Edited version of your private ruling

Authorisation Number: 1012538226676

Ruling

Subject: GST and the application of Division 81 to local government fees and charges

Question

From 1 July 20XX, is local council (you) making a taxable supply in relation to the collection of commercial and industrial waste, where a private business provides a similar service?

Answer

Yes, from 1 July 20XX, you are making a taxable supply in relation to the collection of commercial and industrial waste, where a private business provides a similar service.

Relevant facts and circumstances

· You are registered for goods and service tax (GST).

· You provide an optional waste collection service (WCS) to commercial premises/businesses where owners or tenants must request the service from you.

· Approximately 30% of the commercial clients have their waste collected from the kerbside in residential streets or back lanes along with the collection of residential waste.

· Clients can also request extra services where trucks will make individual pickups.

· By contrast, most commercial clients (approximately X%) are within a shopping centre precinct and waste is collected from a depot area or access laneway at the back of the shopping centre.

· All clients requesting the services in question are provided (at no cost) with a 120 or 240 litre wheelie bin.

· Service charges levied compensate you for the actual costs incurred.

· The provision of this waste service is similar in nature to waste removal services provided by private sector businesses.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 7-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-5(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-10(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 81-15

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

New Tax System (Goods and Services Tax) Regulations 1999 Regulation 81-10.01

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 81-15.01

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 81-15.02

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Taxable Supply

Section 7-1 provides that GST is payable on taxable supplies.

Section 9-5 provides that you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· you are registered or required to be registered for GST.

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

You are making a supply in the course of an enterprise that you carry on, it is connected with Australia and you are registered for GST. There is nothing in the GST Act that would make the supply GST-free or input taxed. Therefore, it is left to be determined whether the supply is for consideration.

Section 9-39 provides special rules in relation to making taxable supplies. In particular, item 8 in the table in section 9-39 provides that where there is a payment of taxes, fees and charges the special rules in Division 81 may apply.

Tax

Section 81-5 considers the effect of a payment of a tax.

The term 'Australian tax' is defined in section 195-1 as:

Australian tax means a tax (however described) imposed under an *Australian law.

The usual description of a tax, as cited in the High Court case of Roy Morgan Research Pty Ltd v CMR of Taxation [2011] HCA 35 (Roy Morgan), as per Latham CJ in Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 26, is that it is:

…a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered…

In this case, the payment is for specific services rendered and is not a compulsory exaction of money. Consequently, it does not satisfy the usual description of a 'tax' as cited in the High Court case of Roy Morgan and the Commissioner considers it is not the payment of an Australian tax for the purposes of section 81-5. Therefore, the payment is not exempt from GST under section 81-5.

Fees and charges

According to section 195-1, an Australian fee or charge is a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency.

The term 'Australian government agency' is defined by section 995-1 of the Income Tax Assessment Act 1997 which states:

Australian government agency means:

· the Commonwealth, a State or Territory; or

· an authority of the Commonwealth or of a State or a Territory.

For the purposes of this ruling, it is accepted that you come within the definition of an Australian government agency and that the relevant Act gives you the power or authority to charge a fee for the WCS.

Therefore, the WCS charge is considered an Australian fee or charge because it has been imposed under an Australian law and it is payable to an Australian government agency.

Sections 81-10 and 81-15 consider the effect of certain fees and charges and state:

81-10 Effect of payment of certain fees and charges

Certain fees and charges not consideration

(1) 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).

Prescribed fees and charges treated as consideration

(2) 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.

(3) 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.

Fees or charges paid for permissions etc.

(4) 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).

Fees or charges relating to information and record-keeping etc.

(5) 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.

81-15 Other fees and charges that do not constitute consideration

The regulations may provide that the payment of a prescribed *Australian fee or charge, or of an Australian fee or charge of a prescribed kind, or the discharging of a liability to make such a payment, is not the provision of *consideration.

Based on the information provided, it is considered that the WCS charge relates to the provision of a service. Therefore, subsection 81-10(4) which relates to fees for the provision of a permission, exemption, authority or licence, and subsection 81-10(5), which relates to fees for the provision of information and record-keeping, are not relevant in this case. As a result, subsection 81-10(1) is not applicable.

