Direct answer: A contract should state, in plain language, whether every quoted price is GST-inclusive or GST-exclusive; whether GST may be added when it becomes payable; how reimbursements and indemnities are calculated; whether recoverable input tax credits reduce the amount; what tax documentation must be supplied before payment; and how later credits, refunds or assessments are reconciled. The correct wording depends on the governing jurisdiction and the facts of the supply. Australian public contracts illustrate both inclusive and exclusive-plus-GST approaches, while Canadian and New Zealand guidance shows why wording cannot be copied across borders.
What the GST clause must decide
A pricing clause is incomplete if it gives only a dollar amount. The parties also need to agree how tax interacts with that amount. A useful clause answers these questions in the same agreement, rather than leaving them to an invoice dispute:
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- Pricing basis: Is the stated consideration inclusive of GST, or is it the amount before GST?
- Tax trigger: Can the supplier add GST only when GST is payable on the relevant supply?
- Calculation: Is the additional amount the GST payable on that supply, calculated under the applicable law?
- Timing: When does the recipient have to pay the GST component?
- Reimbursements: Is a reimbursed cost treated as part of the supplier’s taxable service, or as a true disbursement incurred as the recipient’s agent?
- Input tax credits: Must a reimbursement or indemnity be reduced by credits the recipient is entitled to claim?
- Documentation: What tax invoice or taxable-supply information must be supplied before payment?
- Adjustments: What happens if the tax authority, supplier or recipient later changes the GST amount?
These points allocate economic risk. A sentence saying “GST applies” does not tell the reader who bears an unexpected liability, whether a quoted fee changes, or whether a supplier can withhold an invoice until valid documentation arrives.
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GST-inclusive pricing
Under an inclusive structure, the stated consideration is the total amount payable for the supply, including any GST that is properly chargeable. The supplier’s net amount is therefore the stated consideration less the GST component. The contract should identify the inclusive basis as the default and explain what happens where the supply is not taxable, is taxed differently, or is later adjusted.
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An Australian public contract uses this type of default wording: “Unless described otherwise in this Head Agreement or an Order, any consideration to be paid for a supply made under or in connection with this Head Agreement or a Contract is ‘GST inclusive’.” That is an example of a drafting choice, not a universal rule or a recommendation for every country.
Inclusive wording gives the purchaser a predictable ceiling when the supplier has priced the work correctly. It also places more risk on the supplier if the supplier misunderstood the tax treatment or failed to include a charge that was already included in the agreed total. The agreement should still say how a later credit, refund or correction is passed through.
GST-exclusive pricing with a gross-up
Under an exclusive structure, the stated consideration is before GST. If GST is payable on the relevant supply, the recipient pays an additional amount equal to that GST. Australian public contract examples use this pattern and tie the extra amount to GST payable, sometimes also specifying when the additional amount is due.
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The trigger should be precise. “GST may be added” leaves room for an argument that the supplier can add tax even when the supply is not taxable, or that the supplier can add an amount without proving the tax calculation. A clearer approach is to make the extra payment conditional on GST being payable on the particular supply and on receipt of the required tax documentation.
Exclusive pricing protects the supplier’s quoted pre-tax revenue when tax is chargeable, but it can make the purchaser’s total cost uncertain unless the contract identifies the trigger, calculation and timing. The clause should also say whether percentages, revenue shares, service credits or other calculations are based on GST-exclusive amounts.
Inclusive and exclusive structures compared
| Issue | GST-inclusive amount | GST-exclusive amount plus GST |
|---|---|---|
| Meaning of the stated price | The stated consideration includes GST unless the agreement or order says otherwise. | The stated consideration is before GST; GST payable on the supply is added. |
| Supplier’s net-price certainty | The supplier’s net return can fall if GST is included in a fixed total. | The supplier preserves the stated pre-tax amount when GST is payable. |
| Purchaser’s budget certainty | The total is generally easier to budget, subject to agreed adjustment events. | The total increases when the contractual GST trigger is met. |
| Unexpected tax allocation | A supplier that omitted GST from an inclusive price may have difficulty recovering it. | The purchaser bears the additional GST if the supply is taxable and the clause’s conditions are met. |
| Documentation | The contract should still require valid tax documentation for a taxable supply. | The additional payment can be made conditional on the required tax invoice or other taxable-supply information. |
| Later changes | The agreement needs a credit, refund or further-payment mechanism if the GST component changes. | The agreement needs the same mechanism because the amount originally added may later be wrong. |
Neither structure is automatically better. The commercial choice depends on whether the parties value a fixed total or protection of a stated pre-tax return, and on how the transaction is treated under local law.
