Edited version of private ruling

Authorisation Number: 1011668412043

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Ruling

Subject: GST and payment of water accounts

Question 1

What are the taxable supplies that you make to entities such as strata and community corporations and landlords (your clients)?

Answer

The taxable supplies that you make to your clients are the services that you provide to your clients in your own right in return for a fee.

Question 2

Do the reimbursements that you receive from the tenants or the unit owners (tenants/owners) constitute consideration for taxable supplies that you make either to your clients or to the tenants/owners?

Answer

No.

Question 3

When is a reimbursement consideration for a taxable supply made by your client to a tenant/owner?

Answer

Please refer to the Reasons for decision for this question.

Question 4

Can you show your name, address and Australian business number (ABN) on the tax invoices that you issue to the tenants/owners for their water usage?

Answer

No.

Question 5

Are you required to show the reimbursements that you receive from the tenants/owners in your activity statements?

Answer

No.

Question 6

Are you required to remit the GST that you collect from the tenants/clients to the ATO?

Answer

No.

Relevant facts and circumstances

You are registered for GST as a sole trader.

You are contracted by your clients to provide the following services:

· receive the water accounts issued by a water authority (the water authority)

· pay the water accounts

· read the individual private water meters (sub meters) which are installed on strata and community title properties, commercial premises, etc which enable the tenants/owners of those properties to receive an account for the water they have used

· determine consumption and prepare individual itemised accounts (which may include GST) for each tenant/owner for their water usage, and

· seek reimbursement from the tenants/owners.

You charge GST on the supply of the above services to your clients.

The water authority supplies water from one common meter at the boundary and renders only one account to your clients. The water authority sends the accounts to you directly.

The water is supplied by the water authority to your clients. You are not the recipient of the supply of the water from the water authority and are not personally liable to pay the water accounts. Your clients are liable to pay the water accounts. You pay the water accounts to the water authority as an agent of your clients.

Where a strata or community corporation (strata company) is registered for GST, you issue a tax invoice and include GST when you invoice the owners of the units.

Where a strata company is not registered for GST, you do not include GST when you issue invoices to the owners of the residential units for their water usage. However, you have been including GST and have been issuing tax invoices to the owners of the commercial units.

Where a landlord is registered for GST and leases commercial units, you issue tax invoices and include GST when invoicing the tenants.

You have a client who owns and operates a retirement village complex in which the dwellings are occupied under a 'licence to occupy'. Each dwelling has a private sub meter. This client has an on site office, clubrooms and an indoor pool which have a separate water meter attached. Generally, the water used on the common property is apportioned between the residents of the village. You are not sure if you need to add GST when invoicing the residents for the water used on the common property.

When you issue tax invoices to the tenants/owners for their water usage you show your name, address and ABN on the tax invoices and not the name and address or ABN of your clients.

You have been showing the reimbursements that you receive from the tenants/owners on your own activity statements and have been remitting the GST collected to the ATO.

You do not make any supplies to the tenants/owners as an agent of your clients. That is your clients are not making any supplies to the tenants/owners through you.

Relevant legislative provisions

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

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

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

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 Division 153

Reasons for decision

Question 1

What are the taxable supplies that you make to your clients?

Summary

The taxable supplies that you make to your clients are the services that you provide to your clients in your own right in return for a fee.

Detailed reasoning

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

A supply is a taxable supply if it meets all the requirements of section 9-5 of the GST Act. Section 9-5 of the GST Act provides that 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 for GST.

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

You stated that you provide the following services to your clients:

· receive the water accounts issued by the water authority

· pay the water accounts

· read the sub meters which are installed on strata companies properties, commercial premises, etc which enable the tenants/owners of those properties to receive an account for the water they have used

· determine consumption and prepare individual itemised accounts for each tenant/owner for their water usage, and

· seek reimbursement from the tenants/owners.

You charge your clients a fee for the provision of the above services.

The supplies that you make are the services that you provide to your clients in your own right. The fees that you charge to your clients for the provision of those services are consideration for those supplies.

The services that you supply in your own right to your clients are taxable supplies as they meet all the requirements of section 9-5 of the GST Act. This is because you supply your services for consideration, in the course of your enterprise, the supplies are connected with Australia as you perform the services in Australia and you are registered for GST. Furthermore, the services that you supply are neither GST-free nor input taxed under a provision of the GST Act or a provision of another Act.

Therefore, you are liable to pay GST on these supplies and are required to include them in your activity statements.

Question 2

Do the reimbursements that you receive from the tenants/owners constitute consideration for taxable supplies that you make either to your clients or to the tenants/owners?

Summary

The reimbursements that you receive from the tenants/owners are not consideration for supplies that you make either to your clients or the tenants/owners.

Detailed reasoning

You advised that you are not the recipient of the supply of the water. Your clients are the recipients of the supply of the water and liable to pay the water charges to the water authority. You merely act as an agent of your clients when you receive and pay the water accounts.

