Edited version of private advice

Authorisation Number: 1052243593222

Date of advice: 18 April 2024

Ruling

Subject: GST treatment for disbursement fees

Question 1

Are the disbursement fees the taxpayer receives from its clients included in its assessable income under section 6-5 of the ITAA 1997?

Answer

No.

Question 2

Are the payments the taxpayer makes on behalf of its clients deductible under section 8-1 of the ITAA 1997?

Answer

No.

Question 3

Are the disbursement fees the taxpayer receives from its clients included in its aggregated turnover under section 328-115 of the ITAA 1997?

Answer

No.

Question 4

Are the disbursement fees the taxpayer receives from its clients consideration for a supply made by the taxpayer under section 9-5 of the GST Act?

Answer

No.

Question 5

Are the disbursement fees the taxpayer receives from its clients included in its GST turnover under section 188-15 of the GST Act?

Answer

No.

This ruling applies for the following period [or] periods:

1 July XXXX to 30 June YYYY

The scheme commenced on:

1 July XXXX

Relevant facts and circumstances

1.         The taxpayer operates a freight forwarding and customs clearance business.

2.         The taxpayer is registered for GST.

3.         The taxpayer pays statutory charges and other disbursements while acting in its capacity as agent for its clients.

•                Relevant statutory charges include GST, LCT, import duty, and other customs charges (such as customs clearance, quarantine fees, and processing charges).

•                Other disbursements include freight, insurance, delivery, terminal handling, and storage fees.

4.         The taxpayer passes these charges (including any GST included in the charges) directly onto its clients. The taxpayer's clients remit the relevant funds to the taxpayer (again, including any GST amounts included in the charges) who then sends them on to the relevant third party.

5.         The taxpayer doesn't claim any input tax credits for the GST included in amounts that have been directly charged to its clients.

6.         The taxpayer's clients sign a letter of authority. Under the terms of that letter, the client:

•                authorises the taxpayer to act on the client's behalf in customs clearance and delivery

•                undertakes to pay the taxpayer any money for certain listed charges and other items where money is outlaid to clear consignments through customs.

The listed charges include duty, GST, freight, port charges, warehousing, transport, storage, and quarantine.

7.         The taxpayer doesn't know the tax residency of all its clients but expects that it may import goods for both residents and non-residents of Australia.

8.         The taxpayer isn't listed as the 'owner' of the goods on the import declaration. The taxpayer's clients are listed as the owner of the goods and the taxpayer is listed as the agent.

9.         The taxpayer has provided sample copies of import declarations and invoices issued to their clients for the reimbursement of importation fees incurred.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 6-5

Section 8-1

Section 20-20

Section 328-115

Section 328-120

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-15

Section 9-40

Section 13-5

Section 15-10

Section 15-15

Section 57-5

Section 188-15

Reasons for decision

In these reasons for decision:

• ITAA 1997 means the Income Tax Assessment Act 1997
• GST Act means the A New Tax System (Goods and Services Tax) Act 1999.

Question 1

Are the disbursement fees the taxpayer receives from its clients included in its assessable income under section 6-5 of the ITAA 1997?

Question 2

Are the payments the taxpayer makes on behalf of its clients deductible under section 8-1 of the ITAA 1997?

Answers to Questions 1 and 2

No

Explanation for Questions 1 and 2

10.      Section 6-5 of the ITAA 1997 includes ordinary income in assessable income.

11.      Payments as consideration for performing services are likely to be ordinary income: see TR 2006/3[1] at paragraph 85.

12.      Section 8-1 of the ITAA 1997 allows deductions for losses and outgoings. Subsection 8-1(1) allows deductions to the extent the loss or outgoing is incurred in gaining or producing assessable income (or carrying on a business for that purpose). Subsection 8-1(2) denies deductions to the extent the loss or outgoing is capital, private or domestic, incurred in producing exempt or non-assessable non-exempt income, or is denied by a specific provision.

13.      The ATO has some guidance about whether recoupments of disbursements are assessable income.

14.      TR 97/6[2] discussed the tax treatment of disbursements incurred by solicitors who sought recoupment from clients. The ruling uses the term 'disbursements' to mean costs incurred on behalf of a client where the solicitor is directly liable - not the client. [11] It says that payments paid by a solicitor for which the client is primarily liable aren't disbursements in the sense used in the ruling. [23]

15.      We'll paraphrase a few points TR 97/6 makes.

•                Recoupments of disbursements are assessable income as ordinary income, and disbursements are deductible. [5-6]

•                Where a solicitor is merely acting as the client's agent and/or has made a loan to the client, the expenditure may not be deductible nor its recoupment assessable. [23]

•                Whether payments are disbursements, or whether a solicitor is merely acting as the client's agent, depends on the contract between the solicitor and the third-party payee, and any contract of engagement between the client and solicitor. [2, 23]

16.      The ATO has guidance about whether you are acting as an agent. GSTR 2000/37[3] at paragraph 28 says in most cases, an agency relationship is established by relevant documentation, the way the parties describe the relationship, and their conduct. It lists non-determinative factors relevant to determining whether you are acting as an agent. They include whether:

•                an agreement describes you as an agent or as having authority to act for another party

•                you exercise any authority to enter legal relations with third party

•                you bear any significant commercial risk

•                you act in your own name

•                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

•                whether you decide the price of things that you might sell to third parties.

