Edited version of private advice

Authorisation Number: 1051962785027

Date of advice: 13 April 2022

Ruling

Subject: GST and reimbursements

Question

Are you liable to pay GST on the amount you received from your client relating to the tribunal fees?

Answer

No.

Relevant facts and circumstances

You operate a service business and are registered for GST.

The supply of your services to your clients is a taxable supply.

As part of providing your services to you client, you lodged an application to the court on behalf of your client. You paid the court fees and in accordance with your Service Agreement, the client reimbursed the court fees.

You provided an extract of your standard Service Agreement which provides that you are entitled to reimbursement of the court fees (GST inclusive).

You advised that the court fee is GST-free.

You provided a copy of the application form submitted to the Court, which contains the following information:

•         File Number:

•         Date Lodged:

•         Amount Paid: $XX

•         Applicant Details

•         Name of Applicant (your client)

•         Includes name and address of your business

•         Dispute

•         Respondent Details

•         Name and Address of Respondent

You provided the following scenario showing how you treated the transaction:

•         You submitted the application to Court and paid the court fee of $XX.

•         You charged your client the court fee of $XX. You showed this amount as a GST-inclusive amount.

•         In your Activity Statement, you included in your supplies the GST-inclusive $XX collected from the client. You calculated the GST amount included as 1/11th of $XX and remitted the GST to the Australian Taxation Office.

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 9-15.

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40.

Reasons for decision

Summary

You are not liable to pay GST on the amount you received from your client relating to the court fees. This is because the subsequent reimbursement by your client of the court fees does not form part of the consideration payable by your client for your taxable supply of services.

Detailed reasoning

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act sets out the requirements of a taxable supply and it 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 for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

(* denotes a term defined in section 195-1 of the GST Act.)

On the information provided, your supply of your services is a taxable supply as all the requirements of section 9-5 of the GST Act are satisfied. Hence, GST is payable on the supply of your services to your client.

As part of providing your services to the client, you lodged an application to the Court on behalf of your client. Your client is named in the Court application form as the applicant in the proceedings. You paid the court fees to the Court and in accordance with your Service Agreement, the client reimbursed you for the court fees.

Hence, we need to determine whether the reimbursement of the court fees by the client to you forms part of the consideration for your supply of your services.

'Consideration' is defined in section 9-15 of the GST Act to include any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything.

Goods and Services Tax Ruling GSTR 2000/37 discusses the principal and agency relationship and explains the application of the GST law to transactions involving these relationships.

Paragraph 11 of GSTR 2000/37 states that for commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

Paragraph 28 lists factors that may indicate that an agency relationship exists. :In some situations, these factors may be difficult to establish. However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship.

Paragraphs 48 to 54 of GSTR 2000/37 consider the effects of an agency relationship on disbursements incurred by agents in the ordinary course of providing their services to a client.

Although GSTR 2000/37 uses the example of solicitors acting as agents, the GST principles outlined in GSTR 2000/37 can generally apply to situations involving service providers and their clients.

Paragraphs 48 and 49 of GSTR 2000/37 state:

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.

To make the distinctions clearer paragraphs 50 to 53 of GSTR 2000/37 describe the type of fees that a solicitor may pay on behalf of a client and describes when those fees would be paid as an agent and as a principal.

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;

...

In your case, your client has authorised you to lodge the application to the Court on their behalf. The court fee is a fee that your client is liable to pay to the Court. You initially paid the court fee to the Court but under your Service Agreement, your client reimbursed you for the court fees.

Under the general law of agency, you are standing in the shoes of your client when you lodged the application to the Court. It is the client that has made an acquisition of the court services and liable to pay the court fees to the Court.

We consider that when paying the court fees to the Court, you are acting as a paying agent for your client. The subsequent reimbursement by your client of the court fees does not form part of the consideration payable by your client for the supply of your services. Hence you are not liable to pay GST on the amount you received from your client for the court fees.

Based on the scenario you provided, the amount you invoiced to your client is the court fee of $XX, which is a GST-free fee. In your Activity Statement, you do not include in your supplies the $XX received from the client and you do not calculate a GST amount nor remit to the ATO GST on this $XX.

If you make a mistake (that fits the definition of a GST error) when reporting GST on an activity statement, you can correct that error on a later activity statement if you meet certain conditions. Refer to information on our website on Correcting GST errors.