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Ruling

Subject: GST and government charges

Question

Is the long service leave charge (Charge) covered by the amended Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The Charge is not covered by the amended Division 81 of the GST Act. However, the Charge is not subject to GST.

Relevant facts and circumstances

You are the corporate trustee at the Fund established by an Australian Law (the new Act).

The Fund was originally established in pursuant to the old Act to fund employees' entitlements in a particular industry. The Fund's jurisdiction was (and remains) limited to a particular State. A government board was established pursuant to old Act to oversee the administration of the Fund (Board).

At that time the Commissioner of Taxation (Commissioner) ruled your income was exempt from income tax.

Following the introduction of the taxation of superannuation funds, the Board requested confirmation that the taxation provisions for superannuation funds would not be applicable to the Fund. The Commissioner confirmed that the Fund was not subject to the taxation provisions concerning superannuation funds.

The fund was incorporated in the 1990s. Under the new scheme, responsibility for the administration of the Fund passed from the Board to you, as corporate trustee of the Fund, under the new Act.

The constituent documents of the Fund comprise:

· the new Act

· the memorandum of association and articles of association

· the Trust Deed of the Fund, and

· the Rules of the Fund.

The new Act imposes an obligation on employers and working contractors in the State Industry to pay you a Charge in respect of every worker employed by the employer or in respect of the working contractor.

You are responsible for the collection of the Charges and to ensure that workers in the industry receive their entitlement to payment under the relevant industrial award.

Your day to day operations involve receiving and recording the Charges, managing the assets of the Fund, pursuing any shortfall in contributions and paying benefits to member of the Fund.

The new Act confers power and control upon you, particularly in relation to:

· determining the amount of the Charges an employer is required to make

· setting out the dispute resolution process in relation to the disputes which may arise

· the obligation on you to carry out reciprocal arrangements with other States, and

· the fact that industry representation will be members and on the board of directors as a consequence of the State allowing the industry to participate in the exercise of the powers conferred by the legislation in the new Act for the benefit of the industry workers who represent a section of the community.

The new Act prohibits you from exercising any power, authority or discretion given by the Trust Deed without the prior approval of the Governor in Council.

The relevant provisions of the Trust Deed are as follows:

· Clause 14 ensures that you cannot benefit from the Fund and

· Clause 5 and 6 govern your power in terms of the XYZ Act.

The Commissioner ruled that you would continue to be exempt from income tax under the corporate structure.

The Commissioner confirmed that the Charges paid to you are exempt from Fringe Benefits Tax.

In 2003, you wrote to the Department of Treasury and Finance (Department) detailing the reasons why the Charges you collect under the new Act were an Australian fee or charge as defined in section 195-1 of the GST Act.

The Department responded to the letter and confirmed that the Charge constitutes an Australian fee or charge and you are an Australian government agency within the meaning of Division 81 of the GST Act.

You obtained a further private ruling confirming that you continued to be exempt from income tax subsequent to minor changes in your constituting documents. The ruling held that you are a 'public authority constituted under an Australian law' for the purpose of the Income Tax Assessment Act 1997 (ITAA 1997).

The Charge is listed in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) (Determination) as exempt charges relating to contributions under the new Act.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-15.

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 81-5.

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 81-10.

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 81-15.

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 195-1.

Income Tax Assessment Act 1997 section 995-1.

A New Tax System (Goods and Services Tax) Regulations 1999 regulation 81-10.01.

Reasons for decision

Schedule 4 of Tax Laws Amendment (2011 Measures No. 2) Act 2011 repeals and replaces Division 81 of the GST Act to allow entities to self assess the GST treatment of a payment of an Australian tax or Australian fee or charge in accordance with certain principles. Under these amendments, government agencies will no longer need to have an Australian tax or certain categories of Australian fees or charges listed on the Determination in order for those taxes, fees or charges to not be subject to GST.

In addition, the amendments allow for regulations to be made to treat an Australian tax, or any Australian fee or charge in a particular way that will determine if the amount paid, or the discharging of a liability to make such payment, is subject to GST.

These amendments apply in relation to Australian taxes or Australian fees or charges that are imposed under an Australian law on or after 1 July 2011.

