ATO ID 2002/1052: GST and reimbursement of salary
Date of decision: 9 May 2002
Business line: Indirect Tax

Issue
Is the entity, a Government department, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when its employee transfers to another Government department (Government department B) and Government department B reimburses the entity for salary that the entity overpaid to the employee?

Decision
No, the entity is not making a taxable supply under section 9-5 of the GST Act when its employee transfers to Government department B and Government department B reimburses the entity for salary that the entity overpaid to the employee.

Facts
The entity is a Government department. An employee of the entity secured a temporary transfer to another Government department (Government department B). This transfer took effect part way through a pay period. Liability for the employee's salary and other remuneration is to be borne by the new employer from the date of transfer. The entity made an advance salary payment. As a consequence of this, the entity paid the employee from the date of transfer until the end of the pay period. The new employer, Government department B, has repaid the entity for the overpayment. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Under section 9-5 of the GST Act, one of the requirements for an entity to make a taxable supply is that the entity must make a supply for consideration (paragraph 9-5(a) of the GST Act). 'Supply' is defined in section 9-10 of the GST Act to include any supply whatsoever. The entity's employee secured a transfer to Government department B. As from the date of the transfer, it is the new employer, Government department B, that is responsible for the employee's salary and other remuneration. The entity is not making a supply to Government department B through the employee nor does the entity provide anything else to Government department B. Therefore, the entity is not making a supply to Government department B. This means that the entity is not making a supply for consideration and the requirement in paragraph 9-5(a) of the GST Act is not met. The entity is not making a taxable supply under section 9-5 of the GST Act when its employee transfers to Government department B and Government department B reimburses the entity for salary that the entity overpaid to the employee.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-10
Subject references: Goods and services tax GST consideration GST supply GST taxable supply