Customer Reimbursements & GST

I have a question about GST in relation to customer reimbursements.

For explanation purpose say my Business is ABC Pty Ltd & my supplier is X & my customer is Y.

X is not registered for GST,When they invoice they simply pass the cost(inc gst) to ABC , ex. taxi fare $8 inc 0.63 GST

ABC - registered for GST

When ABC is invoicing Y they include 7.27 + GST (bringing total to 8)

Question

  1. Has X invoiced ABC correctly ?
    2.Has ABC invoiced it’s customer Y correctly ?
  2. Shouldn’t ABC invoice Y as GST Free? Because with GST on they need to pay & $0.63 to ATO
    4.If X is registered for GST would any of above change ?

I read about the principal agent theory in the ATO website and i’m pretty confused. Appreciate if someone can help.

Lydia - If your supplier is not registered for GST they should not be adding it to their invoices. In your case, as you are registered, you do charge GST to your customer. If your supplier does at some stage register for GST then they will be expected to pass it on to you as their customer. Hope this helps.

  1. X has invoiced correctly - as X is not registered they invoice you for $8, if they were registered they would be invoicing you $8 + .80c. It doesn’t matter to ABC how X’s cost is broken down, it could have been an unregistered supply of $8 to them.

ABC should take up the cost as $8, with zero allocation to GST Paid as X hasn’t charged YOU GST on their invoice.

  1. ABC has invoiced incorrectly When ABC is invoicing Y it should be $8 + .80c. Don’t confuse another organisation GST status with your own GST status.

  2. No, its not a GST Free supply so not applicable, they need to pay .80c to ATO

  3. See (1) above

Thank you for your reply.

My argument is why would ABC should charge GST on the reimbursements as it’s not an income from trading activity ?

Thank You. But why would ABC charge GST on non trading activity ?

As your company is registered for GST it is a requirement that you charge this tax to all your customers as long as you are providing a taxable item or service.

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If you are putting an item on an invoice, regardless of it being a trading activity or not, you must add GST.
A non-trading activity would be the disposal of fixed assets, GST would still be charged on that invoice.

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Thank You.