GST and Bailment arrangement

Is the entity, a taxi company, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it charges a taxi driver for the use of its mini-bus?

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it charges a taxi driver for the use of its mini-bus.

The entity is a taxi company. The entity and the taxi driver enter into a bailment arrangement whereby the taxi driver pays the entity for the use of the entity's mini-bus. The payment is in the form of a percentage of the taxi driver's shift takings.

The entity is registered for goods and services tax (GST) and is supplying the right to use the mini-bus in the course or furtherance of its enterprise. The supply is connected with Australia.

Under section 9-5 of the GST Act an entity makes a taxable supply if: (a) it makes a supply for consideration; (b) it makes the supply in the course or furtherance of an enterprise that the entity is carrying on; (c) the supply is connected with Australia; and (d) the entity is registered or required to be registered.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case, requirements (b), (c) and (d) have been satisfied. Therefore, the issue is whether the entity is making a 'supply' for 'consideration' under paragraph 9-5(a) of the GST Act.

The existence of a 'supply' itself is an essential element in determining whether a transaction is a taxable supply under section 9-5 of the GST Act. A 'supply' is defined in paragraph 9-10(2)(e) of the GST Act to include a creation, grant, transfer, assignment or surrender of any right. In this case, entity is granting the right to use the mini-bus to the taxi driver. Therefore, the supply is the grant of a right to use the mini-bus. History: Paragraph amended on 31 August 2004. The reference to paragraph 9-10(2)(d) of the GST Act has been replaced with a reference to paragraph 9-10(2)(e) of the GST Act.

'Consideration' is defined in paragraph 9-15(1)(a) of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything. In this case, at the end of each shift, the taxi driver pays the entity a percentage of the shift takings for the use of the mini-bus. This bailment arrangement amounts to consideration for the purposes of paragraph 9-15(1)(a) of the GST Act. It does not matter whether the amount the taxi driver pays the entity for the use of the mini-bus is in the form of lease payments or as a percentage of the shift takings. Therefore, the entity is making a 'supply' for 'consideration' under paragraph 9-5(a) of the GST Act.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act, nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it charges a taxi driver for the use of its mini-bus.