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Ruling

Subject: GST and environmental assessment reports

Question 1

Are fees charged for Environmental Assessment Reports an Australian fee or charge, and therefore not consideration for a supply under Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

· You are a statutory state owned corporation, and you are registered for GST.

· An aspect of your work includes work on Environmental Assessment Reports. Developments may require these reports in association with water and sewer design and construction activities. The report is a report that developers obtain prior to building on undeveloped land. The report considers the environmental impact that a proposed development will have on the environment.

· Reports may be required under Regulations.

· Under the Regulations an assessment of the environmental impact of a project may be required to be made by a public authority. Under the Regulations and the Act all public authorities are planning authorities. You are therefore a planning authority.

· Normally consultants are engaged by the developer to prepare this report and you review the report to ensure outcomes comply with relevant legislative and regulatory requirements. Alternatively, you may be required to prepare the report.

· Under the Regulations assessment or preparation fees are to be determined by, and paid to, the planning authority.

· Currently charges for these reports are being treated as exempt from GST as it is specified as exempt under the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) (the determination).

Relevant legislative provisions

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

Division 81

Reasons for decision

Summary

A fee charged for an Environmental Assessment Report is an Australian fee or charge. It relates to an application for the provision of a permission.

Detailed reasoning

When the GST was introduced the Commonwealth, states and territories agreed that the GST would apply to the commercial activities of government at all levels, but that the non-commercial activities of government would be outside the scope of the GST.

Until 1 July 2011, various exemptions were set out in detail in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) (the determination). As a transitional measure, fees and charges listed in the Treasurer's determination as at 30 June 2011 remain exempt until 1 July 2012.

Division 81 of the GST Act was amended as of 1 July 2011. It is legislation to enact the intention that regulatory charges that do not relate to particular goods or services will be exempt from GST, including licences, permits and certifications that are required by government prior to undertaking a general activity.

In this context, Division 81 of the GST Act allows entities to self assess the GST treatment of a payment of an Australian fee or charge in accordance with certain principles. Specifically, section 81-10 of the GST Act considers the effect of payment of certain Australian fees and charges.

An Australian fee or charge is a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency (section 195-1 GST Act). An Australian law means a Commonwealth, state or territory law, and Australian government agency means the Commonwealth, a state or territory, or an authority of the Commonwealth or of a state or territory (section 195-1 GST Act, as defined by reference to section 995-1, Income Tax Assessment Act 1997).

The Regulations provide that preparation and assessment fees are to be determined by, and paid to, the planning authority (you). You are a statutory state owned corporation and are therefore considered to be an Australian government agency. This satisfies the above requirements for the amounts to be considered an Australian fee or charge.

Australian fees or charges are no longer treated as the provision of consideration for a supply at first instance where they are of the nature described in subsections 81-10(4) or (5) of the GST Act. If a payment is not consideration for a supply, then the supply will not be a taxable supply under section 9-5 of the GST Act.

Subsection 81-10(4) of the GST Act considers relevant fees or charges. A payment is not the provision of consideration to the extent that the fee or charge relates to, or relates to an application for, the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority or licence (however described).

Relevantly, this fee may be considered to relate to an application for the provision of a permission.

The term 'relates to' requires a nexus, link or connection between the fee or charge and the provision of a permission.

The meaning of "relates to" was considered by Hill J in HP Mercantile Pty Limited v FC of T 2005 ATC 4571 (at p 4578)

"the relationship was one which had to be a 'real' and substantial relationship - not one that was trivial ... The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found."

This indicates that the interpretation of "relates to" may be a broad interpretation, but that some real or substantial connection is required. However, this connection may be direct or indirect. It must be a relevant connection, and not a mere remote link. The legislative history is also relevant to this interpretation.

In the current context, the amendments to Division 81 are not intended to make supplies taxable that were previously exempted under the Determination. While this may be a necessary result in some cases, the legislation should be interpreted with this in mind. In this case, the report in question has previously been considered to be exempt under the determination.

In this instance the fee in question is for a report that is prepared in association with proposed developments, and approval of such a report is required as part of the process of obtaining the necessary approval or permission to proceed with the proposed development. That is, it relates to an application for the provision of a permission.

Your fee in preparing or assessing a report is a prerequisite for some developments and therefore payment of the fee is necessary before the permission can ultimately be provided. Therefore there is a real connection between the fee and the permission, such that the fee can be said to relate to the permission.

Even though the final permission to develop land may be granted by another entity, it is not specified in the legislation that a fee or charge paid in the course of the application process to an agency other than the Australian Government agency providing the permission is precluded from being covered by subsection 81-10(4). In contrast, the Explanatory Memorandum to this legislation does make it clear that fees paid to a private entity as part of the permissions process will not be exempted.

We accept that the fee for an Environmental Assessment Report relates to an application for the provision of a permission to build on undeveloped land. This permission is granted or provided under an Australian law by a relevant authority.

The fee is a fee of the type covered in subsection 81-10(4). It relates to an application for provision of a permission as described in subsection (4).

As this fee is of the type covered by Division 81, payment of the fee will not be consideration for a supply. Specifically, this means that the provision of the supply of an Environmental Assessment Report will therefore not be a taxable supply as the supply is not for consideration.