GST clause: saying whether the price includes GST

Sample clause

a twelve month advisory engagement between Fernhill Consulting, a registered Australian supplier, and a manufacturing client that is also registered

11. GST 11.1 Words used in this clause that are defined in the GST law have the meaning given to them in that law. 11.2 Unless expressly stated otherwise, every amount payable under this Agreement is exclusive of GST. 11.3 If a supply made under this Agreement is a taxable supply, the recipient must pay to the supplier, in addition to the consideration for that supply, an additional amount equal to the GST payable on it. 11.4 The additional amount under clause 11.3 is payable at the same time as the consideration, and the supplier must give the recipient a tax invoice for the supply before it becomes payable. 11.5 If an adjustment event occurs in relation to a supply made under this Agreement, the supplier must give the recipient an adjustment note within ten (10) business days, and any resulting payment or refund must be made within ten (10) business days of that note. 11.6 If a party must reimburse a cost incurred by the other party, the amount reimbursed is reduced by any input tax credit the other party is entitled to claim for that cost.

Sample wording, not legal advice.

Variants

What to negotiate

• Exclusive or inclusive

  Business to business contracts are almost always drafted exclusive of GST, because both parties net out the tax. Consumer facing prices have to be inclusive. The failure mode is a contract that uses both, an exclusive general clause and an inclusive figure in a schedule, which is a genuine ambiguity rather than a stylistic one.

• When the gross up is payable

  Suppliers want the tax at the same time as the fee. Recipients want it only once a valid tax invoice has arrived, because the credit depends on that document. Tying the additional amount to the tax invoice satisfies both, and it also gives the recipient a reason to chase the paperwork rather than the supplier.

• Reimbursed expenses

  Reimbursing a cost at its full amount when the other party can claim a credit for the tax overpays it. The standard fix reduces the reimbursement by any input tax credit available. Suppliers sometimes resist because it looks like a deduction, but the arithmetic is neutral.

The risk of leaving it out

If the contract is silent, an agreed price is usually read as including any tax the supplier has to pay, so a supplier that expected to add ten per cent discovers the ten per cent came out of its margin. On a long contract that is a material loss, and the only remedy is an argument about what the parties intended, which is a poor substitute for one sentence in the document.

What the tax law requires of the paperwork

The credit side of the system runs on documents. A recipient generally needs a valid tax invoice from the supplier before claiming an input tax credit, and the Australian Taxation Office sets out what such an invoice has to show, including the supplier identity, the Australian Business Number, the date, a description of what was supplied and the amount of tax. When an amount changes after the fact, an adjustment note does the same job for the correction. A contract clause cannot change any of that, which is why the clause obliges the supplier to produce the documents rather than trying to redefine them.

Common mistakes

The clause says amounts are exclusive of GST and the fee schedule prints a figure that was calculated as a total. The clause grosses up but never mentions tax invoices, so the recipient pays the tax and cannot claim it. Adjustment events are ignored, so a credit note leaves the tax unfixed. And expense reimbursement is drafted at full cost, which quietly overpays whichever party is claiming the credits.

Where it sits in a generated document

Tax wording belongs late, with the general clauses, and it should be the only place in the document that discusses tax. A generated consulting agreement puts it in the numbered general section and keeps the fee clause free of tax language, which is what stops the two contradicting each other. Amounts appear as written content in both the agreement and any generated invoice, and neither document prints a citation for the tax rules it follows.

Documents that carry this clause

Tax invoice template with GST, terms and a due dateLantern Creative bills Meridian Property Partners $19,437 for six branding and website lines. Both ABNs are printed, the buyer’s purchase order PO-8842 is quoted, and the due date is 14 days after issue. Everything an accounts payable team checks before paying sits in one block above the table, and the bank details sit under it.Quotation template priced trade by tradeCopperfield Bathrooms quotes Alana Reid $34,780 including GST for a full bathroom renovation at 14 Selwyn Street, Hawthorn. Eight trades are priced as separate lines, the tiles are a provisional sum, the job runs four weeks from 5 October, and the payment schedule takes 10 per cent on acceptance, 50 per cent when tiling is done and 40 per cent at practical completion.Consulting agreementAn advisory firm reviews three bakeries over seven weeks. What makes this agreement useful is not the fee clause but the two clauses that say what the advice is not.Bookkeeping services agreement with a monthly scope tableBookkeeping goes wrong when nobody wrote down which tasks are monthly, which are weekly, and who has to hand over what before a statement can be lodged. This agreement settles all three in a scope table and a lodgement calendar, then prices the whole year so the cafe can see what it is committing to.

Questions people ask