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Why a reimbursement label does not settle the tax
Supplier costs incurred in providing its own service
A supplier may pay travel, subcontractor, freight, licence or other costs while delivering its own service. Calling the repayment a “reimbursement” does not by itself determine whether the amount is consideration for the supplier’s taxable service. If it is part of that service, the GST clause should explain whether the supplier invoices the cost on a GST-inclusive basis or adds GST under the exclusive-price mechanism.
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Canadian Revenue Agency guidance distinguishes a supplier’s reimbursed expense from an expense incurred as the recipient’s agent. The characterization can affect whether the amount is consideration for the supplier’s service. The contract should therefore state when the supplier is acting as agent, whose name appears on the third-party invoice, who bears the legal liability to the third party, and what records must be provided.
Input tax credits
Australian public contract examples reduce a reimbursed or indemnified cost by any input tax credit the recipient is entitled to claim. This prevents the recipient from recovering both the GST component through the reimbursement and the same component through its tax return. The clause should identify whose entitlement matters, whether the reduction applies when a credit is available or only when it is actually claimed, and what happens if the entitlement is later denied.
If the recipient cannot claim the credit, the parties may choose a different economic result, but that choice should be stated rather than implied. The wording should also cover partial credits and changes in the recipient’s registration or eligibility.
Documentation before payment
Australia
Australian examples condition payment for a taxable supply on a tax invoice. The agreement can require the invoice to identify the supply, the consideration and the GST amount, and can allow the recipient to hold the GST component until a compliant document is received. The payment clause should distinguish a missing invoice from a genuine dispute about performance so that an administrative defect does not create an unintended right to withhold unrelated amounts.
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New Zealand
Inland Revenue’s current taxable-supply information guidance describes more than one acceptable presentation. The information can show the GST-exclusive amount, the GST amount and the GST-inclusive amount. Alternatively, it can show the GST-inclusive amount together with a statement that GST is included at the standard rate for the listed supplies. This is a documentation rule; it does not turn an Australian GST clause into a New Zealand clause.
A New Zealand contract should use the statutory terms and information requirements that apply to the transaction. It should also identify whether the supplier must provide the information before each payment or may provide it through an agreed periodic statement.
Canada
Canada Revenue Agency guidance addresses disclosure of the consideration and tax, or a statement that the amount includes GST/HST, for documentary purposes relevant to input tax credits. The CRA also says that whether an amount charged includes GST/HST is a question of fact. The contract should therefore avoid relying on invoice conventions alone and should state the agreed tax basis expressly.
Province-specific GST/HST facts and the applicable documentary rules need to be checked for the transaction. An older CRA policy statement may not reflect every current administrative detail, so current CRA guidance should be confirmed before execution.
How to handle later tax changes
Tax can be reassessed, a supply can be recharacterized, a rate can change, or an input tax credit can be denied after payment. A complete clause says how the parties correct the original amount.
- If the amount paid was too high, the supplier issues a credit or refund within a stated period.
- If the amount paid was too low because additional GST became payable, the recipient pays the shortfall after receiving the required supporting document.
- If the supplier receives a credit from a tax authority or issues an adjustment note, the corresponding benefit is passed to the party that bore the cost.
- If a reimbursement was reduced for an expected input tax credit and that credit is later denied, the parties specify whether the recipient may recover the denied amount and what evidence is required.
- If the parties disagree about the tax treatment, they identify the escalation process without suspending undisputed amounts.
An Australian Federal Court contract example calls for a corresponding refund, credit or further payment and an adjustment note in stated circumstances. That mechanism illustrates the level of detail needed; the exact events and timing must be adapted to the governing law and transaction.
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A step-by-step drafting method
- Name the governing law and tax regime. State the country, and where relevant the province or territory, whose GST, HST or equivalent rules govern the supply. Do not import terminology from another jurisdiction without checking its statutory meaning.
- Classify the supply. Identify whether the transaction is taxable, zero-rated, exempt, outside the regime or mixed. Where classification is uncertain, assign responsibility for obtaining advice and for any later correction.
- Choose the price basis. Define “GST inclusive” and “GST exclusive” and state which basis applies to the main fee, milestones, options and change orders.
- Set the tax trigger. If GST is additional, say that it is payable only to the extent GST is payable on the relevant supply under applicable law.
- Set the formula and timing. State that the additional amount equals the GST payable on the supply, identify the invoice or payment event that triggers it, and specify when it is due.
- Deal with reimbursements and indemnities. List the cost categories that may be recovered, require evidence, and state whether amounts are reduced by input tax credits available to the recipient.
- Separate agency disbursements. Explain when the supplier acts as the recipient’s agent and how third-party invoices, ownership and tax treatment are handled.
- Specify documentation. Require the tax invoice or taxable-supply information needed in the relevant jurisdiction, and state whether payment may be withheld until it is supplied.
