You can’t claim GST back on an expense unless you actually receive whatever it is you are paying for.
That’s the message from the Australian Federal Court in a decision released on 1 November [Professional Admin Service Centres Pty Ltd v FC of T].
In that case the taxpayer agreed to contribute towards a man’s legal costs in return for sharing in any compensation he was awarded if successful. The taxpayer tried to claim the GST back on its payments.
The Court agreed with the Tax Office and refused to allow the GST claim because the taxpayer had no contract with the lawyers and did not actually receive the legal services itself.
The taxpayer had also tried to claim GST back on management fees it was “charged” by a related entity. The Court refused this claim as well because the evidence pointed to the fees being a “sham”. No actual services were provided to the taxpayer and no payment was made by it.
A New Zealand court would probably arrive at the same conclusion.
GST depends a lot on the contractual arrangements entered into by the parties. If goods or services are not actually acquired by the person making the payment it’s unlikely they can claim the GST back on the expense (except in some specific “agency” arrangements).
Much care is required around cost sharing arrangements and charges for “management services”. Make sure the contractual terms are consistent with being able to claim back GST and also make sure what you’re paying for is real!
Barrister, Director and Consultant specialising in tax, family enterprise governance and succession, helping start ups and entrepreneurial enterprises grow safely and international expert on value added tax policy and implementation.