OnCosts vs Disbursements
Agency vs Principal
GST to be added /claimed/included or NOT
Is the payment a normal part of the “agents” business costs?
Yes: Then the agent should claim GST back &
- when a charge is levied against the client GST should be added to what was the GST Exclusive cost to the client,
- alternatively GST should be added to whatever amount the agent is charging the client for the service/supply.
||Is the agent passing on the cost as is?
||Is the agent only acting for and on behalf of the client?
||Then No GST impact to the Agent as the total amount paid is passed on to the client as the agent is acting on their behalf. All GST reporting is only on the clients books.
Reimbursement / Direct passing on of On-Costs / Disbursements (at cost)
The transaction is not that of the Agent but belongs to the Client.
The agent may have paid and then “invoiced” the client but at full “disbursement” value. It is not a reportable transaction to the Agent as it is not a creditable acquisition to the Agent, nor its business, but it is a creditable acquisition on behalf of the client, hence the client reports.
Services provided by the agent / onsold / marked up
The transaction changes its nature if the Agent changes the value, charges a markup for the provision of the service or equipment etc. Then the Agent is making an acquisition that is the cost to the Agent (hence the agent claims back the GST). The Agent then bills for the provision of a service or equipment at a fee which is the subject to FBT.
Ultimate authority: 135 paragraphs of GSTR 2000/37
From the Issues register of the ATO
To start this discussion we found the following answer to be a great guidance. We quote the question and answer in full then comment
Note our colour coding:
Yellow indicates agent passing on a disbursement – No GST on the agent
Blue indicates provision of services by the agent – GST applies
14.5.1 If an agent incurs advertising, repair, maintenance costs and electronic banking charges etc on behalf of the owner, who is entitled to the input tax credits and what happens if the agent includes a mark up on these costs?
For source of ATO view refer to GSTR 2000/37 - Goods and services tax: agency relationships and the application of the law
When an owner makes acquisitions through agents the general law of agency may apply. That is, a thing done by an agent as agent for the owner is a thing done by the owner. The owner is entitled to the input tax credits on creditable acquisitions and importations made through the agent. The agent is not liable for the GST and is not entitled to the input tax credits. The terms of the agency agreement will determine whether a particular amount recovered from the owner forms part of the consideration for the supply of agency services or is merely a reimbursement of costs incurred by the agent on behalf of the owner. A payment is a reimbursement when the agent is compensated exactly (meaning precisely, as opposed to approximately) for an expense already incurred although not necessarily disbursed. In general, the owner considers the expense to be its own and the agent incurs the expenditure on behalf of the owner.
It should be noted that where an agent incurs a cost that is reimbursed by the owner, the agent is not entitled to claim an input tax credit on the acquisition. Where an amount is incurred and not reimbursed, the cost will represent an ordinary operating cost of the agent's enterprise and an input tax credit will be available to the agent (assuming it is otherwise a 'creditable acquisition' for the agent).
Example An agent purchases a $5,500 air-conditioning unit for the owner of a building and claims the reimbursement. The owner is entitled to the input tax credit if it is a creditable acquisition.
In the example above, if the agent charges the owner more than $5,500, it would not be a reimbursement, that is, the agent charges a mark-up. Assuming the agent who is registered for GST charges the owner $6,050 and invoices the owner for $6,050 being sale of an air-conditioning unit from the agent to the owner; GST payable by the agent would be 1/11 of $6,050 which is $550. The agent is entitled to claim the input tax credit of $500 which is 1/11 of $5,500. The owner is entitled to claim an input tax credit of $550 if the unit is a creditable acquisition. If the agent claims the reimbursement of $5,500 plus a service fee of $550 for organising the purchase and installation, etc; GST payable by the agent would be $50 being 1/11 of $550. The owner is entitled to an input tax credit of $550 (that is, 1/11 of $5,500 + 1/11 of $550) provided the unit is a creditable acquisition.
Electronic banking charges incurred by the agent and passed on to property owners would not usually be considered a reimbursement. The banking charges relate to activities on the agent's bank account and are a cost to their business, which they then pass on to those whose properties they manage. If the charges to the owner's trust account form part of the consideration for the services performed by the agent, GST will be payable by the agent on these amounts.
A discussion of the agency relationship and disbursements appears in GSTR 2000/37 commencing at paragraph 48
What is your situation?