Edited version of private advice

Authorisation Number: 1052015636772

Date of advice: 16 September 2022

Ruling

Subject: Taxable supplies

Question 1

Are you making a taxable supply of your services, that includes designing, sourcing, and purchasing, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes, you are making a taxable supply of your services, that includes designing, sourcing, and purchasing, under section 9-5 of the GST Act.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ending 30 June 20YY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

In 20YY, you registered for GST as a sole trader.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

Question 1

Are you making a taxable supply of your services under section 9-5 of the GST Act?

Summary

Yes, you are making a taxable supply of your services, that includes designing, sourcing, and purchasing, under section 9-5 of the GST Act. In relation to the arrangement, you have with your clients, whereby you source and purchase goods to be included in their XXXX that you have XXXX, you are not doing this as an agent for them. You are holding yourself out to the suppliers as the purchaser of those goods and you ultimately have the liability to pay for those goods. Therefore, when you on supply those goods to your clients, the consideration you receive (regardless of whether you are only recovering your costs) is for the taxable supply of your services to your client. You may be entitled to an input tax credit on the acquisition from the suppliers of those goods, provided the supply to you was a taxable supply and you are acquiring them for a creditable purpose (therefore in the course of carrying on your enterprise).

Detailed reasoning

All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) unless otherwise stated.

Under section 9-5 you make a table 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 the indirect tax zone; and

(d) you are *registered, or *required to be registered.

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

You must satisfy all of the above requirements for your supply to be a taxable supply.

To determine if you have made a taxable supply, it is first necessary to consider whether you have made a supply for consideration as required under paragraph 9-5(a).

Agency relationships

In examining if you are making a supply for consideration, you have contended that you are acting in the capacity of an agent when you receive a payment from your clients for goods and services you source on their behalf.

Goods and Services Tax Ruling GSTR 2000/37: Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) provides guidance in relation to agency relationships.

Paragraphs 10 to 12 in GSTR 2000/37 explains what an agency relationship is:

10. An entity may be authorised by another party to do something on that party's behalf. Generally, the authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal...

11. 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.

12. The principal is bound by the acts of an agent as a result of the authority given to the agent...

Paragraph 28 of GSTR 2000/37 contains several factors that indicate an entity is acting in the capacity as an agent and there being a principal/agency relationship. Whilst no single factor (by itself) is determinative, the following factors are considered:

•                     any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

•                     any exercise of the authority that you are given to enter into legal relations with a third party;

•                     whether you bear any significant commercial risk;

•                     whether you act in your own name;

•                     whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

•                     whether you decide the price of things that you might sell to third parties.

We have considered these factors against the facts and circumstances provided, to determine if an agency relationship exists between you and your clients for things sourced as part of your business services.

Email correspondence provided by you shows an example of communication between you and your clients where, upon sending the list of sourced products and trade discounted prices, the client provides approval to you to order the goods and services by sending payment to you. In this situation the client has not provided authority for you to enter legal relations on their behalf with a third party, instead they are engaging your services to source the goods and services required for the XXXX XXXX you have provided.

You are the entity that is offered a trade discount on goods and services, by third parties, due to the business you run. You receive the quotes in your name to take advantage of the trade discounted prices offered to you by third parties, thus you are acting in your own name with the third parties, and you, are the entity bearing the commercial risk.

During the initial consultation, you include a sourcing service option for the recommended products prior to invoicing your clients. If the client chooses to do their own sourcing, you do not invoice them for this portion. Therefore, you are renumerated for your sourcing services when the client engages you to source goods and services required for the XXXX XXXX you have provided.

Accordingly, when you purchase goods and services from third parties you are acquiring those goods and services in your own right and not in the capacity of an agent for a principal. When you source goods and services for your client, the supply forms part of the service you are providing of designing, sourcing and purchasing. Therefore, you are not stepping in the shoes of your clients and acting on their behalf as an agent.

Consequently, you are making a supply when you source goods and services for your client, and these are supplies you are making for consideration. The supply is made in the course or furtherance of an enterprise you carry on in Australia and you are registered for GST. There is no provision in the GST Act that would make these supplies GST-free or input taxed.

All of the requirements of section 9-5 of the GST Act are satisfied in this instance. You are therefore making a taxable supply to your client and are liable to remit GST on the consideration you receive for these supplies.

Additional information

You may be entitled to an input tax credit on the purchase of the goods and services from third party suppliers provided the supply to you is a taxable supply and you are acquiring them for a creditable purpose (therefore in the course of carrying on your enterprise).