Private ruling: Goods and services tax (GST) and liability to pay GST on sales made at restaurant
Date of advice: 24 August 2016
Published: October 2016

Ruling: Q1: Were you liable to pay GST to the Australian Taxation Office (ATO) in respect of sales made at the specified restaurant during the specified period leading up to settlement of sale of the business? | A1: Yes. | Q2: Does the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) require you to pay amounts to the buyer corresponding to the GST components of sales made during that period? | A2: No. The GST Act does not require you to pay any amounts to the buyer. Whether or not you are required to pay certain amounts to the buyer is a contractual matter. The ATO cannot advise on contractual matters.

Relevant facts and circumstances: You are registered for GST. On (date), you entered into a written contract of sale with Entity X (buyer) in respect of the sale of your restaurant. It was agreed that the buyer would commence trading in the restaurant using your ABN and eftpos terminal for an initial period of one month but was eventually completed on (date) (date of settlement) after many negotiations between the two parties' solicitors. It was agreed that the buyer would be a 'source of labour' for the restaurant for this period (the period in question) while you maintained record keeping and paid expenses until the handover of the restaurant. In accordance with a verbal agreement, at settlement the profit calculated from the buyer's trading during the period in question, less expenses incurred and GST payable would be distributed back to the buyer. There was no term in the sale agreements that required the buyer to bear any trading loss if it had been made during the period in question. You still owned the business until settlement. The buyer was operating under your ABN during the period in question. Your eftpos machine, which the buyer used to process payments from customers, printed off receipts that showed your ABN. Electronic funds turned over through this eftpos machine were paid into your bank account. It was expected that if customers paid by cash during the period in question and they required receipts, the rubber ink stamp was to be used to transfer the business name and your ABN onto the receipt. You were not physically present to observe cash sales during this period and copies of receipts were not given by the buyer to you for this period. It is assumed the buyer would be doing the accounting themselves for the cash turnover for the restaurant. Any cash turnover generated was not received by you. The buyer used your ABN to purchase goods. You made available the funds in your bank account to the buyer to meet business expenses during the period in question. The majority of expenses for the relevant period were paid for out of your bank account. You presume that any cash turnover generated was used to pay staff and purchase daily consumables. The buyer had no authority to make decisions affecting the business, such as pricing of meals and drinks until after settlement occurred. You held the building and public liability policies during the period in question. You paid the GST to the ATO on the food sales for the period in question. You did not pay amounts corresponding to these GST components to the buyer.

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 9-40

Reasons for decision: Summary: For GST purposes, you made the supplies of food through an agent - the buyer during the period in question. Therefore, you are liable to pay GST to the ATO on any GST-taxable sales of food made during that period. | Detailed Reasoning - Detailed reasoning: GST is payable by you on any taxable supply that you make. In accordance with paragraph 15 of Goods and Services Tax Ruling GSTR 2000/37, when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal. We need to determine whether the buyer acted in the capacity as your agent when trading during the period in question. Paragraph 45 of GSTR 2000/37 discusses supplies made through agents. It states: 45. Divisions 57 and 153 apply when a principal makes a relevant transaction (i.e., taxable supply, taxable importation, creditable acquisition or creditable importation) through an agent. The word 'make' and its derivatives, such as 'made', are used in the GST Act, inter alia, to connect the thing being transacted in the course of an entity's enterprise with the paying or receiving of consideration. When an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent. | Detailed Reasoning - Factors that indicate an agency relationship: Paragraphs 28 and 29 of GSTR 2000/37 state: 28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative: -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. 29. In some situations, these factors may be difficult to establish. For example, situations may arise where: -the existence of a principal is disclosed but not named; or -the existence of a principal is not disclosed to third parties. However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship. We consider that the buyer acted as your agent when trading during the period in question because: • you still owned the business during that period • the buyer was in effect operating in your name and exercising an authority you gave it to create legal relations between you and the suppliers/ diners/customers, as: • the buyer was operating under your ABN; • the buyer used your eftpos machine and the eftpos receipts showed your ABN; and • the buyer used your ABN to purchase goods; • the fact that you received the eftpos sales receipts and expenses were paid from your account during the period in question indicates that the buyer was making sales and incurred expenses during that period on your behalf • the buyer did not bear commercial risk during the period in question considering that: • you allowed the buyer to draw funds from your bank account to meet the expenses incurred during the period in question; • you held the building and public liability insurance cover for that period; and • there was no term in the sale agreements that required the buyer to bear any trading loss if it had been made during the period in question • you paid the GST to the ATO on the food sales for the period in question and you did not pay corresponding amounts to the buyer (this means you agreed to be bound by a legal effect of making sales during the relevant period, that is, the liability to remit GST on these sales) • the buyer had no authority to make decisions affecting the business, such as pricing of meals and drinks until after settlement occurred, and • under your verbal agreement with the buyer, it was agreed that you would distribute to the buyer an amount equal to the difference between the sales and the expenses and GST payable on sales for the relevant period (this indicates that you were legally entitled to the profit made during the period concerned in the first instance, which you subsequently passed on to the buyer as part of the overall business sale arrangement). As you are considered to have made the sales of meals and drinks to diners/customers during the period in question, through an agent, you are liable to pay GST to the ATO on the sales of these meals and drinks (where the sale is not GST-free under the food exemption). Only one entity can be liable for GST on a supply pursuant to the GST Act. | Detailed Reasoning - Question 2: The GST Act does not require you to pay any amounts to the buyer. Whether or not you are required to pay certain amounts to the buyer is a contractual matter. The ATO cannot advise on contractual matters.