3A Accounting System

Wednesday, May 6, 2015

What is Disbursement and Reimbursement treatment for GST


1.      Recovery of expenses may be treated as disbursement or reimbursement and this will depend on whether the expenses are incurred by a principal or an agent acting on behalf of a client.

2.       GST treatment on disbursement and reimbursement are as follows:-

Disbursement
Reimbursement
Not a supply
Is a supply
Not entitled for input tax claim
Entitled for input tax claim

3.       In general, the criteria for disbursement and reimbursement for GST purposes are as follows:-

Disbursement
Reimbursement
Incur expenses as an agent acting on behalf of the client.
Incur expenses as a principal.
The client is the recipient of the supply (invoice is in the client’s name)
The client is not the recipient of the supply (invoice is in the principal’s name).
The client is the person responsible to pay for the supply
The principal is the person responsible to pay for the supply .
The payment is authorised by the client .
The payment is not authorised by the client .
The client knew that the supply is made by a third party .
The client has no knowledge that the supply is made by a third party
The exact amount is claimed from the client and the agent has no right to alter or add on the value of the supply
The principal has the right to alter or add on the value of the supply .
The payment is clearly an additional to the supply made to the client
The payment is for the supply made to the client .


FAQ:-
1.       What can I claim as disbursements which are not subject to GST?

Disbursement are not subject to GST and it does not constitute a supply. It is where the registered person does not have the legal obligation to pay for the goods or services or a party to a contract and the discretion to alter the nature or value of supplies made between his customer and the third party supplier but is authorized by his customer to make payment to the supplier on his behalf. At such, any recovery of a payment incurred by the registered person in his capacity as paying agent on behalf of another party in order to discharge its payment obligation is treated as a disbursement. You may only treat a payment on behalf of a client for goods and services to a third party as a disbursement for GST purpose if the following conditions are satisfied:
a.       You acted for your client when paying the third party.
b.      The client actually received and used the goods or services provided by the third party.
c.       The client knows that the goods or services would be provided by the third party.
d.      The client authorized you to make payment on his behalf.
e.      The client was responsible for paying the third party.
f.        The payment is separately itemized when invoicing the client.
g.       You recover only the exact amount which you paid to the third party.
h.      The goods and services paid for are clearly additional to the supplies which you make to the client.

Any payments made on behalf of the client which satisfy the above conditions can be regarded as disbursements for GST purposes and such payment may include- (a)
a.       non-taxable disbursements including exempt and out of scope supplies and supplies by non-taxable person.
b.      taxable disbursements.
c.       statutory fees such as seeking and obtaining statutory approvals from proper authorities.
2.       Can general expenses qualify as disbursements?

General expenses incurred by employment agencies such as telephone, telex, postage, advertising, and stationery charges are incurred in the course of providing services to the client. They are not to be treated as disbursements for GST purposes.

Source: 
1. MIA
2. Panel Decision 5/2015

New DG's Decision 05/2015

New DG's Decision 05/2015. Can view from here.

Some highlight for gift rule, GST still need to be account even though input tax not claimed if the gift of goods is worth more than RM500 per year

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