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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

    Edited version of private advice

    Authorisation Number: 1012638502019

Ruling

Subject: Payment of GST on a builder's services

Question

Are you obligated to pay goods and services tax (GST) on the builder's services, if the builder did not provide you a valid tax invoice and there is a dispute on the amount of GST payable?

Decision

The responsibility for paying GST to the ATO falls on the supplier of goods and services, who needs to establish in each case whether GST applies and if so, the amount of GST payable.

Therefore, it is the builder who is obligated to pay the GST payable on any taxable supplies of building services that it makes.

Relevant facts and circumstances

You have an investment property. You engaged a builder to do renovation work on the property within the 2014 financial year.

The builder charged GST on his material and labour costs.

You found that the builder was not registered for GST. You received verbal advice from the ATO stating that you have to pay GST only on the material costs. Therefore, you paid GST on the material costs of the builder and did not pay GST on his labour costs.

You received an email from the builder acknowledging that he was not registered for GST. However, for the 2013 financial year, his turnover has been above the GST registration turnover threshold. His accountant has advised him to charge GST on his labour costs and register for GST before June 2014. Therefore, he wants you to pay GST on his labour costs.

As per our system records, you are registered for GST.

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 9-40

    Reasons for the decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that 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.

Section 7-1 of the GST Act provides that GST is payable on taxable supplies.

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make.

Therefore, it is the builder who is obligated to pay the GST payable on any taxable supplies of building services supplied to you.

The builder's GST liability is 1/11th of the price of the goods and services supplied to you.

It is possible that the builder included GST in the contract price. If the builder satisfied section 9-5 of the GST Act and if GST was not included in the price, then the builder might have to absorb the cost of GST. The responsibility for paying the GST to the ATO lies with the supplier of goods and services and not with the purchaser. Therefore, in your case, it is the builder who must pay the GST.

Suppliers of goods and services will normally collect GST from their customers by including GST in the price of goods and services supplied. In your case, if GST was not already included in the contract price, and the contract does not allow the builder to increase the price to allow for GST, and you do not agree to a price increase, then the builder will have to absorb the cost of GST.

The responsibility for paying GST to the ATO falls on the supplier of goods and services, who needs to establish in each case whether GST applies and if so, the amount of GST payable.


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