GST and agency IS finalised
IR has issued IS 21/01, the finalised interpretation statement titled “GST and agency”.
The document explores the concept of whether a person is acting as an agent or as a principal for the purposes of the GST Act. In this regard, it is considered that there are two essential features in any agency relationship:
- Authority – the agent must be authorised to act on behalf of the principal to create/affect the legal relations between the principal and a third party, for the relevant supply.
- Consent – the agent and the principal must both have consented to the conferral of such authority on the agent.
It is considered that certain features will strongly support there being the existence of an agency relationship, including documentation, commission payments, property ownership (agent never obtains legal interest), assumption of risk (by the principal), contract enforceability (third party against principal), debt liability (agent has no exposure) and reimbursement (of agent for expenses).
The IS 21/01 commentary also suggests that the following features may support the existence of an agency relationship:
- Fiduciary obligations: fiduciary obligations may be owed by the agent to the principal.
- Tax: the parties account for tax in a way that is consistent with agency.
- Control: the principal has control over the agent.
- Use of property: the agent does not treat the principal’s goods as their own asset.
- Alteration of property: the agent does not alter/manipulate property obtained as agent.
- Sale price: the principal sets the sale price of goods.
- Notification of sale details: agent required to notify principal of sale price and customer identity.
- Separate funds: the agent keeps the principal’s money separate from its own.
- Appearance: the agent holds itself out as an agent.
The document is split into four parts, with the final part dedicated to providing worked examples which illustrate how to determine whether an agency relationship exists.