Edited version of private ruling

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Ruling

Subject: GST and water and sewerage charges

Question 1

Does GST apply to the listed special fees and charges?

Advice/Answer

Question 2

Does GST apply to access and consumption charges for water and sewerage?

Answer:

Where the access or consumption charge in respect of water and sewerage is a fee under the GST Act and specified in a written determination of the Treasurer it will not be consideration for a supply and will not be subject to GST under subsection 81-5(2) of the GST Act.

Facts

You are a government body established under an Act.

The Act delivers the second stage of a Reform Program.

Your primary functions as per the Act are to do the following for its geographic area:

· purchase water from the water grid manager;

· distribute the water;

· provide the water and wastewater services; and

· charge customer for relevant services.

You will operate independently. As part of the new system setup and implementation, a review of water and sewerage access and consumption services and the following revenue items and application of GST is being undertaken.

· Recycled water cross connection inspection

· CCTV survey of sewer length related to construction adjacent to sewer

· Raising/lowering of sewer manholes on private property

· Trade waste category 3 legal agreement fee (licence application fee)

· Special water meter reading

· On/Off maintenance inspection -applicable after 2 failed inspections

· Clearing inspection of sewer blockage after hours (cost per hour). Charge only charged if blockage found to be owner's responsibility.

· CCTV inspections of house drains following non- council cleaning during business hours (cost per hour)

· CCTV inspections of house drains following non-council cleaning after hours (cost per hour)

· On/Off maintenance re-inspection - applicable after 2 failed inspections

· Trade waste - trade waste search (property and/or business) 1.5 hours

Reasons for decision

Question 1: Specific fees and charges

Certain supplies of water, sewerage and drainage are GST-free under Subdivision 38-I of the GST Act. The Commissioner has issued Goods and Services Tax Ruling GSTR 2000/25: Goods and services tax: GST-free supplies of water, sewerage and sewerage-like services, storm water draining services and emptying of a septic tank which explains the Commissioner's view of what activities are covered by the relevant supplies in Subdivision 38-I of the GST Act.

Water services

Section 38-285 of the GST Act states that a supply of water is GST-free.

Paragraph 20 of GSTR 2000/25 states:

20. 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.

Further paragraphs 23 and 24 of GSTR 2000/25 state:

23. A supply of water to an end recipient through reticulated pipes is made at that part of the recipient's premises where the supplier's responsibility for the supply ceases.This is the point of supply to end recipients. In an urban environment, a supplier's responsibility for the supply of water usually ceases at the water meter, a property boundary or a point close to a property boundary. For end recipients receiving water through a canal and channel system, a supplier's responsibility usually ceases at that part of the system where the flow of water is physically regulated or timed by the supplier, for example, at an irrigation outlet. Appendix 1 shows a schematic view of how water may be delivered.

24. 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. The system for the physical delivery of water to an end recipient may be the responsibility of more than one supplier of water. For example, a supplier of bulk water may supply bulk water to another supplier who makes retail supplies of water to end recipients. The following will be GST-free:

· initial connection, re-connection, disconnection, water meter installation, and tapping and tee insertion;

· irrigation channel water scheduling and channel attendance (including channelling from natural water courses);

· irrigation channel maintenance up to and including the point of supply (where it is charged to the water supply recipient); and

· water meter reading and testing.

A more specific list of fees is included in Appendix 2 to GSTR 2000/25. Both the fees and charges listed are to be read subject to this Ruling.

Appendix 2 Water - Charges for supplies that are GST-free under subdivision 38-I, item 11 reads:

11. Inspection charges where the service occurs up to and including the point of supply of water and is charged to the recipient of the supply.

Recycled water cross connection services or on/off maintenance inspection after two failed inspections provided to the owner of a property who is charged for the supply for the actual water itself to those premises will be GST-free up to the point of supply of water.

However, where these inspection services are supplied to other entities, for example a private certifier, builder or developer who are not the owners of the property, these services will not be GST-free under subdivision 38-I of the GST Act as these entities are not the recipients of the supply of the actual water itself made to those premises.

