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Edited version of your private ruling
Authorisation Number: 1012524822839
Ruling
Subject: Calculating real estate management fees with GST
Question
Do you charge your management fee on commercial rent received inclusive of GST or exclusive of GST?
Answer
The method of calculating your management fee is a contractual matter between you and your clients. We are unable to comment on contractual matters.
GST payable on a taxable supply is 10% of the value of that taxable supply.
Relevant facts and circumstances
You are a real estate agent. You collect rent, including GST, on behalf of owners of commercial property.
Your agency agreements state that you charge a management fee of an amount equal to a percentage, inclusive of GST, of all monies received by you on behalf of the Principal during the term of the agency agreement.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 sections 7-1 and 9-5.
Reasons for decision
Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you must pay GST on any taxable supply that you make.
Section 9-5 of the GST Act defines a taxable supply. It 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 is *GST-free or *input taxed.
(Items marked with an asterisk (*) are defined in the Dictionary at section 195-1 of the GST Act).
In your case, you make a supply of property management services for consideration, that is connected with Australia, in the course of an enterprise you carry on and you are registered for GST. So, your supply is taxable to the extent that it is not GST-free or input taxed.
There are no provisions in the GST Act that operate to make your supply GST-free or input taxed.
Thus, you must pay GST on your taxable supply of property management services.
The agency agreement allows for you to charge a management fee of a percentage of all monies received by you on behalf of the Principal. This management fee is inclusive of GST.
According to section 9-70 of the GST Act, the amount of GST on a taxable supply is 10% of the value of that taxable supply.
How you calculate the management fee you charge to the Principal (which is the price of your service that includes GST) as part of the agency agreement is a contractual matter between you and your clients. There is no provision in the GST Act that regulates how an entity should determine the price of its supplies to a recipient. Thus, we are unable to comment on the pricing of your services.