Private ruling: Taxable supply
Published: July 2012

Ruling: Q1: Is the supply of town planning services by an Australian entity (you) to clients in Australia a taxable supply? | A1: Yes. The supply of town planning services by you to clients in Australia is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax ) Act 1999 (GST Act). | Q2: Is goods and services tax (GST) payable on the reimbursement received by you from your clients for the expenses incurred by you, acting as a paying agent on behalf of your clients? | A2: No, where you are acting as a paying agent for your clients, the reimbursement for the expenses incurred by you on behalf of your clients does not form part of the consideration for a taxable supply that you make and therefore, GST is not payable on the reimbursement of this expense.

Relevant facts and circumstances: You are an Australian entity which is registered for GST. You supply town planning services to clients in Australia and receive consideration for this supply. You enter into an agreement with the clients to supply your town planning services in Australia. The town planning services include applying for town planning on behalf of customers, providing expert advice, interpretation of town planning legislation and representation at Australian Court and Tribunals. When the clients engage you to supply the town planning services, you submit an application for town planning on behalf of clients to the relevant local councils. The clients are required to pay document fees or lodgement fees for the town planning applications. You pay document fees or lodgement fees to the relevant local councils on behalf of clients. Under the agreement, the client shall reimburse you for all reasonable disbursements and out-of-pocket expenses incurred in supplying the consultancy and services. Accordingly, you are reimbursed by clients for the document fees or lodgement fees paid by you. You issue an invoice to clients for the supply of town planning services and reimbursement for the document fees or lodgement fees. The reimbursements are separately itemised on the tax invoice. The reimbursement of the lodgement fee and document fee is not a part of the consideration payable for your supply of town planning services. You do not claim input tax credits (ITC) for the expenses incurred by the clients. You have provided a copy of consultancy and services agreement and copies of tax invoices issued by you.

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

Reasons for decision: Detailed Reasoning - Issue 1: GST is payable on a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if: · you make the supply for consideration; · the supply is made in the course or furtherance of an enterprise that you carry on; · the supply is connected with Australia; and · you are registered or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. Accordingly, your supply of services to clients in Australia will be a taxable supply if it meets all the requirements in section 9-5 of the GST Act. From the facts provided, you satisfy paragraphs 9-5(a) to 9-5(d) of the GST Act as: · you supply the town planning services in return for consideration by way of payments; · the supply is made in the course of an enterprise (business) that you carry on; · the supply is connected with Australia as you are carrying on your enterprise (business) in Australia; and · you are registered for GST. However, your supply of town planning services to clients in Australia is not taxable to the extent that it is GST-free or input taxed. Based on the facts provided, none of the GST-free or input taxed provisions under the GST Act are applicable to the supply of town planning services by you to clients in Australia. Therefore, the supply of town planning services by you to clients in Australia is a taxable supply under section 9-5 of the GST Act. | Detailed Reasoning - Issue 2: As discussed in the reasons for decision to issue 1, your supply of town planning services to clients in Australia is a taxable supply under section 9-5 of the GST Act. However, we need to determine whether the reimbursement of expenses for the lodgement fees and document fees by clients to you forms part of consideration for your supply of town planning services. 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. Goods and Services Tax Ruling GSTR 2000/37 titled 'Goods and services tax: agency relationship and the application of the law' explains the GST implications arising from situations involving agency relationships. The GST consequences of disbursements made by agents and their subsequent reimbursements by customers are discussed at paragraphs 48 and 49 of GSTR 2000/37. Paragraphs 48 and 49 of GSTR 2000/37 state: 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 GST implication on the reimbursements you received from the client depends on whether you are acting as an agent for the client or it is part of the consideration for the supply of your town planning services. To make the distinctions clearer paragraphs 50 to 53 of GSTR 2000/37 describe the sort of fees that a solicitor may pay on behalf of a client and describes when those fees would be paid as an agent and as a principal. These paragraphs are reproduced below: 50. The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for: · application fees; · registration fees; · court fees; · barrister's fees when the barrister is engaged by the client; · incorporation fees; · most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations; · fines, penalties, stamp duty and taxes; and · probate fees. 51. The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor: · search fees; · municipal search fee (eg rates; zoning; permits); · birth/death/marriage certificate fees; · barrister's fees when the barrister is engaged by the solicitor; · witness fees; · fees for recording court proceedings; · service of document fees; · fees for expert report or attendance in court; and · fees to obtain court transcript. Based on the information provided, the client has authorised you to make payments to the local councils for document fees or lodgement fees which is incurred by the clients. Hence you are considered to be acting as a paying agent for the clients. You in your capacity as the paying agent for the clients, pay the relevant entity for the expenses incurred by the clients. It is the clients who are personally responsible to pay the lodgement fees and document fees. The acquisitions to which the reimbursement relates are supplied to the clients by the local councils, not to you. Therefore the money paid by the clients to you is a reimbursement of expenses incurred by the client, which forms no part of the consideration payable by the client for your supply of town planning services. You do not make a taxable supply for which you received the reimbursement payment from the clients. Consequently, GST is not payable on the document fees or lodgement fees which you receive from the clients. All public rulings and/or publications referred to in this ruling are available at the Tax Office website at www.ato.gov.au.