Edited version of your private ruling

Authorisation Number: 1012600347940

Ruling

Subject: GST and agency relationships

Question

Are you entitled to the input tax credits (ITCs) for acquisitions you make as agent for related entities?

Answer

No, you are not entitled to the ITCs for acquisitions you make as agent for related entities.

Relevant facts and circumstances

You carry on an enterprise.

You are registered for goods and services tax (GST).

You carry on your enterprise in conjunction with other entities that are related to you (related entities).

Some supplies you acquire are for use in carrying on your enterprise and also for use by the related entities in carrying on their enterprises. You acquire these supplies (shared acquisitions) for reasons which include obtaining bulk discounts.

There are two types of shared acquisitions:

• those which can be directly allocated to a related entity. For example, each truck belongs to a specific related entity and, when that truck receives parts, those acquisitions are allocated to the relevant entity. Shared acquisitions that are fungible, for example, fuel held in a common storage facility, are drawn down by the relevant entity to the amount of that entity's share, and

• those which are indirectly allocated to a related entity on an appropriate basis. For example, advertising and a basis of allocation such as turnover or area.

Currently, you re-invoice the related entities for their share of the shared acquisitions however, you have found that this process artificially distorts your revenue and expenses in your profit and loss statement.

You and the related entities propose that you are to be appointed as their agent in relation to the acquisition of the shared acquisitions and for you to receive payment from them for their shares of those acquisitions.

The agency agreement has not yet been drafted but it is proposed that the agreement will:

• be a standard agreement which acknowledges that you may, for commercial reasons, acquire supplies for yourself and the related entities and that the related entities will pay you for their share of the cost of those acquisitions, and

• outline a protocol, consistent with the relevant provisions of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in relation to entitlement to ITCs for shared acquisitions.

You have also advised that:

• the shared acquisitions would, otherwise, be creditable acquisitions if acquired by you for your use only

• it is proposed that each related entity for which you act as agent will hold a copy of the tax invoice issued to you as agent in relation to the shared acquisitions. It is intended that the special rules in Subdivision 153-A of the GST Act will apply, and

• each of the related entities is registered for GST.

You have provided a list of supplies which you acquire as shared acquisitions.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-10

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-10(2)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 Division 153

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-A

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 153-B

Reasons for decision

All legislative references in this ruling are to the GST Act unless otherwise stated.

Under section 11-20, you are entitled to an ITC for any creditable acquisition that you make.

Section 11-5 provides that you make a creditable acquisition if:

a) you acquire anything solely or partly for a creditable purpose

b) the supply to you is a taxable supply

c) you provide, or are liable to provide, consideration for the supply, and

d) you are registered or required to be registered for GST.

Subsection 11-15(1) provides that you acquire a thing for a creditable purpose to the extent that you acquire the thing in carrying on your enterprise. However, subsection 11-15(2) provides that an entity does not acquire a thing for a creditable purpose to the extent the acquisition relates to making supplies that would be input taxed.

In your case, you will be making some of the shared acquisitions as agent for the related entities. Therefore, it is necessary to examine if all of the requirements of section 11-5 will be satisfied to determine if you will be making creditable acquisitions when acting as agent.

The requirement of section 11-5 that you acquire anything solely or partly for a creditable purpose is of particular relevance in your case. Specifically, it is necessary to examine if you acquire anything.

Acquisition

The meaning of 'acquisition' is given in section 11-10. Subsection 11-10(1) states that an acquisition 'is any form of acquisition whatsoever'.

Without limiting subsection 11-10(1), subsection 11-10(2) provides that an acquisition includes:

• an acquisition of goods

• an acquisition of services

• a receipt of advice or information

• an acceptance of a grant, transfer, assignment or surrender of any right, and

• an acquisition of a right to require another person to do anything, to refrain from an act or to tolerate an act or situation, or

• any combination of any 2 or more of the matters referred to in subsection 11-10(2).

Principal / agent relationships

In examining if you will acquire anything for GST purposes when you act in your capacity as an agent, Goods and Services Tax Ruling GSTR 2000/37 provides guidance in relation to principal / agent relationships (agency relationships). GSTR 2000/37 explains the general law and what is meant by agency relationships and states, at paragraphs 10 to 12:

10. An entity may be authorised by another party to do something on that party's behalf. Generally, the authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal...

