GST For Lawyers

Agency relationship and disbursements

One common area where GST for lawyers is not widely understood is in the area of legal disbursements. Hopefully this blog will summarize some of the key practical points for legal professionals and clarify GST for lawyers.

Below is an extract from GSTR 2000/37 where it relates to agency relationship applied in scenarios for GST on solicitors and lawyers.

  1. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is ‘standing in the shoes’ of the client.
  2. If a disbursement is made by a solicitor and incurred in the solicitor’s capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor’s overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

GST Not Payable

The following are examples of common fees and charges, for which a client is liable, that may be paid for by a solicitor as a paying agent of the client. If the solicitor makes the payment, GST is not payable on the subsequent reimbursement by the client to the solicitor for:

  • Application fees
  • Registration Fees
  • Court Fees
  • Barrister’s Fees when barrister is engaged by the client
  • Incorporation Fees
  • Most fees in connection with registering and maintaining the status of particular legal relationships such as companies, partnerships, societies or associations. A common example would be registering a company through ClearDocs where the client could have done it directly through them.
  • Fines, penalties, stamp duty and taxes
  • Probate fees

GST Payable

The following are examples of common disbursements that, depending upon the contractual arrangements between the client and the solicitor, can be incurred by a solicitor and then reimbursed by a client as part of the consideration payable for legal services provided to the client by the solicitor. If the following disbursements are incurred by a solicitor, GST is payable on the subsequent reimbursement by the client to the solicitor:

  • Search fees
  • Municipal search fee (eg rates; zoning; permits)
  • Birth/death/marriage certificate fees
  • Barrister’s fees when the barrister is engaged by the solicitor
  • Witness fees
  • Fees for recording court proceedings
  • Service of document fees
  • Fees for expert report or attendance in court
  • Fees to obtain court transcript

The above GST treatment of disbursements is consistent with the income tax treatment of disbursements as explained in Taxation Ruling TR 97/6.

The following are examples of costs that a solicitor may incur in carrying on the business of providing a legal service to the client. GST is payable on any subsequent payment by the client to the solicitor for the supply of the legal service for:

  • Telephone expenses
  • Postage expenses
  • Photocopying expenses
  • Courier expenses
  • Word processing expenses
  • Travel expenses of the solicitor and staff

Example 10

A law firm acting for a client charges the client for costs incurred in providing a legal service and receives a fee for its professional services. The firm acts as a paying agent for the client with respect to the outgoings which the client is legally obliged to pay (such as the payment of land taxes and court costs) for supplies made to it. However, an agency relationship generally does not apply to those circumstances where the law firm provides a legal service for a client, pays for taxable supplies on its own behalf and then charges the client for those expenses (such as photocopying and telephone calls).

ATO TAX RATES

RESIDENTS (INCOME TAX RATES) 2012/2013 and 2013/2014
Taxable Income $ Tax Payable $
0 – 18,200 0
18,201 – 37,000 19% of excess over $18,200
37,001 – 80,000 $3,572 + 32.5% of excess over $37,000
80,001 – 180,000 $17,547 + 37% of excess over $80,000
> 180,000 $54,547 + 45% of excess over $180,000
NON-RESIDENTS INCOME TAX RATES) 2012/2013 and 2013/2014
Taxable Income $ Tax Payable $
0 – 80,000 32.5% of entire amount
80,001 – 180,000 $26,000 + 37% of excess over $80,000
180,001 + $63,000 + 45% of excess over $180,000

 

RESIDENTS MINOR (INCOME TAX RATES) 2012/2013 and 2013/2014
Taxable Income $ Tax Payable $
0 – 416 0
417 – 1,307 66% of excess over $416
1,308 + 45% of the entire amount

 

 


 

RESIDENTS (INCOME TAX RATES)
From 1 July 2012 Year 2011-12
Income Thresholds $ % Income Thresholds $ %
0 – 18,200 0 0 – 6,000 0
18,201 – 37,000 19 6,001 – 37,000 15
37,001 – 80,000 32.5 37,001 – 80,000 30
80,001 – 180,000 37 80,001 – 180,000 37
> 180,000 45 > 180,000 45

 

NON-RESIDENTS (INCOME TAX RATES)
From 1 July 2012 Year 2011-12
Income Thresholds $ % Income Thresholds $ %
0 – 80,000 32.5 0 – 37,000 29
80,001 – 180,000 37 37,001 – 80,000 30
> 180,000 45 80,001 – 180,000 37
> 180,000 45

 

Superannuation 2012-13 2011-12
Maximum Government Co-Contribution $500 $1,000
Government Matching Rate 50% 100%
Low Income Threshold $31,920 $31,920
Income Cut-Off Level $46,920 $61,920
  1. Government will co-contribute superannuation up to a lower maximum cap in the 2012-13 year.
  2. The matching rate indicate the rate that the government will match you in every dollar that you contribute into your superannuation.
  3. The low income threshold will trigger off a phasing out of the co-contribution amount until the cut-off level is reached.
  4. You will NOT receive any co-contribution for any income earned above the cut-off level.

 

Low-Income Earners Contribution

EXAMPLE:

In the year 2012-13, Stephen has an adjusted taxable income (ATI) of $33,000. His employer has made $2,970 of Superannuation Guarantee contribution for him.

With an ATI of less than $37,000, Stephen will receive a government contribution equivalent to 15% tax of his total concessional contributions made during the year. Therefore, he will receive (15% x $2,970) $445.50 in government contribution.

This government contribution is capped at $500.

 

Increase in Contributions Tax

EXAMPLE:

In the year 2012-13, Jan has income of $295,000. During the year, his employer has made $23,000 of SG contributions into his super fund.

The tax rate on concessional contributions has increased from 15% to 30% for earners with income greater than $300,000. Jan’s total income for the year is $318,000 ($295,000 + $23,000).

The 30% tax will be applied against the $18,000 of his concessional contributions. As a result of this increased tax, Jan will pay additional contribution tax of $2,700 ($18,000 x (30%-15%)) in comparative to the previous financial year where the tax is at 15%.