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Edited version of private advice
Authorisation Number: 1012654907123
Ruling
Subject: GST and supply of services
Questions
1. Are the funds deposited by your clients into your trust account and are subsequently transferred to your trading account reported in your activity statement for the tax period in which the deposit was made?
2. Are the funds deposited by your clients into your trust account and are subsequently paid to another entity (a third party) reported in your activity statements?
3. Are you liable to pay goods and services tax (GST) on the funds that are subsequently paid to a third party?
Answers
1. No, the funds deposited by your client into your trust account and are subsequently transferred to your trading account are not reported in your activity statement for the tax period in which the deposit was made.
2. No, the funds deposited into your trust account that are subsequently paid to a third party are not reported in your activity statements as they are not consideration for supplies that you make.
3. No, you are not liable to pay GST on the funds that are subsequently paid to a third party.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You provide services to individuals (your clients).
The client deposits funds into your trust account. The funds consist of the fee for your services and the fee payable to a third party.
You pay a third party on behalf of your clients from funds deposited into your trust account. On the same day, you transfer the service fee from the trust account to your trading account.
You issue an invoice for the fees before any work commences. The fees are non-refundable.
You account for GST on a cash basis.
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 9-10 and
A New Tax System (Goods and Services Tax) Act 1999 section 29-5.
Reasons for decisions
1. Subsection 29-5(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out the attribution requirements for an entity that accounts for GST on a cash basis.
According to subsection 29-5(2) of the GST Act:
• if, in a tax period, all of the consideration is received for a taxable supply, GST on the supply is attributable to that tax period; or
• if, in a tax period, part of the consideration is received, GST on that supply is attributable to that tax period, but only to the extent that the consideration is received in that tax period; or
• if, in a tax period, none of the consideration is received, none of the GST on the supply is attributable to that tax period.
Therefore, it needs to be determined when the entity has received consideration for its supply of services.
When your client deposits the funds into the trust account, you are effectively holding the client's money on trust to be used for the purposes directed by your client or by the terms of your agreement with the client.
Your client does not provide consideration for the supply of your services at the time the funds are deposited into the trust account. You receive the consideration at the time the funds are transferred into your trading account.
Therefore, the funds deposited by your client into your trust account and are subsequently transferred to your trading account are not reported in your activity statement for the tax period in which the deposit was made. The funds are reported in your activity statement for the tax period in which the funds are transferred into your trading account.
2. Activity statements are lodged by an entity to report its supplies and acquisitions, pay GST amounts and claim GST credits.
A supply is defined in subsection 9-10(1) of the GST Act as any form of supply whatsoever. To make a supply, an entity must do something.
Generally, consideration is paid in connection with a supply of anything. Therefore, in order to determine whether an entity has made a supply, the nature of the payment would indicate whether it is for something that the entity has done.
You pay the fee to a third party on behalf of your client from the funds deposited into the trust account. As such these funds are not consideration for a supply that you make and are not reported in your activity statements.
3. GST is payable on a taxable supply.
Section 9-5 of the GST Act 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.
As discussed in the response to question 2 above, the funds deposited by your client into the trust account and are subsequently paid to a third party are not consideration for a supply that you make. Therefore, section 9-5 of the GST Act does not apply. Accordingly, you are not liable to pay GST on the funds that are subsequently paid to a third party.