ATO ID 2003/952: GST and amount for a permit included in price charged to customer for the supply of services
Date of decision: 3 December 2001
Business line: Indirect Tax

Issue
Is the entire fee collected by the entity, a supplier of services, consideration for a taxable supply it makes under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where the fee:

Decision
No, the entire fee collected by the entity is not consideration for a taxable supply it makes under section 9-5 of the GST Act, where the fee includes an amount for a permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act. The amount for the permit is not consideration for the entity's taxable supply of services to the customer.

Facts
The entity is a supplier of services. The entity makes a taxable supply of its services to a customer under section 9-5 of the GST Act. As part of this supply the entity, on behalf of the customer, obtains a permit that the customer is legally required to obtain from the relevant authorities. The permit is issued in the name of the entity's customer. The permit is listed in the Treasurer's Determination made for the purposes of Division 81 of the GST Act (Treasurer's Determination). The relevant authority does not apply goods and services tax (GST) to the amount charged for the permit. In its total fee to the customer the entity includes the fee for the permit and the costs incurred in the provision of its services. These items are separately identified on the invoice given to the customer. The entity is registered for GST.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: The entity is making a taxable supply of services to its customer for consideration under section 9-5 of the GST Act. However, it needs to be established whether the entire fee charged by the entity is consideration for its supply. Under section 9-15 of the GST Act, consideration includes any payment, act or forbearance, in connection with, in response to or for the inducement of a supply of anything. The total fee paid by the customer includes amounts for the permit and costs incurred in providing the services. These items are separately identified on the invoice given to the customer. The payment for the cost incurred to perform the services is connected with the entity's supply of services and is therefore consideration. However, it needs to be determined whether the part of the fee that is for the permit is also consideration for the entity's supply. That is, is the customer paying the entity for its services or is it paying the relevant authority for the permit. The customer is legally required to obtain the permit, which is issued by the relevant authority in the customer's name. Therefore, the supply of the permit is made by the relevant authority to the entity's customer and not to the entity. When the entity pays for the permit it is acting as a paying agent for its customer. Paragraph 49 of Goods and Services Tax Ruling GSTR 2000/37 outlines the GST consequences where one entity, a solicitor, acts as a paying agent for a client and on charges the amount paid: 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. This example is similar to the entity's arrangement. The entity, in its capacity as paying agent for its customer, pays the relevant authority for the permit. The permit to which the payment relates is supplied by the relevant authority to the customer, not to the entity. Therefore, the amount paid by the customer to the entity for the permit is a reimbursement, which forms no part of the consideration payable to the entity for the supply of services. As such, the entire fee collected by the entity is not consideration for its taxable supply under section 9-5 of the GST Act, where the fee includes an amount for a permit that the customer is legally required to obtain and that is listed in the Treasurer's Determination. The amount for the permit is not consideration for the entity's supply of services to the customer. Note 1: As the portion of the fee that is for the permit is not consideration for the entity's supply to the customer, the entity does not include this amount when calculating the GST payable on the supply under section 9-70 of the GST Act. Note 2: Where an entity personally incurs the Australian tax, fee or charge that is listed in the Treasurer's Determination and then on-charges it to its customer, the amount on-charged for the tax, fee or charge is part of the consideration for the entity's supply. In this situation the tax, fee or charge loses its character as a tax, fee or charge for the purposes of the Treasurer's Determination and becomes a business cost of the entity's enterprise. Refer to ATO ID 2001/133.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-15 section 9-70 Division 81
Related public rulings and determinations: GSTR 2000/37
Related ATO interpretative decisions: ATO ID 2001/133 | ATO ID 2002/877
Subject references: Goods and services tax GST payment of taxes State & local government taxes GST supplies and acquisitions GST consideration Taxable supply