GST and contract commission

Our good friend, property lawyer and accountant Tony Cordato says this:

Step 1 is to look at the definition of ‘project costs’ in the project management agreement.

If the definition follows industry practice, it will state that costs include GST – see this Planning Circular issued by NSW Planning & Infrastructure. The Planning Circular specifically requires GST to be included when calculating the Estimated Cost of Works proposed in a development application.

Step 2 is to calculate the commission. As commission is calculated on ‘project costs’, it will be calculated on tradies fees, cost of materials and other project costs, as invoiced (i.e. including GST).

So the Project supervisor can charge commission on the total bill including GST. On the question of whether or not the project manager charges GST on top of the commission, Tony adds this:

The answer is that the project manager is acting as an agent by charging a commission.

The project manager calculates their commission on the price of the services. If the price includes GST, then the commission is calculated on the price inclusive of GST.

The project manager invoices the commission including GST. [Not with GST added]

The ATO provides an illustration on its website of an agent who sells dive boat trips, for which they receive a commission.

This is the link.

As ScotlandX has also said, you can’t charge GST on GST.  The project manager charges commission on the whole amount (which includes GST)  and his commission is therefore inclusive of GST.  They shouldn’t charge another 10 per cent on top.

NB: I have edited out most of my earlier erroneous comments as they were based on a misundertanding of the term “superintendent” which means caretaker or building manager in some places.  A more accurate term in this context would have been “project manager”.