- Define calculation bases. State whether revenue shares, percentages, service credits, caps and thresholds are calculated on GST-exclusive or GST-inclusive values.
- Add an adjustment process. Cover refunds, credits, additional payments, adjustment notes, denied credits and changes in tax registration or law.
- Preserve audit evidence. Require the parties to retain invoices, agency records, credit calculations and correspondence for the period required by applicable law.
- Check the final wording locally. Public contracts are examples, not statutory templates. Have the clause reviewed against the current legislation and administrative guidance that applies to the transaction.
Illustrative clause patterns
The following patterns show the concepts that need to be addressed. They are not ready-to-use clauses and should be adapted to local law.
Inclusive-price pattern
“Unless this agreement expressly states otherwise, the stated consideration includes GST.” Add language for non-taxable supplies, mixed supplies, documentation and later adjustments. Without those additions, the sentence may not resolve whether a supplier can recover tax that was omitted from a fixed price.
Exclusive-price and gross-up pattern
“If GST is payable on a supply under this agreement, the recipient must pay an additional amount equal to that GST, subject to receipt of the required tax invoice or taxable-supply information.” The final clause should define the calculation, due date, treatment of partial or disputed invoices, and correction process.
Reimbursement pattern
“A reimbursement or indemnity for a cost is reduced by any input tax credit the recipient is entitled to claim, with GST then dealt with under this agreement’s GST clause.” Use this only after deciding whether the cost is the supplier’s own expense or an agency disbursement. Canadian guidance demonstrates why that characterization can change the tax result.
Jurisdiction-specific cautions
Australia
Australian public contracts demonstrate both an inclusive default and an exclusive amount with GST added when payable. Some also reduce reimbursed or indemnified costs by eligible input tax credits and provide for a corresponding credit, refund or further payment when the GST amount changes. Australian tax-invoice rules and the treatment of non-taxable supplies must be checked against the current ATO material and legislation.
New Zealand
New Zealand taxable-supply information may present the GST-exclusive amount, GST amount and GST-inclusive amount, or the GST-inclusive amount with the required standard-rate statement for the listed supplies. Those information rules do not decide the commercial allocation of risk between the parties. The contract still needs its own inclusive or exclusive pricing language and adjustment mechanism.
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Canada
Canadian guidance recognizes both tax-extra and tax-included approaches and treats inclusion as a question of fact. Documentary requirements address disclosure of consideration and tax or that the amount includes GST/HST. Reimbursement treatment can differ when the supplier acts as agent for the recipient. Province-specific facts and current CRA guidance should be checked before relying on a clause.
Common drafting failures and practical fixes
“All prices are subject to GST”
This phrase does not say whether GST is already included or is added. Replace it with an explicit inclusive or exclusive definition and a trigger for any additional payment.
“Reasonable expenses will be reimbursed”
Reasonableness does not identify eligible costs, evidence, GST treatment or input-tax-credit reductions. List the cost categories, require records and state the tax calculation.
Adding GST without a valid invoice
A supplier may be entitled to tax only when the supply is taxable, and the recipient may need compliant documentation for its own records or credit claim. Make the additional payment conditional on the required document.
Ignoring partial input tax credits
A blanket reduction can overstate or understate the recipient’s benefit. State how partial eligibility, later denial and changes in registration are handled.
Using a foreign template unchanged
Australian, New Zealand and Canadian rules use different terminology and documentary concepts. Identify the governing law and rewrite the clause using the local statutory terms.
Omitting later adjustments
Without a correction mechanism, an overpayment or underpayment can become a separate commercial dispute. Require a credit, refund or further payment and identify the supporting adjustment note or equivalent record.
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Which structure should the parties choose?
- Choose an inclusive default when the purchaser needs a stated total and the supplier is prepared to manage the tax component within that total.
- Choose an exclusive amount plus GST when the supplier must preserve a defined pre-tax return and the purchaser accepts that the total rises when GST is payable.
- For reimbursements, use a separate schedule or subsection that identifies agency disbursements, supplier-incurred costs and input-tax-credit reductions instead of relying on the word “reimbursement.”
- For cross-border or mixed supplies, state the place-of-supply assumptions, documentation requirements and adjustment process expressly, then obtain jurisdiction-specific advice.
The contract’s objective is not to choose a fashionable label. It is to make the economic result predictable when tax is charged, when it is not charged, and when the original treatment later changes.
Bottom line for contract reviewers
Before signing, look for one unambiguous sentence on price basis, one workable rule for GST added to an exclusive amount, a reimbursement calculation that addresses input tax credits and agency expenses, a documentation condition, and a correction process for later tax changes. Then test the wording against the governing jurisdiction: Australian examples are not universal, New Zealand documentation rules have their own format, and Canadian treatment can turn on facts such as whether an amount included GST/HST or was paid as an agent.
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