17.      We've assumed in this private ruling that the taxpayer is acting as agent.

18.      While TR 97/6 applies to solicitors, we think the reasoning can be applied to other contexts where an entity pays expenses on behalf of another as their agent.

19.      The tax consequences flow from our conclusion that the taxpayer is acting as an agent when it pays statutory and other costs on behalf of clients. The client is primarily liable for those costs, rather than the taxpayer. That means the taxpayer's disbursements aren't disbursements in the sense TR 97/6 uses that term. Rather, the taxpayer's disbursements are like the transactions discussed in paragraph 23 of that ruling. Applying the approach in TR 97/6, the payments the taxpayer makes on behalf of its clients aren't deductible to the taxpayer, and the disbursement fees it receives aren't included in its assessable income.

Question 3

Are the disbursement fees the taxpayer receives from its clients included in its aggregated turnover under section 328-115 of the ITAA 1997?

Answer

No

Explanation for Question 3

20.      Section 328-115 of the ITAA 1997 says your aggregated turnover is the sum of relevant annual turnovers (yours, any entity connected with you, and any affiliate of yours), excluding certain amounts.

21.      Subsection 328-120(1) of the ITAA 1997 says an entity's annual turnover for an income year is the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business.

22.      We concluded in Question 1 that the disbursements received by the taxpayer from clients for payments it makes on their behalf aren't assessable as ordinary income for the taxpayer.

23.      It follows that disbursements aren't part of the taxpayer's aggregated turnover. The payments aren't ordinary income so don't form part of annual turnover. Since they aren't included in annual turnover, they can't be included in aggregated turnover either.

Question 4

Are the disbursement fees the taxpayer receives from its clients consideration for a supply made by the taxpayer under section 9-5 of the GST Act?

Answer

No

Explanation for Question 4

24.      Section 9-40 of the GST Act says you must pay the GST payable on any taxable supply you make.

25.      Section 9-5 of the GST Act is about when you make a taxable supply. You make a taxable supply if you meet four conditions.

•                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.

•                You are registered or required to be registered.

However, the supply isn't a taxable supply to the extent it is GST-free or input taxed.

26.      Section 9-15 of the GST Act says consideration includes any payment, or act or forbearance in connection with, in response to, or for the inducement of, a supply of anything.

27.      The ATO has guidance (in GSTR 2000/37) addressing disbursements incurred by a solicitor in their capacity as a paying agent for a client.

•                At paragraph 49, it says that no GST is payable by the solicitor on the reimbursement by the client. This is because the disbursement relates to goods or services supplied by a third party to the client, rather than to the solicitor. The reimbursement isn't consideration payable by the client for the solicitor's supply of services.

•                However, it goes on to say that GST is payable where goods or services are supplied to the solicitor to allow them to perform services supplied to the client. In that case, the reimbursement will be part of the consideration payable by the client for the solicitor's supply of services.

28.      Disbursements the taxpayer receives from its clients aren't consideration for a taxable supply the taxpayer makes to its clients. The taxpayer is merely paying the third party as the client's agent, and the client is reimbursing the taxpayer. Similar to the approach in GSTR 2000/37, the client is reimbursing the taxpayer for goods or services supplied to the client, not supplied to the taxpayer. Therefore, the taxpayer isn't making a taxable supply, so GST isn't payable under section 9-40 of the GST Act.

29.      Please note that if the taxpayer was listed as an 'owner' on any import documentation, it would have GST liabilities under Division 57 of the GST Act. See paragraphs 34 to 36 of our reasons for decision.

Question 5

Are the disbursement fees the taxpayer receives from its clients included in its GST turnover under section 188-15 of the GST Act?

Answer

No

Explanation for Question 5

30.      Section 188-15 of the GST Act is about working out your GST turnover. Subsection 188-15(1) says your current GST turnover is the sum of the values of all the supplies you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

•                supplies that are input taxed

•                supplies that are not for consideration, and aren't taxable supplies under section 72-5 of the GST Act (which is about certain supplies to associates))

•                supplies not made in connection with an enterprise you carry on.

