GST core
Consideration
Consideration is anything you receive in return for a supply, including money, goods, services or other benefits, and it generally determines the GST payable on that supply.
In GST, consideration means what the supplier gets in return for making a supply. Most of the time it is money, but it can also be goods, services, or any other benefit. If a business swaps a service for another business's goods, each party is giving and receiving consideration, and each has made a supply. The concept stops GST from being avoided by structuring a deal as a swap instead of a sale.
Consideration has a close link to the value on which GST is calculated. For a taxable supply, the GST is 10% of the price, or one-eleventh of the GST-inclusive consideration. When the consideration is not money, the law requires you to work out its GST-inclusive market value and use that. This is why barter arrangements still need GST treatment, with both sides issuing tax invoices.
The supply must be made for consideration to be taxable. A true gift, where nothing is received, is generally not a taxable supply. But the line can be fine. A free item given in a promotion can be part of a bigger deal, with the consideration being what the customer pays for something else. A sponsorship in which the sponsor receives advertising may be taxable because the sponsor is receiving a benefit in exchange.
Payments to a supplier for something that is not itself a supply of goods or services need careful treatment. A deposit may be consideration when it is forfeited or applied to the price, and a late payment fee or a surcharge may form part of the consideration for the supply it relates to. Some payments, such as certain government grants or donations, may not be consideration if nothing is received in return, though conditions attached to them matter.
Consideration also includes amounts paid by a third party. If a customer's insurer pays part of a repair bill, the payment from the insurer is still consideration for the repair supply, and GST is calculated on the total. Likewise, any incentives or reimbursements linked to the supply can form part of what is received, so a business should look at all amounts connected to the transaction.
A common mistake is overlooking non-cash consideration. Another is assuming that an amount is not subject to GST because it is called something other than a price, such as a fee, membership, or contribution. The label does not decide the question, and the substance of the arrangement does. Where there is a link between the payment and a supply, GST is likely to apply.
This is general information. If your transaction involves swaps, third parties or unusual payments, confirm the treatment with the ATO or a registered tax professional.
Worked example
Two registered businesses agree to a swap. A printer prints brochures worth $2,200 including GST for a caterer, and the caterer provides a function worth $2,200 including GST to the printer. Each has received consideration of $2,200. Each business reports GST of $2,200 divided by 11, which is $200, on its sale, issues a tax invoice, and can claim a $200 credit on what it receives.
Practical tips
- Treat barter and swaps as sales on both sides, using the GST-inclusive market value of what you receive.
- Look at all amounts connected with a deal, including third-party payments, when working out the GST.
- Do not rely on labels like fee or contribution. The substance of the payment decides whether GST applies.