Private ruling: GST and on-charged costs
Date of advice: 25 May 2018
Published: August 2018

Ruling: Q1: Is the cost that you incurred in the course of making a supply to your customer subject to GST when you on-charge it? | A1: The cost of that you incurred in the course of making a supply to your customer is subject to GST when you on-charge it, provided your supply is a taxable supply.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You are carrying on an enterprise of providing your services. You made an acquisition in the course of providing your services. As you do not have an agency agreement with your customer, you made the acquisition in your own right. You charge your client for the cost of your acquisition. The price of things that you acquire, the price did not include GST.

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 | A New Tax System (Goods and Services Tax) Act 1999 section 9-75

Reasons for decision: Summary: GST is payable on a taxable supply. The amount of GST on a taxable supply is 10% of the value of the taxable supply or 1/11 th of the price. Section 9-75 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) provides that ‘price’ is the sum of: (a) so far as the consideration for the supply is consideration as an amount of money – the amount (without any discount for the amount of GST (if any) payable on the supply); and (b) so far as the consideration is not consideration expressed as an amount of money – the GST inclusive market value of that consideration. ‘Consideration’ is defined in section 9-15 of the GST Act to include: ● any payment, or any act or forbearance, in connection with a supply of anything; and ● any payment, or any act or forbearance in response to or for the inducement of a supply of anything. | Detailed Reasoning - Is the payment made by your customer for the cost of your acquisition consideration for your supply of services?: Where you make an acquisition on behalf of the recipient, the payment made by the recipient to reimburse you for the acquisition is not consideration for your supply to the recipient. You make an acquisition on behalf of the recipient if it is the recipient that is legally liable to the terms of the acquisition; and you merely facilitate the acquisition or make a payment on behalf of the recipient In contrast, where you make an acquisition in your own right in the course of making the supply to the recipient, the payment made by the recipient to reimburse you for the acquisition is consideration for your supply to the recipient. You advised that you do not have an agency relationship with your customer for you to establish a legal contract between your customer and the supplier. Therefore, you made the acquisition in your own right in the course of providing your services to your customer. As such, when you on-charge the cost of your acquisition, the payment made by your customer is consideration for your supply of services. | Detailed Reasoning - Is the payment made by your customer for the cost of your acquisition subject to GST?: When you make an acquisition in the course of making a supply and you on-charge the cost of your acquisition, the acquisition loses its character and takes the GST treatment of your supply. This means that it would not matter whether the thing that you acquire is supplied to you without GST. Where your supply is subject to GST, the amount on-charged would also be subject to GST as that amount is consideration for your supply. In the case where your supply is not subject to GST, the amount on-charged would not be subject to GST even if the thing you acquire is supplied to you with GST. As the payment made by your customer for the cost of your acquisition is consideration for the supply of your services, the payment is subject to GST if your supply is a taxable supply.