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Ruling

Subject: GST and larger size garbage bin charge

Question 1:

Does the additional charge levied to a ratepayer for the upgraded service include goods and services tax (GST)?

Answer:

Yes. However, as from 1 July 2012 the additional charge for the upgraded service will have no GST component.

Relevant facts and circumstances

You are a local government and are registered for GST.

You have a specific service for residential properties, and provide this service to ratepayers as a part of your normal rates and charges.

However, if a ratepayer chooses to upgrade their service, you levy them an additional charge in addition to their normal rates and charges.

Where there is an additional charge, you add GST to the charge, on the assumption that the additional charge is not a levied service charge under section 162 of the Local Government Act.

You are aware that under the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) the charge for the upgraded service is not specifically listed and is not excluded from being consideration for a supply.

Relevant legislative provisions

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

Division 81

Division 9

A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No 2)

Regulation 81-15.1(1)(a)

Reasons for decision

Background

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, payment of Australian taxes, fees and charges were treated as consideration for a supply, except to the extent that the Australian tax, fee or charge was listed in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No. 1) (the Determination).

The charge on the upgraded service imposed by you is not specified in the Determination and therefore would be considered as consideration for a taxable supply made by you to the ratepayers (if other requirements of section 9-5 of the GST Act are satisfied).

Under the Tax Laws Amendment (2011 Measures No. 2) Act 2011 (TLAA) Division 81 of the GST Act was substituted by No 41 of 2011, s 3 and Sch 4 item 2, applicable in relation to the payment, or the discharging of liability to make a payment, relating to an Australian tax, or an Australian fee or charge, imposed on or after 1 July 2011.

S 3 and Schedule 4 item 16 of the TLAA provides the following application provision:

16 Application provision 

(1) The amendments made apply in relation to the payment, or the discharging of a liability to make a payment, relating to an Australian tax, or an Australian fee or charge, imposed on or after 1 July 2011.

(2) However, the amendments do not apply in relation to a payment, or a discharge of a liability to make a payment, relating to an Australian tax, or an Australian fee or charge, imposed before 1 July 2012 if the payment is of a kind specified by legislative instrument (a Division 81 determination):

(a)  made for the purposes of subsection 81-5(2) of the A New Tax System (Goods and Services Tax) Act 1999; and

(b) in force immediately before 27 June 2011.

(3) Despite the repeal of subsection 81-5(2) of the A New Tax System (Goods and Services Tax) Act 1999, a Division 81 determination continues to have effect, after 27 June 2011 and before 1 July 2012, as if the repeal had not happened.

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.

As a transitional measure, fees and charges listed in the Treasurer's determination as at

30 June 2011 remain exempt until 1 July 2012. Further grandfathering provisions in regulation

81-15.01 (available on the Treasury website) extends the application of the Determination until

1 July 2013. It is noted that the charge for the upgraded service is not specified in the Determination and therefore the grandfathering provisions do not apply.

Current law

Australian fees or charges are not 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.

Specifically, paragraph 81-15.01(1)(a) of the A New Tax System (Goods and Services Tax) Regulations states that the upgraded service does not constitute consideration for a supply.

Therefore, as from 1 July 2012 payment of the upgraded service charge is not the provision of consideration for a supply, and so there is no taxable supply made by you in relation to these charges.