Edited version of private advice

Authorisation Number: 1052318698327

Date of advice: 21 October 2024

Ruling

Subject: Goods and services tax

Question

Do you have a GST liability to the Australian Taxation Office (Tax Office) under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the amounts you receive from your clients, corresponding to quote reference numbers X and X, as reimbursement of the cost of e-gift cards you have given to market research participants?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You carry on a business of providing market research services. You perform these services in Australia.

The contracts you have with clients require you to find members of the public to participate in market research (participants).

The activities performed by participants in a market research project may include

•                     attend a face-to-face focus group/workshop

•                     participate in an online workshop/interview/focus group

•                     complete an online survey

•                     attend a place to view/test products/concepts and complete an online survey

You provide incentives to participants in return for their participation in a market research project. Normally an e-gift card is provided by you as a thank you for participating and to cover any costs associated with participation.

You provide a quote to your client which includes the reimbursement of your costs of conducting a market research project.

You have typically invoiced the client with a GST component on the reimbursement of the incentive costs (such as the cost of e-gift cards), normally as a separate line item.

The relevant quote references numbers relating to the supplies of your services in question are X and X. Your client/s have accepted these quotes, thereby creating a contractual arrangement/s between you and the client/s.

Details of X Quote for Recruitment

We understand the recruitment needs to be as follows:

•                     Recruit up to X participants, X participants per focus group to have X-X people attend

•                     Provide incentives to those confirmed as participating (up to n=X)

•                     Deploy a pre-focus group recruitment screener which will include:

-                       Basic demographics

-                       A short survey to determine X

•                     The aim is to also have X focus groups filled with those who (REDACTED)

Cost of meeting the requirements

The table below sets out ourfees to conduct the study for two different focus group lengths (X minutes and Y minutes). Recruitment and incentive fees are only charged for those who participate, therefore the fee table below is a maximum total project fee.

Table 1: Cost of meeting the requirements

Terms and Conditions

You source the e-gift cards from entities who are neither your client nor your client's client (the end client). You act in your own name when purchasing the e-gift cards and you are liable to pay the relevant issuers/distributors of the e-gift cards for these cards.

There is no mention of agency in the quote or your Terms of business.

The quote and your Terms of business do not state that you have authority to enter into transactions on behalf of your client.

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

The reimbursements you receive from your client form part of the price for your taxable supply of market research services. Therefore, you are liable for GST to the Tax Office on the reimbursement you receive from your client for the cost of the e-gift cards.

Detailed reasoning

GST is payable by you on taxable supplies that you make, in accordance with section 9-40 of the GST Act.

Section 9-5 of the GST Act 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 the indirect tax zone; and

(d)           the supplier is 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.

(Denotes a term defined in the GST Act) (The indirect tax zone includes most of Australia).

You supply market research services to your clients for consideration and in the course or furtherance of an enterprise that you carry on. These supplies are connected with Australia. You are registered for GST. Therefore, the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act are met.

There are no provisions of the GST Act under which your supply of market research services is GST-free or input taxed.

Therefore, you are making taxable supplies of market research services.

We shall now determine whether the reimbursement you receive from your client in respect of e-gift cards you purchase forms part of the consideration for your supply of market research services. If it does, then you would be liable for GST on the reimbursement as it would be additional consideration for the taxable supply you make to your client (in addition to the base fee - the research fee for your services).

'Consideration' is defined in section 9-15 of the GST Act as follows:

Consideration includes:

(a)           any payment, or any act or forbearance, in connection with a supply of anything; and

(b)           any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Goods and Services Tax Ruling GSTR 2000/37 Goods and Services Tax: Agency relationships and the application of the law describes what is meant by principal/agency relationships and explains the application of the GST law to transactions involving these relationships.

Paragraph 11 of GSTR 2000/37 defines the term 'agent'. It states:

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.

Paragraphs 48-54 of GSTR 2000/37 consider the effects of agency relationships 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 apply equally to situations involving service providers and their clients.

Paragraphs 48 and 49 of GSTR 2000/37 state:

Agency relationship and disbursements

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.

The fact that you separately list the amount representing the reimbursement of e-gift card expenses on invoices you issue to your client is not a determinative factor and is not a factor that assists in determining whether or not you act as a paying agent for your client.

We conclude that you are not a paying agent for your client when you pay for the e-gift cards This is because:

•                     There is no mention of agency in the quote you give to your client or in the Terms of Business.

•                     You act in your own name when purchasing the e-gift cards.

•                     You source the e-gift cards from entities who are neither your client nor your client's client (the end client) and you are liable to pay the relevant issuers/distributors of the e-gift cards for these cards.

You acquired the e-gift cards in the ordinary course of providing your market research services to your client. They are similar to other acquisitions that you make in the ordinary course of carrying on your business.

The subsequent payment by your client for the cost of the e-gift cards forms part of the consideration payable by your client for your market research services.

As outlined above, the supply of your market research services to your client is a taxable supply. As the subsequent payment by your client for the purchase of e-gift cards is consideration for a taxable supply, you are liable to pay GST on these reimbursements.