Private ruling: GST and reimbursement
Date of advice: 18 December 2018
Published: May 2019

Ruling: Q1: Is the amount of reimbursement made by Entity A to Entity B subject to GST? | A1: No. The amount of reimbursement made by Entity to Entity B is not consideration for a supply made by Entity B to Entity A; and thus, is not subject to GST.

Relevant facts and circumstances: Entity A and Entity B are completely separate entities. Entity B is a franchisee of Entity A. Both entities are registered for goods and services tax (GST). The entities agreed that Entity B would pay the online advertising costs using its account because Entity A’s account is set up in a foreign currency. The advertising costs do not include GST and are invoiced in the name of Entity A to which the supply of online advertising is made. Entity A reimburses Entity B for the payment net of Entity B’s share of the costs.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision: Summary: GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if: (a) the supply is made for consideration; and (b) the supply is made in the course or furtherance of the enterprise that the supplier carries on; and (c) the supply is connected with Australia; and (d) the supplier is registered, or required to be registered. A supply is not a taxable supply to the extent that it is GST-free or input taxed. For the purpose of paragraph 9-5(a) of the GST Act, there must be a supply and consideration and a sufficient nexus between the two. While it may be argued that Entity B made a supply of services of a paying agent to Entity A by providing its account, the amount reimbursed by Entity A is not consideration for that supply of the service. Based on the information provided, the amount reimbursed is for the online advertising costs which Entity B paid on behalf of Entity A. The supply of advertising services was a supply made by another entity. Therefore, the amount reimbursed is not consideration for a supply made by Entity B to Entity A. Paragraph 9-5(a) of the GST Act is not satisfied. Accordingly, the amount of reimbursement made by Entity A to Entity B is not subject to GST.