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Edited version of private ruling
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Ruling
Subject: GST and the supply of water
Question
Are the supplies made by you under the Contracts GST-free as supplies of water under section 38-285 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
You are registered for goods and services tax (GST).
You own and operate a dam and a significant network of water treatment, storage, pumping and delivery assets.
You supply bulk raw and potable water to consumers that are reliant upon uninterrupted water supply from you.
Your pricing practices are overseen by a state Competition Authority (CA). The purpose of this oversight is to ensure that you do not abuse your monopoly power as the sole supplier of bulk water in the area.
The CA has conducted investigations into your pricing practices, resulting in reports and recommendations. The CA is currently carrying out an investigation focusing on your proposed augmentation of your system as well as a further investigation into your pricing practices.
In its report, the CA recommended (amongst other things) that:
· you adopt a 20 year planning period
· a 5 year regulatory review period be adopted, and
· you apply a two part tariff structure for the supply of water,comprised of differing aspects of that supply, being the storage and delivery of services for each customer.
These recommendations (and others) were referred by the Ministers responsible for the CA to your shareholding Ministers, who then requested you implement the recommendations (to the extent accepted by the CA Ministers).
You have adopted pricing principles and drafted new contracts to give effect to those recommendations.
You are currently negotiating new long term arrangements with your major customers.
Negotiations with customers are ongoing and further amendments may be required but you do not expect that those changes will be material to this ruling as they will not relate to the pricing structure or your core water supply obligations under the contract.
In the Contract (with delivery), the point at which ownership and control passes is called the 'Customer Delivery Point' and will generally be located at the customer's plant or premises. A single customer may have a number of different 'Customer Delivery Points'. The delivery charges relate to the movement of water from the dam wall to the Customer Delivery Point.
The delivery component of the price charged for supply to these different points may vary, reflecting the varying costs of delivering water to different locations.
With the Contract (no delivery) the point at which the ownership and control of the water passes is called the 'Transfer Point'.
Whether or not water delivered to a particular customer incorporates water from this new source from the perspective of the customer, only a single supply of water is made.
The charges payable under the Contract (no delivery) are:
· Access Charge
· Volumetric Charge
· Administration Charge
· Overrun Charge
· Any other amounts payable.
The charges payable under the Contract (with delivery) are:
· Access Charges (being the Storage Access Charge and the Delivery Access Charge)
· Volumetric Charges (being the Storage Volumetric Charge and the Delivery Volumetric Charge)
· Overrun Charges (being the Storage Overrun Charge and the Delivery Overrun Charge)
· Administration Charge
· Any other amounts payable.
Under the Contract (with delivery), your responsibility for and control of water ends at the Customer Delivery Point. The separation of pricing of that supply of water into its storage and delivery components (for compliance with CA recommendations) does not, in your opinion, alter the nature of the supply.
Reasons for decision
Under section 38-285 of the GST Act, a supply of water is GST-free. However, a supply of water is not GST-free under Subdivision 38-I of the GST Act if it is supplied in a container, or transferred into a container, that has a capacity of less than 100 litres.
Goods and Services Tax Ruling GSTR 2000/25 (GSTR 2000/25) explains the Commissioner's view on the supply of water, sewerage services and services consisting of the emptying of a septic tank or the draining of storm water.
GSTR 2000/25 explains the Commissioner's view of what activities are covered by Subdivision 38-I.
According to paragraph 20 of GSTR 2000/25, 'a supply of water' in section 38-285, refers to the delivery or the making available of water, as goods, to a recipient's premises. It means the change in ownership or control and transfer of physical possession of water from a supplier to a recipient.
Paragraph 21 of GSTR 2000/25 provides that a 'supply of water' is the provision of tangible personal property - goods. In other words, the supply of water means the change in ownership or control and transfer of physical possession of water from a supplier to a recipient.
Paragraph 24 of GSTR 2000/25 provides that activities performed by the supplier of water, up to and including the point of supply to the recipient of water, are GST-free if they are integral to the physical delivery of water to the recipient.
Your activity of supplying water up to the Customer Delivery Point under the Contract (with delivery) is integral to the physical delivery of water to your customers.
GSTR 2000/25 also provides, at paragraph 63, that where there is a supply of water by delivery by road vehicle and the cost of the transport of that water is part of the supplier's obligations under the contract of supply, the consideration paid by the customer includes the transport of the water. This means that the amount paid by the customer is consideration for a GST-free supply.
Since the Access Charges are contained in clause 1 of the Contract (with delivery), which include the Delivery Access Charge, this is considered to be part of your obligations under the contract of supply.
In your case, as the delivery of water is integral to the supply of water which is GST-free and the delivery is considered part of your obligations under the contract, the water supplied under the Contract (no delivery) and Contract (with delivery) are GST-free supplies of water under section 38-285 of the GST Act.
Note:
This Private Binding Ruling is given on the basis of the facts stated above. Any material variation from these facts (including any matters not stated in the description, or any departure from these facts) may mean that the Private Binding Ruling has no effect.