Private ruling: GST and invoices for reimbursements
Published: December 2011

Ruling: Q1: Should the amount paid by you to a private sector operator (Operator) for reimbursement of fees paid by the Operator include GST? | A1: Yes. The amount representing these fees is part of the consideration you provide to the Operator for their supplies to you. GST will be payable by the Operator on the total amount of consideration received for their taxable supply to you. | Q2: Should the amount paid by you to the Operator for reimbursement of fees paid by the Operator for a necessary lease include GST? | A2: Yes. The amount representing these fees is part of the consideration you provide to the Operator for their supplies to you. GST will be payable by the Operator on the total amount of consideration received for their taxable supply to you. | Q3: Should the amount paid by you to the Operator for the Operator's administration costs include GST? | A3: Yes. This is part of the consideration you provide to the Operator for their supplies to you. GST will be payable by the Operator on the total amount of consideration received for their taxable supply to you.

Relevant facts and circumstances: You are registered for GST. You are a joint principal with another entity in relation to the necessary contracts for implementation of a project. The costs of the Project are shared between the entities. The cost sharing arrangements for the Project are set down within a Deed of Agreement. Project investigation, development and construction costs are shared 75:25. Operating costs are shared 50:50. At the commencement of each financial year, the joint principals determine an estimate of the contributions that will be required. Funds are not transferred at this time, but this establishes the agreed cash flow for the project. You initially pay the full cost of all tax invoices received from the Operator. You then bill your joint principal by issuing a tax invoice each month. Reconciliations are also undertaken at the end of each quarter and at the end of financial year. The operations of the project are undertaken by way of a contract between the joint principals and the Operator. The Operator has been granted leases, sub-leases, easements and other necessary permits or rights to occupy the areas covered by the works, pipelines and access roads for the duration of the project. Under the agreements the joint principals provide a partial reimbursement to the Operator for fees the Operator pays for a licence to do the relevant work. This licence is held by the Operator, and you have agreed to reimburse the operator a percentage of the cost of this licence. GST is not included in the licence fee when it is paid by the Operator. The operator also incurs some administration costs for the payment of these fees. The joint principals provide a full reimbursement of fees that the Operator pays for certain other lease expenses necessary to undertake the project. The lease is held by the Operator, and the lease payments made by the Operator include a GST component.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-20 | Section 11-5

Reasons for decision: Summary: The full amount that you and your joint principal pay to the Operator, including for fees paid to for GST-free licences, must include GST. This is because the amount representing fees is part of the consideration you and the joint principal provide to the Operator for their supplies to you. | Detailed Reasoning - Detailed reasoning: Paragraph 49 of Goods and Services Tax Rulings GSTR 2000/37 (agency relationships and the application of the law) provides the Australian Taxation Office's (ATO) views on reimbursement as follows: 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 for 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. In the circumstances described the Operator is not merely acting as a paying agent for you. The supply of the lease, licences etc are not made to you, but are made to the Operator in their own right to enable them to perform services to you under your agreement. This is demonstrated by the Operator holding the leases and licences in their own right. You and your joint principal have agreed to reimburse the Operator for some (a fixed percentage) or all of the cost of these leases and licences. Reimbursement means that you have agreed to pay the exact cost incurred by the operator, because a payment is only a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), for an expense already incurred. Where the Operator is entitled to claim input tax credits for any of those supplies the actual cost to them is only the GST exclusive cost. However, GST is then payable by the Operator on any reimbursement by you of expenses incurred on those goods or services. This is because the reimbursement is part of the total consideration payable by you and your joint principal for services supplied by the Operator. The payment is not for a GST-free supply made by someone else to you or the Operator. Rather, it is for the Operator's supply of services to you which are taxable supplies. Because liability for GST on taxable supplies rests with the supplier, the Operator charges and remits GST based on the total consideration they receive for supplies that they make to you and your joint principal. Therefore the total amount that they invoice you for must include GST. Where you acquire goods or services as part of your enterprise you are entitled to claim the amounts of GST paid as input tax credits. You and your joint principal have acquired the services as part of your enterprises. As the supplies to you and your joint principal are taxable supplies, you have provided consideration and are registered for GST this meets all the requirements of section 11-5 of the GST Act. You and your joint principal have therefore made creditable acquisitions and are entitled to input tax credits in proportion to your share of the costs. Treatment of invoicing between joint principals Considering again paragraph 49 of GSTR 2000/37, as the coordinator you act on your own behalf but also act as a paying agent for your joint principal in relation to their share of costs. You consider yourself to be joint principals to all the relevant agreements. This means that the supplies made to you are also made to your joint principal. Your joint principal's reimbursement to you for payments made on their behalf is in relation to the Operator's supplies, not supplies that you have made. That reimbursement is not consideration for any supply that you have made. However, if you impose a management fee or similar then payment of this will be consideration for a taxable supply that you have made to your joint principal. | Summary: The full amount that you pay to the Operator, including for reimbursement of fees paid for their lease, must include GST. This is because the amount representing the cost of fees is part of the consideration you provide to the Operator for their supplies to you. | Detailed Reasoning - Detailed reasoning: For the reasons discussed above, this payment is for the Operator's supply of services to you, and your joint principal, which are taxable supplies. Because liability for GST on taxable supplies rests with the supplier, the Operator must remit GST based on the total consideration received for supplies that they make to you and your joint principal. Therefore the total amount that they invoice you for must include GST. | Summary: The full amount that you pay to the Operator, including for the Operator's administration costs, must include GST. This is because the amount is part of the consideration you provide to the Operator for their supplies to you and these are taxable supplies. | Detailed Reasoning - Detailed reasoning: For the reasons discussed above, this payment is for the Operator's supply of services to you and your joint principal which are taxable supplies. Because liability for GST on taxable supplies rests with the supplier, the Operator must remit GST based on the total consideration received for supplies that they make to you and your joint principal. Therefore the total amount that they invoice you for must include GST.

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