GST and 'reimbursement' of expenses incurred by a contractor in the course of supplying project work services

Does the government department's 'reimbursement' of travel and incidental expenses incurred by the entity, a contractor, in carrying out its project work activities, form part of the consideration for a taxable supply of the entity's project work services under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Yes, the government department's 'reimbursement' of travel and incidental expenses incurred by the entity, a contractor, in carrying out its project work activities, does form part of the consideration for a taxable supply of the entity's project work services under section 9-5 of the GST Act.

The entity is a contractor that is carrying on an enterprise in Australia. The entity is engaged by a government department to provide project work services. The entity's supply of the project work services to the government department is a taxable supply under section 9-5 of the GST Act.

The entity incurs travel and incidental expenses in carrying out the project work activities.

The entity presents the government department with an invoice that contains an amount for the work performed plus a separate amount as 'reimbursement' for travel or incidental expenses that the entity incurred in carrying out the project work activities. The entity receives payment from the government department for the total amount of the invoice.

The entity is not an employee, an associate of an employee, agent, partner or officer of the government department.

The entity and the government department are both registered for goods and services tax (GST).

Under section 9-5 of the GST Act, an entity makes a taxable supply if: • it makes a 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, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

The entity is making a taxable supply of project work services to the government department. Under section 9-40 of the GST Act, the entity must pay the GST payable on this taxable supply.

Section 9-70 of the GST Act provides that the amount of GST on a taxable supply is 10% of the value of the taxable supply. This amount is equal to 1/11th of the consideration for the supply (section 9-75 of the GST Act).

Under paragraph 9-15(1)(a) of the GST Act, consideration includes any payment in connection with a supply of anything. The entity receives a payment from the government department that consists of an amount for the work performed plus a separate amount as 'reimbursement' for the travel or incidental expenses that it incurred in carrying out the project work activities. Therefore, it is necessary to determine whether the reimbursement forms part of the consideration for the supply of the entity's project work services.

The treatment of disbursements and reimbursements is considered in Goods and Services Tax Ruling GSTR 2000/37. Paragraph 49 of GSTR 2000/37 provides that: '..[I]f goods and services are supplied to a solicitor to enable the solicitor to performs services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods and services, whether separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor [emphasis added].'

The entity incurred the travel and incidental expenses in carrying out the project work activities. Applying the principle in GSTR 2000/37, the 'reimbursement' of the travel and incidental expenses incurred by the entity forms part of the consideration provided for the entity's taxable supply of the project work services. Accordingly, the amount of GST payable on the entity's taxable supply of its project work services is calculated on the amount received for the work performed as well as the 'reimbursement' of the travel and incidental expenses incurred in carrying out the project work activities. [Note 1: Division 111 of the GST Act does not apply to determine whether the government department has made a creditable acquisition when it pays the reimbursement of the travel and incidental expenses to the contractor as the entity is not an employee, an associate of an employee, agent partner or company officer of the government department. Note 2: Under section 11-20 of the GST Act, the government department is entitled to claim an input tax credit in respect of the whole invoice (amount paid for the services performed as well as the reimbursement of the travel and incidental expenses) provided all the requirements in section 11-5 of the GST Act are satisfied.]