Based on the information that you have provided, the water expenses are business outgoings of your clients.

In your case, instead of your clients paying the water accounts directly to the water authority (or giving you the money to pay to the water authority on their behalf), and then seeking reimbursements from the tenants/owners to recover their costs, they have engaged you to pay the water accounts on their behalf and seek reimbursement from the tenants/owners on their behalf. This arrangement does not change the fact that your client's are in fact paying the water accounts and are being reimbursed by the tenants/owners.

Goods and Services Tax Ruling GSTR 2000/37 deals with principal/agent relationships. This ruling provides that when an entity pays a fee or charge for which its client is liable, that payment is made by the entity as a paying agent of their client. The agent is not liable to pay GST on any subsequent reimbursements that it receives.

In this situation when you pay the water accounts to the water authority, for which your clients are liable, you are making the payments as a paying agent of your clients. Consequently, the reimbursements that you receive are not consideration for a supply that you make either to your clients or the tenants/owners.

The reimbursements are consideration for supplies made by your clients to the tenants/owners. This is further explained under Reasons for decision for Question 3.

Question 3

When is a reimbursement consideration for a taxable supply made by your client to a tenant/owner?

Summary

Please see the explanation bellow.

Detailed reasoning

We cannot provide you with specific advice in respect of the GST status of the supplies made by your clients. The following general information is provided to assist you.

Commercial property lease

Goods and Services Tax Determination GSTD 2000/10 provides guidance on the reimbursement or payment of the landlord's outgoings by a tenant.

GSTD 2000/10 provides that, generally, a supply of premises under a commercial property lease together with the services required by the tenant to use the premises will be a single supply of the premises unless the terms of the agreement state otherwise.

Where the only supply made by the landlord to the tenant is a single supply of premises, the reimbursement or payment of the landlord's outgoings is consideration for the supply of the premises. The consideration for the supply of the premises by the landlord includes amounts which are paid by the tenant under the terms of the lease either:

· to the landlord for amounts for which the landlord is liable; or

· directly to a third party where the payment is in satisfaction of the landlord's liability.

Paragraph 10 of GSTD 2000/10 states:

10. Supplies of water and sewerage services to the landlord may be GST-free. Where the supply under the lease to the tenant involves an incidental provision of water this will not be a supply of water for the purposes of the GST Act. Unless the lease agreement specifies that the landlord will make a separate supply of water to the tenant, any contribution by the tenant to the landlord's expenditure on water will not be consideration for a GST-free supply of water. Where a single supply is made by the landlord, the amount payable by the tenant in respect of water or sewerage will be subject to GST if the supply of the premises is a taxable supply.

Paragraphs 29 and 30 of GSTD 2000/10 provide the following example which relates to reimbursement of the landlord's water expenses.

Example 8 - The outgoing is GST-free under Subdivision 38-I of the GST Act

29. On 1 July 2000 Vanessa leases a shop to John. The consideration under the lease agreement consists of $1,000 base rent per month plus Vanessa's expenses relating to the water supplied to the property. Under the agreement Vanessa can recoup from John any GST payable by her in relation to the lease.

30. Vanessa pays the local authority $ 220 for water for July. The supply of water to Vanessa is GST-free under Subdivision 38-I of the GST Act. She is not entitled to an input tax credit in relation to the acquisition of water. The supply of water by Vanessa, even if metered to John, is incidental to, and cannot be separated from the supply of the premises. Vanessa invoices John for $1,342. This amount is made up of $1,000 base rent, $220 outgoings and $122 GST.

Whether a single supply or multiple supplies are made under a lease will depend on the nature of the supply and the terms of the agreement between the landlord and the tenant.

As stated in paragraph 10 of GSTD 2000/10, unless the lease agreement specifies that the landlord will make a separate supply of water to the tenant, any contribution by the tenant to the landlord's expenditure on water will not be consideration for a GST-free supply of water.

Basically, if the landlord makes a single supply of premises to the tenant, the amounts payable by the tenant in respect of the water forms part of the consideration that the tenant pays for the supply of the premises. It is not relevant whether the tenant pays the outgoing directly to the landlord or a third party.

Where the landlord is registered or required to be registered for GST, the supply of the commercial premises to the tenant is a taxable supply if it meets all the other requirements of section 9-5 of the GST Act. The landlord is liable to pay 1/11^th of the total consideration (which includes the reimbursements) for the supply of the premises as GST.

Furthermore, as the reimbursements form part of the consideration for a taxable supply made by the landlord to the tenant, they must be included in the landlord's activity statements.

Where the landlord is not registered or required to be registered for GST the supply of the commercial premises by way of lease is not a taxable supply as the supply does not meet all the requirements of section 9-5 of the GST Act. In this situation, the landlord is not liable to pay GST on the consideration (including the reimbursements) that it receives for the supply of the premises.

Strata company

The supply that a strata company makes to its members is the entry into an obligation to maintain and manage the complex in a sound condition. This comes within the definition of 'supply' contained in the GST Act. The reimbursements of the water costs by the members form part of the consideration for the supply of these maintenance and management services.

