

The supply that you make is arranging and organising the training of the staff, by the RTO, on behalf of the Client.

Paragraphs 48 to 54 of GSTR 2000/37 describe the effects of an agency relationship on disbursements by lawyers. Although GSTR 2000/37 uses the example of lawyers the GST treatment stated in GSTR 2000/37 is applicable to any situation involving service providers and their clients.

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.

Paragraphs 50 and 51 of GSTR 2000/37 provide examples of the types of costs for which a customer could be liable and which may be paid for by the supplier as a paying agent of their customer. On the other hand, paragraph 53 lists costs that would and should be absorbed in any enterprise's overall service fee.

In this case, the Client selects the staff member and requires you to organise for the staff to attend the training necessary to do the job. In most instances, the training is conducted by an RTO nominated by the Client. In this instance, the training cost is one that could be expected to be met by the Client and not by you. Your involvement is merely to provide an easy and quick method of arranging the training.

Based on the information provided, we consider that you are a paying agent for the Client in respect of the training costs.

Consequently, the subsequent payment by the Client for the training costs does not form part of the consideration payable by the Client for your services under section 9-15 of the GST Act. Hence, GST is not payable on the reimbursement.

It is important that any tax invoice you issue to the Client shows clearly that the payment of the training costs by them is a reimbursement and not part of the consideration for your services.

You should note that terms by which you and your Client agree to you being a paying agent is a contractual matter between yourself and your Client. However, paragraph 28 of GSTR 2000/37 provides some guidance as to the factors indicating such an arrangement.