Edited version of private ruling

Authorisation Number: 1011821643802

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Ruling

Subject: levying of infrastructure charge

Question:

Is an infrastructure charge levied by the a water distributor-retailer authority ('A') under a State Planning Act but collected by a local authority ('Council') as agent for A pursuant to a Service Level Agreement and Agency Agreement consideration for a taxable supply made by A for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')?

Answer:

No, the infrastructure charge is not consideration for a taxable supply made by A because payment of the infrastructure charge is deemed by subsection 81-5(2) of the GST Act and the A New Tax System (Goods and Services Tax) (Exempt Fees and Charges) Determination 2011 (No. 1) not to be the provision of consideration.

Relevant facts and circumstances:

Background:

With effect from 1 July 2008 a State Government implemented changes to the ownership, management and operation of water infrastructure and established three distributor-retailers, one of which was A.

State Planning Act:

The State Planning Act deals with infrastructure funding and planning for distributor-retailers and provides that a distributor-retailer may levy a charge for supplying trunk infrastructure in relation to its water service or wastewater service and for that purpose may give a person an infrastructure charges notice or a regulated infrastructure notice under.

Delegations:

The State Water Act deals with delegation of functions by a distributor retailer and provides that a distributor-retailer may delegate any of its functions to a member of its board, its chief executive officer or any appropriately qualified employee.

The State Planning Act also provides that a distributor-retailer must, for the period ending 30 June 2013, delegate its functions as a concurrence agency for a development application to its relevant participating local government and that a distributor-retailer may delegate to its relevant participating local governments its functions under a part of the State Planning Act which deals with infrastructure funding.

Partnering Agreement:

A has entered into a Partnering Agreement with A's participating local governments, i.e. the Councils. The Partnering Agreement states that during a transition period A and each Council etc are to adopt a partnering model which does not create a joint venture, partnership or relationship of principal and agent between the parties.

The Partnering Agreement deals with governance arrangements and, in the case of 'development assessment' (i.e. assessment of a development application under the Planning Act), refers to the functions which A must delegate during the transition period and then sets out the actions to be taken by A and each Council etc to achieve this.

In relation to 'water infrastructure contribution assessment ' (i.e. 'the assessment of an infrastructure contribution for water infrastructure through an approval, infrastructure charge or infrastructure agreement under the Planning Act or a charge under the State Water Act), the Partnering Agreement states that A is to recover the full costs associated with the planning and delivery of increased capacity to the water infrastructure network and 'set infrastructure contributions for water infrastructure in accordance with a relevant law'. The Partnering Agreement also states that the Council is to achieve the following objectives:

Inform an applicant for development of A's fees and charges and infrastructure contributions for water infrastructure which may be incurred for the development;

Receive and issue a receipt for an infrastructure contribution for water infrastructure on behalf of A if requested in a notice given by A to the Council;

Differentiate any amount received…on behalf of A from other moneys received on behalf of the Council;

Remit to A the amount received …on behalf of A.

The Partnering Agreement sets out the roles of A and the Council etc in relation to services and confirms that A has the 'legislated primary role' in relation to calculation and coordination of water infrastructure contributions assessment. The Partnering Agreement states that A and the Council are responsible for the services set out in Schedule X to the Partnering Agreement for the relevant geographical area.

The Partnering Agreement refers to the objective that it is in the public interest for the parties to recover the full costs for the provision of a service and states that A is responsible for the 'infrastructure charges for water infrastructure' cost recovery mechanism.

Schedule X deals with services provided by A and the Council and categorises those services into land use planning and development assessment, the latter including 'Service No. xx - Billing/Compliance/Survey Plan Approval', which governs the calculation and management of charges. Schedule 1 states that it is A's responsibility to 'review…infrastructure notices periodically' and that it is the Council's responsibility to undertake 'charge assessment', 'charge calculation', and 'generation of documents/notices including Infrastructure Charge Notices'.

Service Level Agreement:

A copy of a Service Level Agreement ('SLA') between A and the Council recites that in order to ensure that there is an orderly transfer of assets and employees to A and the continued provision of services to customers it is necessary for the Council to provide services to A for an interim period.

The SLA states that the Council will provide each Service to A in accordance with the SLA ('Services' are defined as the services described in Schedules X to the SLA) and that Schedules X set out the terms and conditions and service fee for each service.

Schedule x details finance and corporate services and under the heading 'Financial Management and Reporting' includes the following function to be performed by the Council for A:

Receipt of infrastructure charges into trust fund

subject to the following Terms and Conditions:

the Council agrees to act as agent for A who will indemnify the Council where services are being provided for…invoice infrastructure charges, receipt of infrastructure charges - refer to the agency agreement in Appendix C.

Developer contributions:

Developer contribution revenue collected by the Council as agent for A will be remitted to the nominated bank account at least monthly within 10 business days of month end.

Agency Agreement:

Appendix X to the SLA is an Agency Agreement between A and the Council which sets out the terms and conditions on which the Council will act as A's agent in providing services under the SLA.

The SLA states that A appoints the Council to act as A's agent for the purpose of performing the 'Agency Services' (defined as Services provided by the Council to A under the SLA and listed in Schedule 1 to the Agency Agreement). Clause X states that the Council accepts appointment as agent and undertakes to perform the Agency Services in return for the Service Fee.

