A15: Recovery of an expense that a registered person incurs as a principal from another party is a reimbursement. A reimbursement is a supply and subject to GST. A registered person must fulfil all the following criteria:
(a) Incur expenses as principal;
(b) Entitle to claim input tax credit;
(c) The client is not the recipient of the supply (invoice is in the principal’s name);
(d) The principal is the person responsible to pay for the supply;
(e) The payment is not authorised by the client;
(f) The client has no knowledge that the supply is made by a third party;
(g) The principal has the right to alter or add on the value of the supply;
(h) The payment is for the supply made to the client.
The recovery of a payment made by registered person on behalf of another party as an agent is termed as a disbursement. A disbursement does not constitute a supply and hence, is not subject to GST. Payment to third party or on behalf of the principal will be treated as disbursement if the registered person fulfils all the following criteria:
(a) Incur expenses as an agent acting on behalf of the client;
(b) The client is the recipient of the supply (invoice is in the client’s name);
(c) The client is the person responsible to pay and claim input tax credit;
(d) The payment is authorised by the client;
(e) The client knew that the supply is made by a third party;
(f) The exact amount is claimed from the client and the agent has no right to alter or add on the value of the supply;
(g) The payment is clearly an additional to the supply made to the client.