The Administrative Appeals Tribunal (AAT) recently released its decision in Crown Estates (Sales) Pty Ltd and Commissioner of Taxation [2015] AATA 949, where it considered whether a property management company acted as an agent or a principal.
The AAT found that the company, acting on behalf of the property owners, was an agent for GST purposes when acquiring goods and services. Consequently, creditable acquisitions were made by the property owners and not by the property management company, resulting in no entitlement to input tax credits for the property management company in respect of those purchases.
The property management company contended that while goods and services were acquired for use in properties owned by the owner-clients, it was acting as a principal when engaging the contractors, was liable to the contractors, and so was entitled to claim input tax credits in respect of the goods and services purchased. However the AAT, focusing on the lack of any written agreement which would have validated the applicant’s argument, found instead that the property management company was acting as an agent.
Primarily, the AAT considered that where an agent does not disclose the existence of the principal and appears on the face of the relationship to be contracting with a third party in his or her own right, the undisclosed principal will still be liable and may enforce the agreement with the third party. The AAT concluded in this case that the acquisition of goods or services from the third party was made by the owner-clients (principal) and not by the property management company (agent).
The impact of this decision should be considered not only by those carrying on a property management business as an agent but, arguably, by any entity involved in an agency relationship.
Broadly, where an agency arrangement is in place under which an agent is accounting for GST liabilities and/or claiming input tax credits, the parties to the agency arrangement should consider whether:
- the agency relationship is documented clearly and appropriately in written form
- their respective GST reporting requirements arising from the arrangements are fully understood, and
- it would be appropriate to disclose the agency relationship to parties with whom the agent interacts on behalf of the principal.
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