GST and an allowance paid to a company director

Is the entity, a company director, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives an allowance from its employer?

No, the entity is not making a taxable supply under section 9-5 of the GST Act when it receives an allowance from its employer.

The entity is a company director. The entity is an employee of the company. The entity receives an allowance from its employer to cover certain expenses that the entity incurs in its capacity as an employee. The entity does not refund, to its employer, any unexpended amount from this allowance.

The entity is not registered for goods and services tax (GST).

Under section 9-5 of the GST Act, an entity makes a taxable supply if: • it makes the supply for consideration; • the supply is made in the course or furtherance of an enterprise that it carries on; • the supply is connected with Australia; and • the entity is registered or required to be registered for GST.

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

Of relevance, in this case, is whether the entity is making a supply in the course or furtherance of an enterprise that it is carrying on when it receives an allowance from its employer.

Under subsection 9-20(1) of the GST Act, the definition of 'enterprise' is very broad. However, paragraph 9-20(2)(a) of the GST Act provides that an enterprise does not include an activity or series of activities done as an employee.

The entity receives an allowance from its employer to cover expenses that it incurs in its capacity as an employee. In accordance with paragraph 9-20(2)(a) of the GST Act, these activities do not fall within the definition of 'enterprise'.

The entity is not registered for GST and the activities, for which the allowance is received, are not made in the course or furtherance of an enterprise that the entity is carrying on. Therefore, the entity is not making a taxable supply under section 9-5 of the GST Act when it receives an allowance from its employer. [Note: Under Division 111 of the GST Act, an employer may be entitled to input tax credits for some reimbursements made to an employee. However, where an amount is paid to an employee to cover certain expenses and the employee is not required to refund any unexpended amount, this is an allowance not a reimbursement. In this case, Division 111 of the GST Act does not apply and the employer is not entitled to any input tax credits for the amount paid to the employee.]