Home' micenet eMag : micenet February 2016 Contents LEGAL ISSUES | MATT CROUCH
he over-arching principle is that
prices need to be honestly quoted
and charged. That sounds trite, I
know, but delving a little deeper,
there is quite a lot to it.
Let’s say you are a service provider – say a
PCO or event manager. You charge a fee
agreed with your client as a fixed sum. You
quote your fee for managing an event or
conference at, say $30,000.00 plus certain
expenses to be reimbursed by the client at
cost. In this issue we’ll start the ball rolling by
considering GST. It is always better to quote
your prices inclusive of GST. So in this case,
the better approach would be to quote the fees
as “$33,000.00 (including GST). No-one can
complain that they were misled or deceived.
In some cases, where you are supplying
goods or services of a kind ordinarily
acquired for personal, domestic or household
use or consumption, this is required by a
specific provision of the Australian Consumer
Law (not as many think, in the GST tax
legislation). In such cases, if you quote $30K
and charge $33K, you’ll commit an offence
(for which severe penalties apply) and the
client will be entitled to pay you the lower
Extraordinarily, after 15 years of living with
the GST there is still reluctance on the part of
many businesses to quote prices inclusive of
In the October/November issue we examined how important it is not to
discuss pricing with your competitors and I promised to delve further into
the vexed topic of pricing. This time we’ll look at some of the issues around
quoting and invoicing your fees/prices.
GST because it makes the price appear higher. But we get it! We know you aren’t getting that
extra 10 per cent and that it’s going to Canberra (then, supposedly, to the states, if you can
believe them). We also know that when we pay a business expense, we get the GST back as an
input tax credit. So why all the fuss? – quote GST inclusive!
Let’s move on... Where I see a lot of businesses get confused is over the issue of GST on
expenses that are to be reimbursed by their clients.
In our example, you are charging your fee ($33,000 incl GST) and for agreed expenses “at cost”.
Let’s imagine that you have an expense that you are entitled to pass on to the client, say, travel and
accommodation costs that come in at a nice, round $1,100.00 – including GST of $100.
How much do you charge your client - $1,000 or $1,100? I know of many businesses that charge
the higher amount – so that the client is asked to “reimburse” the GST as well as the expense.
If the contract says that the client must reimburse the expense at cost and the supplier is
getting a refund of or credit for the GST component, how can that component be considered
part of the expense? In my view, in such cases the supplier is really getting a margin on the
expense, since the supplier also gets the original GST back from the ATO, as an input tax credit.
Arguably that margin is part of the supplier’s fee income – with all attendant tax consequences.
Yes there is a cash-flow issue because the input tax credit does not accrue until the next BAS
statement is lodged... but if you are getting the tax back, how can that truly be an “expense”
that the client must reimburse? It just doesn’t pass the “sniff test”. In my view charging the client
for the GST on an expense is at best a windfall gain and at worst, a case of “double-dipping”. It
could be a breach of the contract with the client if the client’s obligation is to reimburse
“expenses” or “at cost” and, moreover, it could be misleading and deceptive conduct.
You may even have seen the clause - many contracts for the supply of services say that
where an expense is to be reimbursed it must be reimbursed net of any input tax credit that the
supplier will receive – ie: the supplier cannot charge the client for the GST where the supplier will
get it back from the ATO. Even if such a clause is not in your contract, I still consider it to be
inappropriate to be charging GST on reimbursable expenses for the reasons noted above.
Next time we’ll have a look at price estimates and variations and the necessity of ensuring
that you articulate the scope of work properly, so that you don’t get stung by a client that wants
to hold you to your original quote. m
Matt Crouch, Hodgkinson McInnes Legal - firstname.lastname@example.org
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