Where a strata company is registered or required to be registered for GST the management and maintenance services that it provides to its members are taxable supplies under section 9-5 of the GST Act. This is because the supplies meet the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act and the supplies are neither GST-free nor input taxed supplies.

Accordingly, where a strata company is registered or required to be registered for GST and is liable for the water charges, the strata company is liable to pay 1/11^th of the total consideration (which includes the reimbursements) that it receives for the supply of it services as GST. This is regardless of whether the units are residential or commercial.

Furthermore, as the reimbursements form part of the consideration for taxable supplies made by the strata company to its members, they must be included in the strata company's activity statements.

Where the strata company is not registered or required to be registered for GST and is liable for the water charges, the supply of the maintenance and management services is not a taxable supply. This is because the supply does not meet all the requirements of section 9-5 of the GST Act. In this situation, the strata company is not liable to pay GST on the consideration (including the reimbursements) that it receives for the supply of its maintenance and management services.

Retirement village

The GST treatment of the amounts payable by a resident of a retirement village in respect of their water usage also depends on the circumstances of the retirement village operator.

If a retirement village operator that is registered or required to be registered for GST is making a single supply of residential premises to a resident, the reimbursements form part of the consideration for the supply of the residential premises. If the supply of the residential premises is not considered to be a supply of commercial residential promises or accommodation in commercial residential premises then the supply is and input taxed supply. GST is not payable on input taxed supplies. In this situation, the reimbursements are not consideration for a taxable supply.

Conclusion

The reimbursements of the water rates by the tenants/owners are consideration for the supplies made by your clients to the tenants/owners.

Whether the reimbursements are consideration for taxable supplies made by your clients to the tenants/owners depend on the circumstances of each of your clients. The GST treatment of the supplies made by your clients does not depend on the circumstances of the tenants/owners.

If the retirement village operator or any of your other clients are unsure about the GST treatment of their supplies and the reimbursements for water charges, they should contact the Australian Taxation Office (ATO) for a private ruling on their individual circumstances.

Question 4

Can you show your name, address and ABN on the tax invoices that you issue to the tenants/owners for their water usage?

Summary

You cannot show your name, address and ABN on the tax invoices that you issue to the tenants/owners for their water usage. The tax invoices must show the name, address and ABN of your clients.

Detailed reasoning

Tax invoices are issued for taxable supplies. Generally, the supplier must issue a tax invoice for a taxable supply that they make within 28 days of a request by the recipient.

You advised that you issue tax invoices to the tenants/owners and include GST in these documents. You show your name, address and ABN on the tax invoices that you issue.

There are special rules in Division 153 which allow an agent to issue a tax invoice on behalf of the principal if the principal makes a taxable supply through that agent. Where this division applies, the agent can issue a tax invoice for the principal showing the agent's name and address or ABN instead of the principal's name and address or the ABN.

However, these rules do not apply when an entity is merely acting as a paying agent and does not make a supply on behalf of the principal.

In your case, your clients are not making any supply through you to the tenants/owners. Even though you are paying the water accounts as an agent of your clients, you are not an agent for the purposes of Division 153 of the GST Act. Therefore, you cannot show your name, address and ABN on the tax invoices that you issue to the tenants/owners. A correct tax invoice would show your client's name, address and ABN.

Question 5

Are you required to show the reimbursements that you receive from the tenants/owners in your activity statements?

Summary

You should not include the reimbursements that you receive from the tenants/owners and any GST components in your activity statements as these are not consideration for supplies that you make.

Detailed reasoning

As explained earlier, the reimbursements that you receive from the tenants/owners are not consideration for a supply that you make to either your clients or the tenants/vendors. Accordingly, the reimbursements should not be included in your activity statements.

The reimbursements are consideration for supplies made by your clients to the tenants/owners. Therefore, they must be included in your clients' activity statements.

Correcting GST mistakes

You advised that you have been reporting the reimbursements on your activity statements and have been remitting the GST to the ATO.

As you have mistakenly shown the reimbursements as consideration for supplies that you have made in your activity statements, you need to revise your activity statements. Please refer to the fact sheet entitled Correcting GST mistakes (NAT 4700) which is available on our website at www.ato.gov.au

Question 6

Are you required to remit the GST that you collect from the tenants/clients to the ATO?

Summary

As your clients are the entities that are making the supplies to the tenants/owners, your clients are liable to pay the GST payable on the taxable supplies that they make to the ATO.

Detailed reasoning

Section 9-40 of the GST Act provides that the entity that makes the taxable supply is liable to pay the GST payable on the supply.

In your case, as explained above, your clients are making the taxable supplies to the tenants/owners. Therefore, they are liable to pay the GST on the taxable supplies. Your clients must show the total consideration that they receive from the tenants/owners for their taxable supplies in their activity statements and remit the GST payable to the ATO.