However, under these amendments, the Determination which lists all Australian taxes, fees and charges that are not treated as consideration, and thus supplies to which they relate are not subject to GST, is grandfathered for one year. Thus, taxes, fees and charges that are imposed prior to 1 July 2012 and are currently listed in the Determination will not 'be subject to GST' for the transitional period. From 1 July 2012 any supplies to which they relate will be assessed against the provisions set out in these amendments.

In your case, the Charge, which is a contribution payable under the new Act, is currently listed in the Determination. Therefore, the Charge is exempt from GST until 1 July 2012.

From 1 July 2012, the GST treatment of the Charge will need to be assessed under the amended Division 81 of the GST Act.

Section 81-5 of the GST Act deals with the effect of payment of tax.

Section 81-10 of the GST Act deals with the effect of payment of certain fees and charges and it states:

(5) A payment, or the discharging of a liability to make a payment, is not the provision of *consideration to the extent the payment is an *Australian fee or charge that is of a kind covered by subsection (4) or (5).

(6) However, a payment you make, or a discharging of your liability to make a payment, is treated as the provision of *consideration to the extent the payment is an *Australian fee or charge that is, or is of a kind, prescribed by the regulations.

(7) For the purposes of subsection (2), the *consideration is taken to be provided to the entity to which the fee or charge is payable, for a supply that the entity makes to you.

(8) This subsection covers a fee or charge if the fee or charge:

(a) relates to; or

(b) relates to an application for;

the provision, retention, or amendment, under an *Australian law, of a permission, exemption, authority or licence (however described).

(6) This subsection covers a fee or charge paid to an *Australian government agency if the fee or charge relates to the agency doing any of the following:

(a) recording information;

(b) copying information;

(c) modifying information;

(d) allowing access to information;

(e) receiving information;

(f) processing information;

(g) searching for information.

(* indicates a term defined under section 195-1 of the GST Act).

Section 81-15 of the GST Act provides that the regulations may provide that the payment of a prescribed Australian fee or charge, or the discharging of a liability to make such a payment, to be treated as not the provision of consideration. There are currently no regulations for subsection 81-15 of the GST Act.

Australian fee or charge is defined in section 195-1 of the GST Act as:

Australian fee or charge  means a fee or charge (however described), other than an *Australian tax, imposed under an *Australian law and payable to an *Australian government agency.

'Australian government agency' and 'Australian law' have the meanings given by section 995-1 of ITAA 1997:

Australian government agency means:

(c) the Commonwealth, a State or a Territory; or

(d) an authority of the Commonwealth or of a State or a Territory.

Australian law means a ^*Commonwealth law, a ^*State law or a ^*Territory law.

In your case, you are an Australian government agency and the Charge is imposed under an Australian law, the XYZ Act. Therefore, the payment of the Charge is not the provision of consideration where the Charge is of a kind covered by subsection 81-10(4) or 81-10(5) of the GST Act.

Paragraphs 4.27 to 4.30 of the Explanatory Memorandum to the Tax Laws Amendment (2100 Measures No. 2) Bill 2011 provides examples of the application of subsections 81-10(4) and 81-10(5) of the GST Act:

4.27 To the extent a payment, or the discharging of a liability to make such a payment, is a payment or discharge of an Australian fee or charge that relates to, or relates to the application for, the provision, amendment or retention under an Australian law, of a permission, exemption, authority or licence, it will not be treated as the provision of consideration. Therefore, any supply to which the fee or charge relates will not be subject to GST. A fee or charge in relation to the provision, amendment or retention of a permission, exemption, authority or licence (however described) includes but is not limited to:

· application fees, licences, permits and certifications that are required by government prior to undertaking an occupation (for example, medical and legal professionals' right of practice licences, pilots' licences, heavy vehicle drivers' licences and adjustments to such licences); and

· regulatory charges imposed to undertake an activity (for example, compulsory testing fees for regulatory purposes, compulsory inspection fees for regulatory purposes, a permit for restaurants to occupy the footpath, and a licence for an event to close roads).

4.28 As noted, this exemption applies to an Australian fee or charge imposed in relation to, or to the application for, the retention of a permission, exemption, authority or licence. An example of such a fee would be a periodic compulsory inspection fee, made under an Australian law and payable to an Australian government agency, for the retention of a permit. In such cases, the inspection fee is directly related to the retention of the permission (the permit) and would not be subject to GST. In cases where the inspection fee is payable to a private entity (not an Australian government agency) then subsection 81-10(4) of the GST Act will not apply and the supply will be taxable provided it meets the requirements of section 9-5 of the GST Act.

