Edited version of your written advice

Authorisation Number: 1013019497807

Date of advice: 2 June 2016

Ruling

Subject: GST on deposits

Question

Are you required to pay GST on deposits paid to hotels and other commercial venues booked for the holding of functions including seminars and conferences, where the venue requires the payment of a scheduled series of deposits amounting usually to the full prepayment of the estimated event/function total cost?

Answer

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that it is the supplier who must pay the GST payable on any taxable supplies it makes. Therefore, the supplier will be required to remit the GST, when the deposits are forfeited or applied as consideration to the supply.

Consequently, suppliers may require that security and instalment deposits contain an amount for GST.

This ruling applies for the following periods:

Not applicable

The scheme commences on:

Not applicable

Relevant facts and circumstances

You are registered for GST on a non-cash (accrual) basis.

When booking venues for the purpose of convening functions, including seminars and conferences the venue expects full prepayment of the estimated total cost of the event by a series of scheduled deposits.

Some venues expect the prepaid amount to also include the amount of GST calculated as 10% of their estimated total cost of the event/booking.

The first agreement document submitted to us provides that a security deposit, as defined in Division 99 of the GST Act, may be payable and may be up to xx% of the total estimated charges.

You provided us with two invoices, issued by a supplier.

The first tax invoice provides that the GST on this invoice is determined in line with Division 99 of the GST Act and that a final tax invoice showing the balance of GST will be issued post event after the provision of the goods or services. The GST included on this invoice is zero.

The second tax invoice mentions that this invoice is to assist in paying the holding deposit for your event, that no GST applies on the invoice and that a tax invoice showing the full GST component will be issued post event after the provision of the goods or services.

The second agreement you made available to us provides that:

● all rates are quoted in Australian dollars and are inclusive of GST (unless stated otherwise),

● a tax invoice will be supplied at the end of the event; and

● deposits are not subject to GST as per GSTR 2006/2.

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

A New Tax System (Goods and Services Tax) Act 1999 Division 99

Reasons for decision

Section 9-5 of the GST Act provides that an entity makes a taxable supply if the supply is made for consideration.

For GST purposes, a payment is treated as consideration for a supply if it is in connection with, in response to, or for the inducement of the supply. In this case there is a nexus between the suppliers’ supply, the security and instalment deposits.

Therefore, the security and instalment deposits have the potential to be consideration for a taxable supply to be provided.

Section 9-40 of the GST Act provides that it is the supplier who must pay the GST payable on any taxable supplies it makes. Therefore, a supplier of a taxable supply would ensure that security and instalment deposits are calculated on a GST-inclusive basis.

As explained above, it is the supplier of a taxable supply that is required to pay the GST on taxable supplies that it makes. The supplier of a taxable supply may consider calculating the deposits on a GST-inclusive basis

Division 99 of the GST Act

Division 99 of the GST Act prevents a security deposit from being treated as consideration for a supply until such time that the deposit is either forfeited because of a failure to perform the secured obligation or applied as all or part of the consideration for a supply.

Division 99 of the GST Act applies to deposits held as security for the performance of an obligation and has the effect of deferring attribution of GST payable and input tax credits for these security deposits.

However, Division 99 of the GST Act does not forbid a supplier to include an amount for GST in its taxable supplies.

Second tax invoice

You expressed concerns and confusion about the second ‘tax invoice’ relating to the second deposit and which mentions that the invoice is to assist in paying the holding deposit for your event, that no GST applies on the invoice and that a tax invoice showing the full GST component will be issued post event after the provision of the goods or services. That document also includes the statement that GST included in total amount due is $xxxx and being 100% GST on the Total Estimated Charges for the event.

We note that the supplier has notified you the amount of GST payable on the whole supply when they issued this document. The wordings of the document indicate that a tax invoice will be issued post event for the purpose of reporting the GST amount and claiming input tax credits.

Please note that the Agreement is subject to contract law and if you do not agree with its contents you will need to discuss this with the supplier.

Second Agreement

The same reasoning as above would apply to the second agreement.