The purpose of this circular is to clarify arrangements for payment of the Goods and Services Tax (GST) by employing organisations on the:-

• allowances payable to employees;
• reimbursements of business related expenses to employees; and
• transfer of employees' accrued leave between employing organisations.

As the GST paid in respect of such transactions is a cost of carrying on the business of government, agencies are able to use data contained on tax invoices to claim input tax credits to offset the GST costs incurred. The result of this should be no net increase in the cost to the agency.

In respect of the transfer of employee's accrued leave entitlements between employing organisations, advice has been received from the Australian Taxation Office (ATO) that the transfer of funds represents a supply and as such, attracts payment of GST on the amount involved.

To obtain input tax credits in respect of such GST obligations, it will now be necessary for the receiving agency to issue the former agency with a tax invoice for the amount involved plus 10% for the GST. The former agency will then be able to use data from the tax invoice to claim an input tax credit in respect of the GST liability.

If the receiving agency fails to issue a tax invoice including the GST, the former agency will be forced to withhold 1/11th of the amount being transferred. The outcome would be that the former agency will not be able to then claim the input tax credit entitlement and the receiving agency will be required to meet the shortfall in the leave entitlement.

Any enquiries from organisations concerning this matter should be directed to their client contact officer.

C. Gellatly
Director-General

C2003-48 supersedes part on GST on leave transfer payments