4.29 The payment of an Australian fee or charge, to an Australian government agency, in relation to the lodgment of, or access to, documents provided under an Australian law will not be treated as the provision of consideration. Therefore, the supply to which the fee or charge relates will not be subject to GST. Examples of such fees and charges, payable to Australian government agencies, are those that are paid in order to obtain information from a government agency under relevant freedom of information legislation, searches and extracts from registers, copies of official documents, registration fees and lodgment fees for property transfers, deeds, plans and instruments.

4.30 It is intended that consideration that is provided for commercial sales of information supplied by Australian government agencies, including supplies of books by a government bookshop, be subject to GST at first instance. It is also intended that consideration that is provided for supplies made under commercial arrangements, including the hire of government assets (such as recreation halls, office space, conference centres and equipment), be subject to GST at first instance.

The new Act imposes an obligation on employers and working contractors in a particular industry in the State to pay the Charge in respect of every worker employed by the employer or in respect of the working contractor.

Based on the information provided, the Charge is not a payment of a government charge for the provision, retention or amendment, under an Australian law, of a permission, exemption, authority or licence as outlined in subsection 81-10(4).

As part of your functions you are required to process and record information relating to the members of the Fund to which the Charge relates. However, the Charge is not the payment of a government charge for recording, copying, modifying, receiving, processing, searching for or allowing access to information as outlined in subsection 81-10(5).

As the Charge is not covered by subsections 81-10(4) or 81-10(5) of the GST Act, the requirements of subsection 81-10(1) of the GST Act are not satisfied. Furthermore, there are currently no regulations that require the payment of the Charge to be treated as not the provision of consideration for a supply. Hence, the Charge is not exempt from GST under the amended Division 81 of the GST Act.

The Charge is subject to GST where you are making a taxable supply.

Section 9-5 of the GST Act states:

You make a taxable supply if:

(e) you make the supply for *consideration; and

(f) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(g) the supply is *connected with Australia; and

(h) 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.

Firstly we need to consider whether the Charge is provided as consideration for a supply you make.

There are three questions that are relevant to determining whether there is a supply for consideration:

· is there a supply;

· is there consideration; and

· does that necessary relationship exist between the supply and the consideration?

Essentially, a supply is something that passes from one entity to another. The supply may be one of particular goods, services or something else that is reflected in an agreement by one party to do something for another.

'Supply' is defined in section 9-10 of the GST Act as 'any form of supply whatsoever'.

The term 'consideration' is defined in section 9-15 of the GST Act and includes:

· any payment, or any act or forbearance, in connection with a supply of anything; and

· any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration (paragraphs 64-72), Goods and Services Tax Ruling GSTR 2000/11 Goods and services tax: grants of financial assistance (paragraphs 76-81) and Goods and Services Tax Ruling GSTR 2009/3 Goods and services tax: cancellation fees (paragraphs 98-99) contain the Commissioner's views on determining whether a payment is consideration for a supply. The relevant principles repeated in these paragraphs are that in determining whether a payment is consideration under subsection 9-15(1) of the GST Act, the test is whether there is a sufficient nexus between the supply and the payment made. In determining whether a sufficient nexus exists, regard needs to be had to the true character of the transaction. An arrangement between the parties will be characterised not merely by the description which parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made. Whether there is a sufficient nexus is an objective test.

In your case, your day to day operations involve receiving and recording the Charges, managing the assets of the Fund, pursuing any shortfall in contributions and paying benefits to member of the Fund. The Charge is payable by operation of the statute and not in connection with, in response to or for the inducement of the supply you make.

As such although you supply certain things, there is not enough nexus between the supply and the purpose for which the Charge is made. There are no identifiable supplies that you make for which the Charge is consideration. Consequently paragraph 9-5(a) of the GST Act is not satisfied.

Therefore, as not all the requirements of section 9-5 of the GST Act are satisfied, you are not making a taxable supply. Hence, the Charge is not subject to GST.

The publication Payments to government agencies under Division 81 which is available from our website www.ato.gov.au contains a flow charge to help government agencies work out if a government charge is exempt from GST.

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