11. For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

12. The principal is bound by the acts of an agent as a result of the authority given to the agent…

In relation to how the GST law operates, paragraph 45 of GSTR 2000/37 discusses Division 153, which is about transactions made through agents. Paragraph 45 explains that when an agent is authorised to undertake a transaction on behalf of the principal, then the transaction is made by the principal through the agent, and states:

45. Divisions 57 and 153 apply when a principal makes a relevant transaction (i.e., taxable supply, taxable importation, creditable acquisition or creditable importation) through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

In your case, in relation to how Division 153 may apply to your proposed agency arrangements, you have advised that it is intended that the special rules in Subdivision 153-A will apply to you. You will not be entering into an arrangement with the related entities where you will be treated as a separate supplier or acquirer under Subdivision 153-B.

Under Subdivision 153-A, if you are an agent and creditable acquisitions are made through you, the principal is entitled to any ITCs. Paragraph 55 of GSTR 2000/37 discusses entitlement to ITCs and explains that if you are an agent at general law, you are an agent for GST purposes unless Subdivision 153-B applies. Paragraph 55 states:

55. If you are an agent at general law, you are an agent for GST purposes unless Subdivision 153-B applies. Accordingly, if you are an agent (where taxable supplies are made through you), the principal is liable for any GST payable on the supplies. Also, if you are an agent (where creditable acquisitions are made through you), the principal is entitled to any input tax credits.

Therefore, in your case, it is considered that when you are authorised as agent under the proposed agency agreement to undertake transactions on behalf of the related entities, as principals, then the transactions will be made by those entities through you.

Conclusion

Consequently, on the basis of the facts provided, the shared acquisitions which will be made through you as agent for the related entities, as principals, will not be acquisitions you make for the purposes of section 11-10 and you will not be acquiring anything for the purposes of section 11-5.

Accordingly, as all of the requirements of section 11-5 will not be satisfied, you will not be making creditable acquisitions and you are not entitled to ITCs under section 11-20 for acquisitions you make as agent for related entities.

Additional information regarding the GST law and agency relationships

You have advised that the proposed agency arrangements between you and the related entities will operate in a way that is consistent with the relevant provisions of the GST Act. Some additional information regarding the GST law and agency relationships is provided below for your reference.

Attribution

Where a principal makes a taxable supply or a creditable acquisition through an agent, the GST payable by the principal or the ITC to which the principal is entitled would be attributable according to the basic attribution rules set out in sections 29-5 and 29-10 unless a special attribution rule applies. Similarly, the principal would attribute a decreasing adjustment according to the basic attribution rules set out in section 29-20 unless a special attribution rule applies.

However, to properly attribute any ITCs or decreasing adjustments according to those basic rules, a principal may need to know information about when consideration is provided, when an invoice is issued or whether an adjustment is required. If a principal does not obtain this information until after the end of the relevant tax period in which attribution would normally occur, the application of the basic attribution rules may impose an unreasonable burden on the principal. Accordingly, the Commissioner has made a determination under section 29-25 to alter the attribution rules for principals who rely on an agent for information required to account for GST. A copy of that determination is attached to Goods and Services Tax Ruling GSTR 2000/29 as Schedule 4.

Also, sections 153-5 and 153-10 provide that either the principal or the agent may hold the relevant tax invoice or adjustment note when the principal gives the Commissioner a GST return for the relevant tax period.

Documentary requirements

Under the basic rules about tax invoices and adjustment notes, a tax invoice for a taxable supply or an adjustment note must be issued by a principal who makes supplies through an agent. However, Subdivision 153-A provides that the principal's obligations are complied with if the agent issues tax invoices and adjustment notes on behalf of the principal for those supplies made by the principal through the agent.

Reimbursement of agent's expenses

An agent may incur an expense (for example, motor vehicle expenses) in connection with the carrying on of your enterprise. If you reimburse the agent for that expense, you may be entitled to claim an ITC for the reimbursement under Division 111. Section 111-5 allows a principal to claim an ITC on a reimbursement made to the agent for an acquisition (being a taxable supply of the supplier) made by the agent while the agent was acting on the principal's behalf. This entitlement exists even though the requirements of section 11-5 (which is about what is a creditable acquisition) are not met.