31.      As discussed above disbursement fees aren't consideration for a taxable supply because the disbursement isn't consideration for a supply the taxpayer makes to its clients. Rather, the taxpayer is simply an agent acting for its clients on the importation of the goods supplied by a third party.

32.      It follows that the disbursements don't form part of the taxpayer's GST turnover. They aren't supplies made by the taxpayer but are instead consideration paid by the taxpayer's clients for a supply made by third parties.

Related issue - fees or commission

33.      The tax consequences for any fees or commission the taxpayer charges to its clients as consideration for its services as an agent will be:

•                assessable income under section 6-5 of the ITAA 1997 (see paragraphs 10 and 11 of this ruling)

•                included in aggregated turnover and annual turnover under sections 328-115 and 328-120 of the ITAA 1997 (see paragraphs 20 and 21 of this ruling)

•                included in GST turnover under section 188-15 of the GST Act (see paragraph 30 of this ruling).

•                a taxable supply under section 9-5 of the GST Act unless it's GST-free or input taxed (see paragraph 25 of this ruling).

Related issue - GST consequences for resident agents acting for non-residents

34.      Section 57-5 of the GST Act says that GST payable on a taxable supply or taxable importation made by a non-resident through a resident agent is payable by the agent and isn't payable by the non-resident.

35.      The ATO has guidance (in GSTR 2003/15[4]) explaining section 57-5 of the GST Act. At paragraph 209, it says that section 57-5 overrides the principles of the general law of agency which would otherwise apply. Paragraphs 210 and 211 say that the resident agent will be liable for GST (rather than the non-resident principal) where the agent's name is shown as the 'owner' on the import declaration. However, the non-resident principal will be liable for GST (and not the resident agent) where the principal's name appears as 'owner' on the import declarations. In the latter case, the importation isn't made through the resident agent for the purposes of section 57-5.

36.      Section 57-5 of the GST Act won't apply on these ruling facts. The import declaration shows the taxpayer as the agent and the importing client as the owner of the imported goods. Applying GSTR 2003/15, section 57-5 doesn't apply as the taxpayer isn't making a taxable importation as a resident agent for non-resident clients.

Related issue - invoicing

37.      The taxpayer should consider varying its invoicing practices as the current practice of listing the GST Amount from the customs entry on the tax invoice could be misconstrued as a GST charge by the taxpayer rather than reimbursement of the GST charge by customs. An invoice with a GST component shouldn't be issued on a supply that isn't taxable. The taxpayer's clients can claim input tax credits on the importation if they hold the import declaration and evidence of agency. In these circumstances it would be more appropriate for the taxpayer to only issue an invoice dealing with reimbursement of the GST and not a tax invoice. The taxpayer will need to issue a tax invoice for the service that it provides clients.

38.      Section 15-5 of the GST Act allows input tax credits for creditable importations. Under section 15-5, if you're registered for GST, you make a creditable importation if you import goods for a creditable purpose, and that importation is a taxable importation. Section 15-10 of the GST Act explains that you import goods for a creditable purpose to the extent that you import the goods in carrying on your enterprise. Section 13-5 of the GST Act explains that you make a taxable importation if the goods are imported and you enter the goods for home consumption.

39.      Paragraph 292 of GSTR 2003/15 explains the ATO view about evidence for creditable importations. It says that an import declaration is evidence to claim an input tax credit for creditable importations, rather than a tax invoice. Furthermore, if the import declaration doesn't show the entity that imported the goods as the 'owner', the importing entity needs to also have evidence that it paid GST to claim the input tax credit. This evidence could be payment of an invoice for reimbursement of the GST paid on the importer's behalf by another party, together with evidence showing that the 'owner' (for the purposes of the import declaration) was acting as agent for the importing entity.

40.      Paragraph 20 of GSTR 2013/1[5] states the tax invoice requirements to claim an input tax credit:

A tax invoice cannot include words that indicate that the price of what is supplied is inclusive of GST to the extent the supply is not a taxable supply. However, a supplier may issue a document headed 'tax invoice' for a supply that is not a taxable supply if it shows that the price of the supply does not include GST. For example, the supplier could include a statement on the document that the price of the supply does not include GST or show the GST as nil or zero. Alternatively, the supplier could cross out the words 'Tax Invoice' or the word 'Tax.'

[1] Taxation Ruling TR 2006/3 Income tax: government payments to industry to assist entities (including individuals) to continue, commence, or cease business.

[2] Taxation Ruling TR 97/6 Income tax: tax treatment of solicitors' disbursements/recoupments.

[3] Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law.

[4] Goods and Services Tax Ruling GSTR 2003/15 Goods and services tax: importation of goods into Australia.

[5] Goods and Services Tax Ruling GSTR 2013/1 Goods and services tax: tax invoices.

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