Private ruling: GST and reimbursements
Date of advice: 10 October 2017
Published: February 2018

Ruling: Q1: Is a reimbursement payment made by the Payer under an Agreement to the contractor in relation to costs incurred by the contractor in relation to a supply of information consideration for a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, the reimbursement payment by the Payer is not consideration for a taxable supply. The payment by the Payer is a reimbursement of the money paid by the contractor to the information provider on behalf of the client’s lawyer for the supply of the client’s information. Also, as the contractor is not the recipient of the supply of the information from the information provider, the contractor has not made an acquisition that would give rise to a creditable acquisition and as such, is not entitled to a GST credit.

Relevant facts and circumstances: The contractor (you) is registered for goods and services tax (GST). You entered into agreements with the Payer who is registered for GST. The Payer provides eligible clients with funding to undertake legal action. The funds are used to pay for a client’s legal costs, information and reasonably necessary incidental expenses. You provide services to lawyers pursuant to a written agreement. The terms of the agreement provide that you will collect information from information providers on behalf of the lawyers and that you will make payments to the information provider of behalf of the lawyer. Generally the supply of information by an information provider is a taxable supply. Your agreements with the Payer allow you to obtain payment directly from the Payer for services you provide to the eligible client’s lawyer. The Payer agrees to reimburse you for the cost of the information provided by the information providers and disclosed to the lawyer. A separate service fee is paid to you which does not form part of this ruling request as the parties acknowledge that it is a taxable supply. Under the agreement you will make all reimbursement payments to the information provider upon receipt of the information and the associated invoice. In accordance with the agreements with the Payer, the Payer reimburses you on a GST exclusive basis, whereby you receive a reimbursement of 10/11 th of the GST inclusive fee charged by the information provider. You have consistently treated the supply by the information provider of information as a creditable acquisition for which you have claimed GST credits.

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 11-5

Reasons for decision: Summary: Under section 9-40 of the GST Act, an entity must pay the GST payable on any taxable supply it makes. A supply is a taxable supply pursuant to section 9-5 of the GST Act 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 the indirect tax zone, and ● you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. On the facts provided, a supply of information is not GST-free or input taxed. You are registered for GST and any supply made by you under the arrangement would be made in the course of an enterprise you carry on. As the services you provide and the supplies of information are connected with the indirect tax zone. The issue that arises under section 9-5 of the GST Act is whether the reimbursement payment by the Payer to you under the agreements is consideration for a supply of information made by you. This necessitates consideration of whether the information provider made a supply and conversely you acquired an eligible client’s information in your own capacity. This question needs to be dealt with in the context of the relationship between you, the lawyer, the eligible client and the Payer. The Commissioner of Taxation (Commissioner) has considered circumstances where an intermediary may be authorised by another party to do something on that party’s behalf in Goods and Services Tax Ruling GSTR 2000/37 (GSTR 2000/37). The relationship between the parties is determined by an examination of the particular facts surrounding the transaction in question. On the facts, you provide your services to the lawyer who acts for the eligible client and the Payer pays you directly for those services. GSTR 2000/37 deals with disbursements in the context of the relationship between solicitors and clients. The ruling draws a distinction between those circumstances where the solicitor or intermediary is merely acting as a paying agent for the client with respect to outgoings (acquisitions) which the client is legally obliged to pay for and those circumstances where the solicitor or intermediary makes acquisitions of taxable supplies in the solicitor’s or intermediary’s own right as part of the services the solicitor or intermediary makes to the client. Paragraphs 48 to 51 of GSTR 2000/37 explain those relationships as they pertain to disbursements and state the following at paragraphs 48 and 49: 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 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 the solicitor, by the 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 and 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 Goods and Services Tax Ruling 2006/9 (GSTR 2006/9) the Commissioner considers that the GST consequences of tripartite arrangements turn on identifying ● one or more supplies ● consideration (a payment, act or forbearance) ● a nexus between the supply and the consideration, and ● to whom the supply is made. The Commissioner has set out a number of propositions in GSTR 2006/9 to assist in the analysis of tripartite arrangements. In the present case, services which involve facilitating the procurement of information requested by the lawyer would satisfy the definition of a supply under section 9-10 of the GST Act as would any right or licence granted in relation to the use of the information. The agreements between you and the various parties are the logical starting point when working out the entity making the supply of the information and the recipient of that supply (proposition 11 of GSTR 2006/9). Those agreements are to be considered within the context of the total fact situation (proposition 16 of GSTR 2006/9). The lawyer is responsible for providing legal services to the eligible client. One aspect of providing legal services involves obtaining relevant information in respect of the eligible client. You are engaged by the lawyer to assist the lawyer to facilitate the procurement of information. The agreements between you and the Payer allow the Payer to pay you directly for costs incurred by you in collecting the eligible client’s information. The supply by the information providers of the information is to an eligible client or it’s lawyer with the payment being made by you to the information provider for that supply. When you pay the information provider for the supply of the information you are doing so on behalf of the eligible client’s lawyer to whom the information is supplied. Accordingly, you are not the recipient of the supply of the information by the information provider under this arrangement. The payment by the Payer is a disbursement of money for the provision of legal services by the lawyer to the eligible client. You are engaged by the lawyer and your role is to facilitate the creation and supply of information in respect of the eligible client by an information provider. In doing so, you undertake to pay the information provider on the understanding that you will be reimbursed for that payment by the Payer. The payment from the Payer is a reimbursement of costs incurred by you on behalf of the eligible client’s lawyer. No GST is payable by you on the subsequent reimbursement by the Payer. This is because the information in respect of the eligible client to which the reimbursement relates is supplied to the eligible client or its lawyer (not you) by the information provider. Any acquisition made by you from the information provider is made on behalf of the eligible client’s lawyer. The reimbursement forms no part of the consideration payable for the supply of your services of facilitating and organising the procurement of the information. This situation is akin to that considered in paragraph 50 of GSTR 2000/37. Notwithstanding that you have chosen to treat the supply of information in relation to an eligible client’s to the eligible client’s lawyer as a creditable acquisition of yours, it is reasonable, on the facts available, to conclude that the payment made by the Payer is a mere reimbursement of the costs you incurred in paying the information provider on behalf of the lawyer for the supply of the information to the eligible client’s lawyer. As such, no GST is payable by you on that reimbursement. In addition, as you acquired the information on behalf of the eligible client or it’s lawyer you are not considered to be the recipient of that information. Therefore, the acquisition by you of the information does not give rise to a creditable acquisition and as such, you are not entitled to GST credits for the acquisition of the information from the information provider.