Edited version of private ruling

Authorisation Number: 1011568208950

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Ruling

Subject: GST and charges for water consumption

Question

Is goods and services tax (GST) applicable to the component of the levies, charged by you to the specified residential strata corporations that relate to water consumption charges?

Answer

No, GST is not applicable to the component of the levies, charged by you to the specified residential strata corporations that relate to water consumption charges. (Please refer to reasons for decision)

Relevant facts

You, a management entity were created under state legislation.

The strata management committee which created you is filed with the relevant state authority and you have appointed a strata manager.

You are registered for GST and act for the owners of several lots.

The specified lots that are managed by the residential strata corporations are the focus of this ruling. Your responsibilities are set out in the strata management statement (SMS) and it provides that you have maintenance responsibilities for the common areas. The SMS describes the common areas and for the purposes of calculating the charges it sets out the portion of the costs that each member bears.

Water usage to the specified residential strata plans is metered through one meter. The state water authority sends an invoice periodically to 'the Owners c/- the strata manager. The SMS does NOT include the payment for 'water usage' as a shared facility or a responsibility of yours. However the owners' corporations requested the strata manager to pay the water usage accounts, on behalf of the owners. You then apportion the water charges between each of the specified residential strata corporations according to the number of residential apartments in each plan.

Normally the water usage for the year is estimated and included in your budget, which is used to determine the estimated shares of the budgeted amounts and includes that amount in the levies for each of the residential strata corporations. It therefore includes in the levies a component for the water usage charges.

There is no GST on the supply of water by the state water authority to the specified residential strata corporations and you have asked whether the charge for the water usage component, collected by you from the members should have GST included. You advised that you are not a person or a body corporate and that you are not liable for the water usage charges invoiced by the water authority. Rather, the members have asked you to pay the water accounts as a matter of convenience.

You have provided a copy of the strata management statement in support of this application. One of the clauses provides that the strata manager must enter into agreements with other parties as agent for yourself.

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on any taxable supply that you make.

Section 9-5 of the GST Act provides that you make a taxable supply if:

(a) you make the supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia and

(d) you are registered, or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In your case, you are carrying on an enterprise in Australia, you are registered for GST and receive consideration from the owners corporations in return for performing certain services. Furthermore there is no provision in the GST Act that would make your services input taxed. Therefore the supplies you make to your members will generally be taxable supplies.

However, at the request of your members (which include the specified residential owners corporations), you are seeking advice regarding the water charges that you collect from the specified residential strata corporations. Specifically, whether you should be charging GST in relation to these water charges.

This will depend on whether the water charges are a business cost that you on charge to your members as part of the services you supply, or whether you are merely acting on behalf of the owners' corporations when you pay the water charges.

You charge a levy to the owners to cover expenses incurred in carrying on your enterprise and either you or your strata manager, pay for the expenditures for (amongst other things) the water consumption. You entered into this agreement with the owners through the body corporate/owners that are responsible for each of the strata plans you manage.

You advised that you are not a body corporate and that you are not liable for the water usage charges, as the members have asked you to pay the water accounts as a matter of convenience. The account from the state water authority is made to the owners of the residential strata corporations who are named on the invoices. You consider that you are simply organising the payment of that bill on their behalf.

On the basis of these facts we consider that when you levy the residential strata corporations for their share of the water usage account in order to effect payment to the state water authority, you are merely acting on their behalf. As the water is supplied by the water authority to the specified residential strata corporations and not to you, the water charges are not a business cost that you incur in performing your services. It follows that when you collect payment from the owners corporations (via the levies that you charge each member), you will not be liable for GST on the water usage charges as you are not 'on charging' this expense. Rather, the component that relates to the water usage is merely reimbursement of a cost you paid on behalf of the specified residential strata corporations.

This situation can be contrasted with the charges between an owners' corporation and the individual stratum unit holders. Goods and Services Tax Determination GSTD 2000/10 deals with the question 'Goods and Services Tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises?' Although this determination deals with commercial leases it is still relevant. It provides in paragraph 7 of GSTD 2000/10that:

Supply to landlord is not a taxable supply

7. If a single supply is made under the lease we do not consider that the payment of outgoings by the tenant is a payment for a supply that has the same character as the supply made by a third party to the landlord. The payment is made by the tenant for the supply by the landlord of the premises and not for the particular supply made to the landlord to which the outgoings relates. Therefore if the landlord is making a taxable supply, it will not matter whether the outgoing, when incurred by the landlord, was a taxable supply to the landlord. For example, the landlord's cost of acquiring a GST-free supply in order to supply the premises becomes a business cost of the landlord. This has implications where the supply made to the landlord is not subject to GST (e.g., because of Division 81 of the GST Act) or is a GST-free supply (e.g., because of Subdivision 38-I of the GST Act).

Further explanation is provided in Goods and services tax ruling GSTR 2000/37 which is about agency relationships. While the example given relates to a solicitor and client the same principles apply. Paragraphs 48, 49 and 54 are set out below for your convenience:

Agency relationship and disbursements

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitor's capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitor's overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

Example 10

54. A law firm acting for a client charges the client for costs incurred in providing a legal service and receives a fee for its professional services. The firm acts as a paying agent for the client with respect to the outgoings which the client is legally obliged to pay (such as the payment of land taxes and court costs) for supplies made to it. However, an agency relationship generally does not apply to those circumstances where the law firm provides a legal service for a client, pays for taxable supplies on its own behalf and then charges the client for those expenses (such as photocopying and telephone calls).

Conclusion

On the understanding that you are not a body corporate, are not legally liable for the water usage charges and are merely paying the accounts from the state water authority on behalf of the specified residential strata corporations, then you will not be liable for GST in relation to the payments you payments you receive from the residential strata corporations as reimbursement for this expense.

However, the expenses you incur in carrying on your enterprise (your business costs) that are on charged to your members, will form part of the consideration (payment) for the services that you provide to those members. This will include those payments that are drawn down from the levies and 'sinking funds'.

Additionally it is noted that GST will be payable on the components of levies that relate to water usage charged to individual unit owners by the owners corporations (whether directly or via you on acting on their behalf) subject to the other conditions of section 9-5 of GST Act being met.

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