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Edited version of your written advice
Authorisation Number: 1051468055719
Date of advice: 18 December 2018
Ruling
Subject: GST and reimbursement
Question
Is the amount of reimbursement made by Entity A to Entity B subject to GST?
Answer
No. The amount of reimbursement made by Entity to Entity B is not consideration for a supply made by Entity B to Entity A; and thus, is not subject to GST.
Relevant facts and circumstances
Entity A and Entity B are completely separate entities.
Entity B is a franchisee of Entity A.
Both entities are registered for goods and services tax (GST).
The entities agreed that Entity B would pay the online advertising costs using its account because Entity A’s account is set up in a foreign currency.
The advertising costs do not include GST and are invoiced in the name of Entity A to which the supply of online advertising is made.
Entity A reimburses Entity B for the payment net of Entity B’s share of the costs.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
Reasons for decision
GST is payable on a taxable supply.
A supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:
(a) the supply is made for consideration; and
(b) the supply is made in the course or furtherance of the enterprise that the supplier carries on; and
(c) the supply is connected with Australia; and
(d) the supplier is registered, or required to be registered.
A supply is not a taxable supply to the extent that it is GST-free or input taxed.
For the purpose of paragraph 9-5(a) of the GST Act, there must be a supply and consideration and a sufficient nexus between the two.
While it may be argued that Entity B made a supply of services of a paying agent to Entity A by providing its account, the amount reimbursed by Entity A is not consideration for that supply of the service. Based on the information provided, the amount reimbursed is for the online advertising costs which Entity B paid on behalf of Entity A. The supply of advertising services was a supply made by another entity. Therefore, the amount reimbursed is not consideration for a supply made by Entity B to Entity A. Paragraph 9-5(a) of the GST Act is not satisfied.
Accordingly, the amount of reimbursement made by Entity A to Entity B is not subject to GST.