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Ruling

Subject: goods and services tax (GST) and water

Question

Is GST payable on the following fees?:

-water access fee

-water excess fee

-sinking fund fee

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You are a water users group.

You pump water from the river (at which point you own the water) and store the water in concrete reservoirs.

You own a network of underground pipes which convey water (via gravity feed) from the reservoirs to a point just prior to the members' individual water meters.

All the members are each charged a quarterly water access fee, which entitles them to a quarterly allowance (currently a certain number of kilolitres) of water.

All the members are also each charged a quarterly sinking fund fee which is designed to, but not restricted to, providing funding for future replacement of capital equipment.

If a member uses more than their quarterly allowance of water, they are also charged a water excess fee.

All members each receive a quarterly invoice from you. That invoice incorporates a mandatory charge for the water access fee and the sinking fund fee and also a charge for excess water if the member has exceeded their quarterly allowance.

The members buy water and the right to receive water directly from you. There is no third party involved.

All members are required to pay the water access fee and the sinking fund fee and the water excess fee if applicable to them.

You have the right to take legal action for non-payment of any part of the three fees and you also have the right to disconnect water to any member who does not pay their accounts in full.

There is no requirement that the fees be used to finance the cost of replacing the infrastructure if and when replacement is required.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(1)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-30(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 38-285(1)

Reasons for decision

GST is not payable on the fees because they are consideration for GST-free supplies of water and GST-free supplies of the right to receive GST-free supplies of water.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

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.

(*Denotes a term defined in the GST Act.)

In accordance with subsection 38-285(1) of the GST Act, a supply of water is GST-free.

In accordance with paragraph 9-30(1)(b) of the GST Act, a supply of a right to receive a GST-free supply is GST-free.

In accordance with paragraph 20 of Goods and Services Tax Ruling GSTR 2000/25, a supply of water, in section 38-285 of the GST Act, refers to the delivery or the making available of water, as goods, to a recipient's premises.

In accordance with paragraph 22 of GSTR 2000/25, the delivery of water may occur through reticulated pipes that provide a continuously available supply of water at adequate pressure. It may also occur through other means.

You are delivering water, as goods, to recipients' premises through reticulated pipes. Therefore, you are supplying water for the purposes of section 38-285 of the GST Act. Hence, you are making GST-free supplies of water.

Consideration

Subsection 9-15(1) of the GST Act states:

Consideration includes:

(a) any payment, or any act or forbearance, in connection with a

supply of anything; and

(b) any payment, or any act or forbearance, in response to or for

the inducement of a supply of anything.

Paragraph 47 of Goods and Services Tax Ruling GSTR 2001/6 provides that the definition of a taxable supply requires, among other things, that you make a supply for consideration. The question is whether there is a sufficient nexus between the supply and the payment as consideration.

Paragraph 71 of GSTR 2001/6 states:

71. In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction. An arrangement between parties will be characterised not merely by the description that parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Water access fee

The water access fee is a charge for the supply of a right to receive a GST-free supply of water. Therefore, this fee has a sufficient nexus with a GST-free supply of right to receive a GST-free supply of water. Hence, this charge is consideration for a GST-free supply of a right to receive a GST-free supply of water.

Water excess fee

The water excess fee is a charge for a GST-free supply of water. Therefore, this fee has a sufficient nexus with a GST-free supply of water. Hence, this fee is consideration for a GST-free supply of water.

Sinking fund fee

Having regard to the true character of the sinking fund fee transaction and based on an analysis of the description the parties give to the arrangement; the transactions entered into and the circumstances in which the transactions are made, we consider that there is a sufficient nexus between the sinking fund fee and your GST-free supply of water and GST-free supply of a right to receive a GST-free supply of water because:

· you are a water users group

· you supply water and the right to receive a supply of water to the payers and the payers are required to pay the sinking fund fee in order to receive water from you

· you can disconnect the water supply if the member does not pay the sinking fund fee

· you do not supply an obligation to use the sinking fund fee to replace infrastructure if and when it is in need of replacement

· there is no indication that you are supplying anything to the payers in return for the three fees other than water and the right to receive a supply of water

· the term sinking fund fee indicates that the fee is intended to be used to replace water supply infrastructure, and

· the sinking fund fee is intended to be used to fund an expense that would be incurred in order to continue supplying water.

Hence, the sinking fund fee is consideration for GST-free supplies.

As the three fees are consideration for GST-free supplies, they are not consideration for taxable supplies. Therefore, GST is not payable where you charge these fees.

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