Edited version of private advice

Authorisation Number: 1051741502733

Date of advice: 18 August 2020

Ruling

Subject: GST and reimbursement

Question

Is the reimbursement of the incentives from your client to you, consideration for a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the reimbursement of the incentives from your client to you is not consideration for a taxable supply under section 9-5 of the GST Act. This is because you are acting as a paying agent for your client when paying the incentives to the participants and therefore the reimbursement does not form part of the consideration for the supply of services you make to the client.

Relevant facts

You are an Australian company and is registered for GST.

You supply a service to clients in Australia by recruiting participants to engage in activities such as focus groups, online discussion forums and individual interviews. The participants are incentivised to participate in the activities with the payment of a small gratuity.

The client conducts research on behalf of their customers and produces a report of their finding to deliver to their customers. They would enter into contracts with you for the provision of participants for their research and will do the interview or focus group discussion with the participants to gather information for their report.

As an example of the supply you make to the clients, you have provided us with a copy of a Master Services Agreement you had with one of your clients. In the agreement and schedule 1:

·         you agreed to supply recruitment of research participants for qualitative research and other research services as required.

·         The client will provide you with questionnaires and sample specifications for use in the provision of your services.

·         Any fees which the client pays to you must be based upon your Standard Rates (or other methods of charging) which are specified in Schedule 1. Schedule 1 provides that your fees for providing the services will be calculated based on responses to requests for quotations.

·         The client will reimburse you for any third-party expenses you incurred on its behalf provided that those expenses were previously authorised by the client in writing.

·         You acknowledge that you provide the services in your capacity as a subcontractor only and in no circumstances will the contractor be deemed to be the client's employee, partner, servant or agent. You acknowledge that the contractor and its personnel will not have any claim against the client in respect of annual leave, public holidays, sick leave, long service leave or other leave entitlements. You further acknowledge that you do not have any power to bind the client to any obligations to a third party.

You provided the following information:

Your relationship is solely with the client to whom you provide the service of:

a)    recruiting participants for their study; and

b)    distributing incentive payments to the participants via bank transfer after they contributed to the study.

The fees payable to you for your supplies is based on the number of participants attending the interview and reimbursement of the incentive amount approved by the client which you have paid to the participants after their participation.

The client nominates the amount of incentive to pay the participants and confirms the amount when you are engaged to recruit participants for their project. You may give guidance on the appropriate amounts to offer.

Most of the recruitment comes from your own database of participants who have signed up to receive invitations from you. They understand that you work on behalf of a range of research agencies and they will be remunerated by the commissioning agency. Where you do not have participants on your database you may mount a campaign saying 'you are working on behalf of client XYZ and would like to invite you to participate in a research study they are conducting...' You may also promote posts on your Facebook page to attract specific participants to apply. This will usually be in your own name.

You act in your own right to engage and recruit participants to attend these events and are remunerated by the client purely on delivery the right people to meet their requirements. When it comes to payment of incentives, you will always advise the participants how and when this will be paid which would be either by the commissioning agency at the event or by you once the agency has confirmed their attendance.

The participant receives a confirmation email from you when they are recruited. The email provides details of the session they have been booked for, the length of the interview, the amount of incentive that will be paid to their bank account. The participant is required to notify you as soon as possible if they could not do the interview so that you can find a replacement. You also notify the participant that if they simply fail to participate on that day you would not include them in future invitations.

You bear a significant commercial risk when recruiting the participants for the interview. Your client's project is highly dependent on having the right sample turn up. If you send people who are off-spec or people simply do not show up, then you will not be paid, and you will lose that client relationship.

You advise the participants you are acting on behalf of the client and will usually not disclose the name of the agency until they are scheduled to attend the interview.

You distribute the incentive payments on behalf of your clients via EFT - and sometimes via Gift pay (electronic gift cards) and you charge a fee to the client for providing this service. You collect bank details from the participant, prepare payment files, process the payments via your banking app and so on.

If you are paying the incentive and the applicant has not received the incentive, they will make the complaint to you. If they have a complaint about the way the research was conducted or that something happened at the research venue or professional standards of the research agency, they will need to take that complaint directly with the client or your industry body, The Research Society.

Participants are required to sign a declaration which is on your letter head when attending the interview. The document identifies your client and lists the date, time, location and contact detail for the interview.

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 subdivision 153-A

Reasons for decision

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Detailed reasoning

Goods and Services Tax Ruling GSTR 2000/37: agency relationships and the application of the law (available at ato.gov.au) provides guidance on when a reimbursement is consideration for a supply for GST purposes.

Paragraphs 48 and 49 in GSTR 2000/37 provide the following:

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

After considering all the information you gave to us, the following indicates that there is an agency relationship between you and your clients regarding the incentive payments to be made to the participants and its reimbursement to you from the clients:

·         In the Agreement 'you agreed to supply recruitment of research participants'. Recruitment as a service is generally only of providing people to the other agency for the agency to employ/contract with.

·         In the Agreement, your fees for providing the services will be calculated based on responses to requests for quotations. The client will reimburse you for any third-party expenses you incurred on its behalf provided that those expenses were previously authorised by the client in writing.

·         The 'Your relationship is solely with the client to whom you provide the service of:

-        recruiting participants for their study; and

-        distributing incentive payments to the participants or via bank transfer after they contributed to the study.'

·         The participants... 'understand that you work on behalf of a range of research agencies and they will be remunerated by the commissioning agency'

·         You advise the participants that they will be paid ... 'either by the commissioning agency at the event or by you once the agency has confirmed their attendance'

·         You advise the participants you are 'acting on behalf of the client' and will usually not disclose the name of the agency until they are scheduled to attend the interview.

·         'You distribute the incentive payments on behalf of your clients via EFT - and sometimes via Gift pay (electronic gift cards) and you charge a fee to the client for providing this service'

The statement 'You act in your own right to engage and recruit participants to attend these events' indicates that you are a principle in the arrangement, but your statement that 'you are remunerated by the client purely on delivery the right people to meet their requirements.' suggests more of an agency arrangement. Acting in your own right to build up a pool of available candidates does not of itself lead to a conclusion that that you are making a supply for which the incentive payment is your consideration. The use of your own letterhead on the communication that confirms the research session also is not determinative as an agent may well do this.

After weighing all the facts given, we consider that you are acting as a paying agent for your clients when paying the incentives to the participants. In this instance the reimbursement of the incentives does not form part of the consideration for your supply to the clients and therefore no GST is payable by your clients when you invoice them for the reimbursement.