Edited version of your private ruling

Authorisation Number: 1012063196618

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Goods and services tax (GST): damages

Question 1

Are you making a taxable supply, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when restoring something to its previous condition?

Answer

No, you are not making a taxable supply under section 9-5 of the GST Act when restoring something to its previous condition.

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You are an Australian government agency. You are registered for GST.

You own, control and maintain something. In some cases, the things are damaged through a leakage from, or breaking or bursting of, an object or work placed in, on, or over the thing. From time to time, a responsible party may dig up the thing.

The responsible party will fix an item without being required to consult you beforehand. No application form is submitted to you. The responsible party will do a temporary repair of the thing.

Subsequently the responsible party sends you a schedule of works. This is a computer print out detailing the locality where they have done the work, when they did it and other details.

You will subsequently carry out the proper repair to the thing. The repair to the thing may be carried out in conjunction with your other works in that vicinity.

You then send the responsible party an invoice for the fee. You impose the fee under a specified Act to recover your costs of restoring the things to their former condition. Your practice is to issue invoices after you have completed the repair work. You always need to fix the temporary repairs by public utilities and therefore always require payment.

Standard fees for specific types and locations of things are specified in your pricing policy. The fees are published annually on your internet site. This fee is not of a kind specified to be exempt by the Treasurer's legislative instrument, the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No 1), made for the purposes of the repealed subsection 81-5(2) of the GST Act.

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 9-10.

A New Tax System (Goods and Services Tax) Act 1999 Division 81

A New Tax System (Goods and Services Tax) Act 1999 Section 81-10.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-10(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-10(2).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-10(4).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 81-10(5).

A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No.1)

A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 81-10.01

Legislative Instruments Act 2003

Reasons for decision

Section 9-40 of the GST Act provides that you must pay GST on any taxable supply that you make.

Under section 9-5 of the GST Act you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· 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.

In this case it is relevant to consider whether you are making a supply for consideration.

Subsection 9-15(1) of the GST Act provides that consideration includes:

                     (a)  any payment, or any act or forbearance, in connection with a supply
of anything; and

                     (b)  any payment, or any act or forbearance, in response to or for the
inducement of a supply of anything.

Goods and Services Tax Ruling Goods and services tax: supplies (GSTR 2006/9) includes guidance on certain issues in relation to supply and consideration.

Paragraph 180 of GSTR 2006/9 provides that in other GST rulings the Commissioner discusses the close coupling between supply and consideration in the GST Act. In determining whether a payment is consideration under section 9-15 of the GST Act and whether there is a 'supply for consideration' those rulings take the view that:

· the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

· regard needs to be had to the true character of the transaction; and

· an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the
transactions are made.

In the example you stated, the responsible party will fix an item following which they will do a temporary repair to the thing. The responsible party subsequently sends you a schedule of works detailing the locality where they have done the work, when they did it and other details following which you send them an invoice to recover your cost of restoring the thing to its former condition.

We understand that under a specified Act, a responsible party who causes damage to a thing is liable to pay the appropriate authority the cost incurred by that authority in making good the damage. The authority may direct the responsible party to restore the thing or, instead of giving the direction, the authority may take the necessary action to restore the thing themselves and recover from the responsible party an amount no greater than that necessary to restore the thing.

Goods and Services Tax Ruling Goods and services tax: GST consequences of court orders and out-of-court settlements (GSTR 2001/4) includes guidance on payments where the subject of a claim is not a supply. The principle in GSTR 2001/4 is relevant.

Paragraph 71 of GSTR 2001/4 provides that disputes often arise over incidents that do not relate to a supply. Examples of such cases are claims for damages arising out of property damage, negligence causing loss of profits, wrongful use of trade name, breach of copyright, termination or breach of contract or personal injury.

Paragraph 73 of GSTR 2001/4 provides that the most common form of remedy is a claim for damages arising out of the termination or breach of a contract or for some wrong or injury suffered. This damage, loss or injury, being the substance of the dispute, cannot in itself be characterised as a supply made by the aggrieved party. This is because the damage, loss, or injury, in itself does not constitute a supply under section 9-10 of the GST Act.

In considering the guidance in GSTR 2006/9 and 2001/4 we consider that you are not making a supply in relation to the payment you received from the responsible party. We consider that the payment is for the damage to the thing.

It follows that, you do not satisfy one of the preconditions [ie subsection 9-5(a) of the GST Act] for a taxable supply. Accordingly, you do not make a taxable supply, under section 9-5 of the GST Act when restoring a thing to its previous condition.