Fees and charges that do not constitute consideration

Section 81-15 provides that a prescribed Australian fee or charge is not the provision of consideration and regulation 81-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) states:

81-15.01 Fees and charges which do not constitute consideration

(1) For section 81-15 of this Act, the following kinds of Australian fees and charges are prescribed

(a) a fee or charge for:

(i) the kerbside collection of waste; or

(ii) the supply, exchange or removal of bins or crates used in connection with kerbside collection of waste;

(b) royalties charged in relation to natural resources;

(c) a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry;

(d) a fee or charge to compensate an Australian government agency for costs incurred by the agency in undertaking regulatory activities;

(e) a fee or charge imposed in relation to a court, tribunal, commission of inquiry or Sheriff's office;

(f) a fee or charge for a supply of a regulatory nature made by an Australian government agency;

(g) a fee or charge for entry to a national park;

(h) any other fee or charge:

(i) specified in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1), as in force immediately before the commencement of Schedule 4 to the Tax Laws Amendment (2011 Measures No. 2) Act 2011; and

(ii) imposed before 1 July 2013.

(2) In this regulation:

waste includes green waste and recyclables.

Kerbside collection of waste

In relation to the kerbside collection of waste the explanatory statement to the A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No. 2) (ES) states:

This paragraph and subregulation ensure that fees and charges for the kerbside collection of waste are not treated as the provision of consideration, and therefore do not give rise to a taxable supply under Division 81.

Kerbside waste collection fees are often, but not always, covered by general Council rates. It is intended that all fees and charges for kerbside collection of waste are not consideration for a supply, so that these services are exempt from GST. This is regardless of whether the fees paid in relation to the service are compulsory or optional as kerbside collection of waste is a basic activity of local government.

Kerbside collection includes a regular waste collection service conducted by an Australian government agency where, for practical reasons, the waste must be collected from inside the property boundary of the ratepayer, such as a waste service for residents of a high-rise residential complex. However, additional waste collection undertaken by a commercial entity is not considered to be kerbside collection even though it may be collected from the kerbside in some circumstances…

You provide WCS's that come under paragraph (a) of subregulation 81-15.01(1) of the GST regulations, that is, supplies in relation to the kerbside collection of waste.

However, subsection 81-10(2) provides that the GST Regulations can prescribe that certain Australian fees and charges are treated as consideration and these also need to be considered.

Of relevance in this case is paragraph 81-10.01(1)(h) of the GST Regulations which provides that a fee or charge for a supply by an Australian government agency, where the supply may also be made by a supplier that is not an Australian government agency constitutes consideration.

In relation to paragraph 81-10.01(1)(h) of the GST Regulations the ES states:

This paragraph ensures that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 of the Act are satisfied. Fees and charges in this category are not excluded from being consideration for a taxable supply. This is consistent with the National Competition and Consumer Policy guidelines and ensures that a government entity is not given a competitive advantage over a private sector supplier making the same type of supply.

As your WCS's are similar in nature to waste removal services provided by private sector businesses, your supplies in relation to the kerbside collection of waste come under two regulations (81-10.01 and 81-15.01) and as such, constitute consideration under one of these and do not constitute consideration under the other.

Subregulation 81-15.02 of the GST Regulations provides for a tie breaker in this situation. It states:

The payment of a fee or charge covered by both paragraph 81-10.01(1)(a), (b), (c), (d), (e), (f) or (h) and regulation 81-15.01, or the discharge of a liability to pay the fee or charge, is to be treated as the provision of consideration…

Therefore, the tie breaking provision in GST subregulation 81-15.02(2) will apply to treat your kerbside WCS's as consideration.

Supplies that are not the kerbside collection of waste

As quoted above, paragraphs 81-15.01(1)(d) and (f) refer to regulatory activities and supplies of a regulatory nature:

The term 'regulatory' is not defined in the GST Regulations or the GST Act. The ES states:

The term 'regulatory' captures those supplies made by a government agency, where that agency is legislatively empowered to make the relevant supply and the supply is to satisfy a regulatory purpose.

In some instances, although the consumer acquires something that may be of intrinsic value to the consumer, the acquisition is made in the context of satisfying a regulatory requirement of an Australian law…

The ES also provides the following in relation to paragraph 81-10.01(g) of the GST Regulations which is about supplies that are not regulatory in nature:

This paragraph ensures that the non-regulatory activities of government are subject to GST. This paragraph applies to supplies of goods and services for which fees are imposed where the consumer is provided with something that lacks a regulatory character. That is, the fee or charge does not arise under an Australian law which is intended, for example, to regulate behaviour, ensure consumer protection and ensure compliance with certain standards. The paragraph applies even though it may be the sole responsibility of a government agency to supply the goods or services for which the fees are imposed, and such supplies are in the public interest.

We do not consider that the WCS's that are not the kerbside collection of waste are regulatory activities or of a regulatory nature. Therefore, they do not come under regulation 81-15.01 of the GST Regulations. As such, these supplies will also be consideration for a supply.

Conclusion

As your WCS's, whether kerbside or not, are consideration for a supply and all of the other elements of section 9-5 are satisfied, you are making a taxable supply in relation to your WCS's.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).