As there is no actual supply of water to the private certifier, builder or developer, the supply of inspection services is more in the nature of a plumbing service, as opposed to a water service.

The GST status of the supply of on/off maintenance re-inspection services is not affected by the number of inspection services undertaken.

Appendix 2 to GSTR 2000/25 under Water - charges for supplies that are GST-free under subdivision 38-I, item 9 lists:

9. Water meter (including a sub-meter) reading, testing and service charges.

Therefore special water meter reading services will be GST-free under subdivision 38-I of the GST Act.

Sewerage services

Subsection 38-290(1) of the GST Act provides that a supply of sewerage services is GST-free.

Paragraph 39 of GSTR 2000/25 states:

39.The supply of a service that enables an end recipient to discharge waste water, including water containing human waste, into a network of sewer pipes connected to the recipient's premises is the supply of a sewerage service. The discharge may be of either domestic or commercial trade waste origin. The carriage of the discharge through the network to a treatment plant and the treatment of the sewage, are also sewerage services. The supply commences at the point where an end recipient's pipes connect with or feed into the supplier's network. This is the point of supply to end recipients. The system for the supply of sewerage services to end recipients may be the responsibility of more than one supplier. For example, a supplier of bulk sewerage removal services may supply those services to another supplier who makes retail supplies of sewerage services to end recipients.

Appendix 2 to GSTR 2000/25 under Sewerage - Charges for supplies that are not GST-free under subdivision 38-I, items 5 and 6 list

5. Quality tests and inspections (where the service occurs after the point of supply)

6. Repair, maintenance, replacement and relocation of supplier's or recipient's assets (where the service occurs after the point of supply)

Services involving closed-circuit television (CCTV) survey of sewer length related to construction adjacent to sewer and raising and lowering of sewer manholes on private property are considered to be providing sewerage related services beyond the point of supply as the access to the sewer and manhole is located within the premises boundary of the recipient of the sewerage services and considered to be after the point of supply. Therefore these services will not be GST-free as per the above items under subdivision 38-I of the GST Act.

Similarly, clearing or inspection services relating to sewer blockage provided will not be GST-free under subdivision 38-I of the GST Act if the blockage is located after the point of supply and charged to the recipient of the sewerage services. The timing of the delivery of the service, that is whether the services are delivered during business hours or after hours, will not affect the GST status of the supply of the services.

However, where these inspection services are supplied to other entities, for example a private certifier, builder or developer who are not the owners of the property, these services will not be GST-free under subdivision 38-I of the GST Act as these entities are not the recipients of the supply of the sewerage services itself made to those premises.

Drainage

Subsection 38-300 of the GST Act provides that a supply of a service that consists of draining storm water is GST-free.

GSTR 2000/25 also outlines the Commissioner's view as to what constitutes a GST-free supply of drainage services under section 38-300 of the GST Act.

Appendix 2 to GSTR 2000/25 under Drainage - charges for supplies that are not GST-free under subdivision 38-I, items 3 and 4 list:

3. Quality tests and inspections (where the service occurs after the point of supply)

4. Repair, maintenance, replacement and relocation of supplier's or recipient's assets (where the service occurs after the point of supply)

CCTV inspection services of house drains during business hours and after hours will not be GST-free under subdivision 38-I of the GST Act as the house drains are located in the premises of the recipient of the sewerage service and hence the services are considered to be provided after the point of supply.

The GST status of the supply of on/off maintenance re-inspection sewerage or drainage services is not affected by the number of inspection services undertaken. As in the above discussion, the GST status of inspection services is free where the services occur up to and including the point of supply when charged to the recipient of these services. However these services are not GST-free under subdivision 38-I of the GST Act when provided to an entity who is not the owner of the property as they are not the recipient of the sewerage services provided.

Appendix 2 to GSTR 2000/25 under Sewerage - charges for supplies that are not GST-free under subdivision 38-I, item 11 lists:

11. Application fees for provision of sewerage services

As Category 3 - legal agreement fee is a licence application fee; therefore it is not GST-free under subdivision 38-I of the GST Act.