Schedule x to the Agency Agreement lists 'Finance and Corporate Services' as an 'Agency Service' and refers to several descriptions of services in the SLA, including:

Trust fund receipting/accounting.

Submissions:

In the ruling request it was submitted that supplies made by A to third party developers in respect of which the Councils collected infrastructure charges pursuant to the Planning Act were not taxable supplies.

It was submitted that the SLA and Agency Agreement indicated that the Council collected an infrastructure charge as A's agent so that it was A (as principal) which, for GST purposes, both made the relevant supply and had the resulting GST liability (if that supply was taxable). Infrastructure charges charged under the Planning Act, however, were included in the A New Tax System (Goods and Services Tax) (Exempt Fees and Charges) Determination 2011 (No. 1) ('Determination') and subsection 81-5(2) of the GST Act provides that the payment of any Australian tax, fee or charge that is specified in the Determination is not the provision of consideration. It was submitted that a Council collects such developer contributions as A's agent, transfers the developer contributions to A, and that A then treats the relevant supply as outside the scope of GST.

The submissions referred to the provisions of the State Water Act dealing with delegation of functions by a distributor-retailer and submitted that as A was not required to delegate A's infrastructure funding functions, A had retained those functions and performed them (as evidenced by the terms of the relevant SLAs and Agency Agreements). Consequently when a Council collected an infrastructure charge from a developer the Council acted as A's agent, not as a delegate. As the infrastructure charge was deemed by subsection 81-5(2) and the Determination not to be the provision of consideration, the requirements of section 9-5 of the GST Act were not satisfied and A did not make a taxable supply.

Reasons for decision:

Summary:

The Council acts as A's agent in relation to the levying of infrastructure charges under Chapter 9, Part 7A, Division 5 of the State Planning Act. Those infrastructure charges are not consideration for a taxable supply made by A because they are specified in the A New Tax System (Goods and Services Tax) (Exempt Fees and Charges) Determination 2011 (No. 1) and payment of them is therefore deemed by subsection 81-5(2) of the GST Act not to be the provision of consideration.

Detailed reasoning:

Does the Council act as A's agent for the purpose of levying infrastructure charges?

Goods and Services Tax Ruling GSTR 2000/37 states (Para 28) that in most cases any relevant documentation about the business relationship, the description used by the parties, and the conduct of the parties establishes the existence of an agency relationship and that one of the factors indicating an agency relationship is any description of an entity as an agent having authority to act for another party in an agreement between that entity and the other party.

In the present case the Partnering Agreement denies the existence of a principal/agent relationship between A and the Council, but makes clear that although A has the 'legislated primary role' in relation to assessment of infrastructure charges (clause X), the Council is responsible for 'charge assessment', 'charge calculation' and 'generation of documents/notices, including Infrastructure Charge Notices'.

The SLA states that the Council will act as A's agent 'in collecting revenue as specified in Schedule X as per the terms and conditions contained in the Agency Agreement contained in Appendix X' and the Terms and Conditions contained in Schedule X to the SLA state that Council agrees to act as agent for A where services are being provided for 'invoice infrastructure charges' and 'receipt of infrastructure charges'. In addition the SLA contains an Agency Agreement in which A appoints the Council as A's agent to provide the Agency Services (which include 'receipt of infrastructure charges into trust fund') and the Council accepts that appointment.

In our view the provisions of the SLA and Agency Agreement referred to above establish that the Council acts as A's agent in relation to the levying of infrastructure charges, although the scope of the Council's authority to act as agent is a little unclear - Schedule X to the Partnering Agreement refers to 'charge assessment' and 'charge calculation' whereas the SLA and Agency Agreement focus on invoicing, receipt and remitting to A within a specified time.

Consequences of the Council acting as A's agent:

If an infrastructure charge which the Council (as agent for A) invoices, receipts, and remits to A is consideration for a taxable supply, then that taxable supply is made by A (as principal) (GSTR 2000/37, Para 20) unless an agreement or determination under Division 153 of the GST Act applies.

GSTR 2000/37 states that the requirement in paragraph 9-5(a) of the GST Act that 'you make the supply for consideration' is satisfied when a supply is made through an agent if the agent has the authority of the principal (Para 47). Given the provisions of the SLA and Agency Agreement referred to above, any infrastructure charge invoiced by the Council would be levied with A's authority.

Does A make a taxable supply?

As noted above, one of the requirements for a taxable supply made by an entity is that the entity makes the supply for consideration. Section 195-1 of the GSTA ct provides that, for a supply or acquisition, 'consideration' means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition. The note to that definition states that the meaning of 'consideration' is affected by a number of sections of the GST Act, including section 81-5.

Subsection 81-5(1) provides that the payment of any Australian tax, fee or charge is to be treated as the provision of consideration to the entity to which the tax, fee or charge is payable, for a supply that that entity makes. Subsection 81-5(2), however, provides that the payment of any Australian tax, fee or charge that is specified by legislative instrument by the Treasurer is not the provision of consideration. The A New Tax System (Goods and Services Tax) (Exempt Fees and Charges) Determination 2011 (No. 1) ('Determination') refers to 'developer contributions' under the State Planning Act. In our view infrastructure charges levied by A fall within the words 'developer contributions' in the Schedule to the Determination. As infrastructure charges levied by A are specified in the Determination, payment of such charges is deemed by subsection 81-5(2) not to be the provision of consideration.