Edited version of your written advice

Authorisation Number: 1012753183556

Ruling

Subject: Goods and services tax and disbursements

Question 1

Are you liable for goods and services tax (GST) when you on-charge expenses from a third party provider to your clients in Australia?

Answer

Yes. You are liable for GST when you on-charge expenses from the third party provider to your clients in Australia.

Relevant facts and circumstances

You are registered for GST.

You provide legal services and are often engaged in property legal work.

You acquire the services of a third party provider in relation to your property legal work.

The third party provider's Customer Service Agreement states the following:

Customer means the legal entity who has accepted this Agreement by signing it or clicking the "I Accept" button on [the third party provider's] Website…

3.1 The customer shall be liable for and pay to [the third party provider], the fees and charges as set out in [the third party provider's] Price Book…

3.2 The Customer agrees that all fees and charges are incurred by the Customer personally (even if Customer has incurred such fees or charges on behalf of any other party).

You provided sample copies of the third party provider's orders (Order). The Order has your account name, details of the required property and the relevant searches that have been ordered. The Order would be included on your invoice.

You mentioned that on occasion, you will also use the third party provider's services to attend conveyancing matters.

The third party provider will typically issue an invoice in respect of the relevant searches, and/or attendance fees.

You provided a copy of a tax invoice from the third party provider. The tax invoice is issued to you, with your account details and lists the Orders (order numbers and matter references) relating to your various clients for that period.

You provided a copy of a tax invoice that you issued to your client. The tax invoice outlines your professional costs and also outlines the disbursements from the third party provider, including the search and attendance fees.

You have also provided an extract from your client fee agreement, which states:

"Disbursements

"'In addition to the above costs or professional fees, we shall require you to reimburse us the disbursement or out of pocket expenses incurred in this matter. Such include, for example, search, enquiry or attendance fees. These disbursements are incurred on your behalf, on our capacity as your paying agent."

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, section 9-70

Reasons for decision

Summary

You are liable for GST when you on-charge expenses from the third party provider to your clients in Australia.

Detailed reasoning

Where a supplier makes a taxable supply, section 9-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the amount of GST payable on the taxable supply is 10% of the value of the taxable supply or 1/11^th of the price. Generally, the value of the taxable supply is the total GST-exclusive consideration received for the supply.

However, it is recognised that in the course of providing services to a client as a principal, a supplier may incur expenses on a client's behalf on a particular matter where they are acting as an agent, or 'standing in the shoes' of the client. In these circumstances, no GST is payable upon subsequent reimbursement by the client as the supply to which the disbursement relates is supplied to the client, not the agent. In these instances, the reimbursement does not form part of the consideration for the supply.

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37), clarifies this position further. Paragraph 50 of GSTR 2000/37 provides some examples of fees and charges to which an agency relationship typically arises.

50. The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for:

• application fees;

• registration fees;

• court fees;

• barrister's fees when the barrister is engaged by the client;

• incorporation fees;

• most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations;

• fines, penalties, stamp duty and taxes; and

• probate fees.

The key feature in these instances is that it is the client who is personally responsible for registering the relevant document, paying the applicable fee, tax, and so on, not the entity that performs the action on behalf of the client. When an entity performs the action, they explicitly do this on behalf of their client but are not personally responsible to the relevant authority for doing so. Rather, this obligation rests with the client.

Paragraph 51 of GSTR 2000/37 lists examples of common disbursements that may or may not be paid for by an entity as a paying agent of the client. Where the disbursement is incurred by the solicitor, GST is payable on the subsequent reimbursement by the client as in these instances, the goods or services are supplied to the entity in order to perform the services provided to the client.

51. The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor:

• search fees;

• municipal search fee (eg rates; zoning; permits);

• birth/death/marriage certificate fees;

• barrister's fees when the barrister is engaged by the solicitor;

• witness fees;

• fees for recording court proceedings;

• service of document fees;

• fees for expert report or attendance in court; and

• fees to obtain court transcript.

In order to determine the GST implications of the disbursements listed in your invoice, it is necessary to look at each disbursement individually:

Disbursement (i): searches

This disbursement relates to search information supplied to the entity by third party provider.

The Tax Office considers that the supply of search information by the third party provider is made directly to you and not the client. This is because these costs are incurred by you in the course of performing your services to their client and you are personally liable to pay for the information acquired. This is supported by the third party provider's Customer Service Agreement which states:

3.1 The customer [the legal entity who has accepted this agreement] shall be liable for and pay to [the third party provider], the fees and charges as set out in [the third party provider's] Price book…

3.2 The Customer agrees that all fees and charges are incurred by the Customer personally (even if Customer has incurred such fees or charges on behalf of any other party).

Accordingly, all fees and charges are incurred by the customer as principal and not as agent for any other party.

Therefore, an agency relationship does not exist between you and your client in relation to this disbursement and you are required to pay GST on the subsequent reimbursement of this amount by the client.

Disbursement (ii): Attendance fees.

You stated that on occasion, you may engage the services of the third party provider to attend conveyancing matters. In return the third party provider will include in their invoice their attendance fees. The Tax Office considers that the attendance fees are provided by you in your capacity as principal in order to provide conveyancing services to your client. You are personally responsible for paying for the services acquired and do not stand in the shoes of the client to form a binding contract between the parties for the performance of these services. Rather, you subcontract the above mentioned activities in order to complete the conveyancing formalities.

Therefore, an agency relationship does not exist between you and your client in relation to this disbursement and the entity is required to pay GST on the subsequent reimbursement of this amount by the client.

From the above, the amounts received from disbursements (i) and (ii) form part of the consideration for the conveyancing supply that you make. You are liable to pay GST on these components when supplied to your client.