Appendix 2 to GSTR 2000/25 under Sewerage - charges for supplies that are not GST-free under subdivision 38-I, item 8 lists:

8. Records searches and information requests.

Therefore trade waste search in respect of a property or business is not GST-free under subdivision 38-I of the GST Act.

Question 2: Application of Division 81 on access and consumption charges for water and sewerage

As explained above, where water, sewerage or drainage services are provided to an entity who is not the owner of the property, the supply of these services is not made to the same entity that is charged for the water, sewerage or drainage service itself. Accordingly the supply of these services is not GST-free under subdivision 38-I of the GST Act.

Sometimes, a payment made by an entity to a local authority is not consideration for any supply of water or sewerage services. Therefore they are not GST-free under subdivision 38-I of the GST Act. However due to the operation of Division 81 of the GST Act, these payments do not necessarily form consideration for a taxable supply by the local authority to the entity. Where these payments are covered by Division 81 written determination of the Treasurer, they will not amount to consideration for GST purposes, and as such will not attract GST. Further explanation of the possible application of Division 81 of the GST Act to supplies follows below.

Under section 9-5 of the GST Act, a supply which is neither GST-free nor input taxed will be a taxable supply where:

· the supply is made for consideration; and

· the supply is made in the course or furtherance of an enterprise that the supplier carries; and

· the supply is connected with Australia; and

· the supplier is registered, or required to be registered for GST.

With respect to the requirement that a supply be made for consideration, subsection 81-5(1) of the GST Act states that the payment of any Australian tax, fee or charge (other than GST) is consideration for a supply by the entity to which the tax, fee or charge is payable.

However, if the tax, fee or charge is specified in a written determination of the Treasurer it will not be consideration for a supply and will not be subject to GST under subsection 81-5(2) of the GST Act.

The definition of Australian tax, fee or charge is defined at section 195-1of the GST Act to mean:

(a) a tax (however described) imposed under an Australia law; or

(b) a fee or charge (however described) imposed under an Australian law and payable to an Australian government agency.

We take a fee or charge imposed under an Australian law to mean a fee or charge imposed by an entity that is governed under the Australian law.

A payment will satisfy the requirements in columns 2 and 3 of the Determination if the payment is imposed under the relevant Australian Law as listed in the Determination.

The Notes column of the Determination has no operative effect; it can be used to aid in the interpretation of the operative section if it is unclear. Under subsection 13(3) of the Acts Interpretation Act 1901 (Cth) (Interpretation Act), no marginal note shall be taken to be part of an Act. Further, section 46 of the Interpretation Act states that the Interpretation Act shall apply to any delegated legislation, as if it were an Act.

Consequently, the notes in column 4 do not limit the meaning of the operative words in 'Australian tax, fee or charge' column but rather clarify or further extend the meaning of the operative words in column 2.

You are a statutory body under the Act. A statutory body is considered to be a government agency.

Therefore, where you invoice customers in respect of access and consumption of water and sewerage services and the amount so invoiced has been levied under an Australian law, the payment is considered to be a fee or charge as defined above. The fee or charge will not be consideration for a supply where it is listed in the Determination; and hence will be excluded from GST by Division 81 of the GST Act.

On the other hand where access and consumption of water and sewerage services are charged under legislation that is not provided for in the Determination, the payment will be consideration for a supply of services. Where the other requirements under section 9-5 of the GST Act are satisfied the supply will be taxable.

In the case at hand, the entity that the payment for water and sewerage services is to be made to has changed. This change has been effected by the enactment of the Act; thereby transferring the delivery of water and sewerage services to a new service provider.

Generally where a new government body is established under a new act to assume the responsibilities of another government body, transitional provisions will instead apply during the transitional period. In this circumstance, where we are referring to a legislative instrument (the Determination) and where the governing legislation of the entity involved has provided a clear intention of how the entity is to be treated at law, we will accept that a reference to the government body whose functions have been taken over is in fact a reference to the service provider for the purpose of the Treasurer's determination and treat the service provider accordingly from the date of effect of the Act. However, this does not appear to be the case in this circumstance.