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Ruling

Subject: GST status of licence fees for use of waterfront property

Question 1:

Is the supply of a licence for use of waterfront property by you subject to goods and services tax (GST)?

Answer:

Yes. These supplies are made by you for consideration and are not GST free or input taxed. Therefore the supply of a licence, and the associated administrative services, are taxable supplies.

In particular:

· The payment of rent to you for a licence is consideration for a supply.

· The payment of an annual administration fee by holders of waterfront properties is consideration for a supply.

Neither of these fees or charges are excluded from being consideration for a supply under Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the associated Regulations.

The supply is not an input taxed supply of residential premises.

The recommended changes to the licence fees and charges are not a mixed supply as there are two separately identifiable supplies, both of which are taxable.

Relevant facts and circumstances

You are a state government agency. You are registered for GST.

You have ownership, control and management of Crown land below the mean high water mark. You manage this land for the benefit of all residents. Any occupation or use of Crown land requires a licence payable to you on behalf of the Crown.

Under relevant legislation you may (subject to such terms and conditions as you determine) sell, lease exchange or otherwise dispose of or deal with Crown land or grant licence or permits in respect of Crown land on behalf of the Crown.

As part of your responsibilities you administer waterfront occupancies for these areas. A waterfront occupancy enables occupancy of an area of waterfront public land for private structures. The land is the seabed, riverbed or reclaimed land.

The occupant does not have exclusive rights to the property and cannot bar access to their structures or reclaimed land. The public must have access across adjacent Crown foreshore land. This may be provided by steps, ramps, and walkways or similar around the structure.

Licences can be noted on the title of the occupant's adjoining freehold land.

If the adjoining freehold land is sold the licence can be transferred to the new owner for the remaining term of the licence.

The occupant may apply to sub-licence approved areas.

The occupant is required to hold a minimum level of public liability insurance at their own expense.

The current licence fee was not included in the A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011.

A review has been undertaken into the fees and charges relating to these occupancies.

You will now charge an administration fee and a rental charge in relation to your licences.

The rental charge is determined using a formula based on commercial market information. The administration fee is based on an estimate of your basic costs of administration.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 9-25

Section 195-1

Division 38

Division 40

Division 81

Reasons for decision

Summary

The supply of a licence over real property, and the administrative fee for associated services, are taxable supplies.

Detailed reasoning

GST is payable on taxable supplies. Section 9-5 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia: and

(d) you are registered or required to be registered.

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

A supply includes a grant, assignment or surrender of real property (section 9-10(2) GST Act).

A supply of real property is defined under section 195-1 of the GST Act as including:

(a) any interest in a right over land; or

(b) a personal right to call for or be granted any interest in or right over land; or

(c) a licence to occupy land or any other contractual right exercisable over or in relation to land.

You are supplying a licence over land. In supplying the licences you are making a supply of real property, which is a supply for GST purposes.

Occupancies are granted by you in the course of your administrative responsibilities, and an enterprise includes an activity or series of activities done by the Commonwealth, a State or a Territory (section 9-20 GST Act). Therefore you are making the supply in the course or furtherance of an enterprise that you carry on.

As the real property is in Australia, the supply is connected with Australia as described in subsection 9-25 (4) of the GST Act. You are also registered for GST. Where your supply is for consideration, you will meet all the requirements of section 9-5 of the GST Act.

Where that is the case your supplies of licences will be taxable to the extent that they are not GST-free or input taxed.

Where you undertake administrative activities in relation to these licences, this is a supply for GST purposes as it is a supply of services.

The payment of an amount to you for a licence is consideration for a supply

Under section 9-15 of the GST Act, consideration includes any payment (or any act or forbearance) in connection with a supply of anything, and any payment (or any act or forbearance) in response to or for the inducement of a supply of anything.

In your circumstances the licence holders make a payment in money to you in exchange for your granting of the licence. The payment of the amount is clearly for, in connection with, or in response to the supply of the licence.

Where an entity pays an amount to you for a licence this is consideration for your supply of the licence. Therefore, under general principles, all of the elements of a taxable supply are met for your supply of the relevant licences.

The payment of an annual administration fee is consideration for a supply

As considered above, consideration includes a payment in connection with your supply of administrative services.

We consider that the separately identified administrative fee that you will charge relates to the licence. For the reasons considered above it is also a fee or charge for a supply of a non-regulatory nature. It is therefore consideration for a supply, being the supply of administrative services in relation to the licence.

Where an entity pays an amount to you for your administrative services this is consideration for your supply of the administrative services. Therefore, under general principles, all of the elements of a taxable supply are met for your supply of administrative services.

These fees or charges are not excluded from being consideration for a supply by Division 81

Chapter 4 of the GST Act contains special rules for the GST. These special rules apply only in particular circumstances, and are generally quite limited in their scope. The special rules modify the application of the basic GST rules. Rules in Division 81 of the GST Act provide that certain payments to Australian government agencies are not the provision of consideration.

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. Division 81 of the GST Act gives effect to this agreement.

Section 81-10 of the GST Act considers the effect of payment of certain Australian fees and charges. 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 this section. Subsection 81-10(4) of the GST Act considers that 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). We consider that your circumstances involve a fee or charge for a permission, authority or licence. Therefore the further elements of section 81-10 must be considered.

An Australian fee or charge is a fee or charge (however described), 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. 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 (ITAA 1997)). We consider that under this definition you are an Australian government agency. Therefore where you impose a fee under a state law and the fee is payable to you this may meet the requirements of an Australian fee or charge.

Relevant legislation authorises you to grant licences or permits in respect of Crown land on behalf of the Crown. This does not specifically consider that you may charge particular fees or amounts for the licences. While it may be implied that leasing the property will be for consideration, and therefore that you have imposed this charge under an Australian law, we consider that there needs to be a more clear authority to impose the particular charge before it is of the nature considered under Division 81. Therefore we consider that the relevant fee or charge is not imposed under an Australian law but under your licence agreement, and therefore Division 81 of the GST Act does not apply to these arrangements.

However, even if this legislation was sufficient to conclude that the fee is imposed under an Australian law (as is required for Division 81 to operate), the regulations provide that the fee or charge would constitute consideration under Division 81.

Regulations may be made (under subsection 81-10(2)) that prescribe fees and charges that are to be treated as consideration. Such regulations have been made in Division 81 of the A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations), at regulation 81-10.01. They include a fee or charge for a supply of a non-regulatory nature (regulation 81-10.01(g)), and a fee or charge for a supply by an Australian government agency, where the supply may also be made by a supplier that is not an Australian government agency (regulation 81-10.01(h)).

The Explanatory Memorandum to the Regulations explains that the term 'regulatory' captures those supplies made by a government agency, where that agency is legislatively empowered to make the relevant supply and the supply is to satisfy a regulatory purpose. For example, the EM considers that a fee or charge that relates to activities of government that are regulatory in nature includes a fee paid for a licence to operate a childcare facility. This is a fee that is required before activities in an industry can take place.

In contrast, we do not consider that the arrangements your licensees enter into is in the context of satisfying a regulatory requirement of an Australian law. Not all waterfront property holders enter into a relevant licence, only those that want to have additional property benefits. Those that do enter into licences do so in order to enhance their personal use or enjoyment of particular real property held by you.

The method of calculation of fees charged also indicates that the fees are of a commercial rather than regulatory nature. In particular, similar real property markets are analysed to come up with a commercial charge for licence holders. Furthermore, licences or similar rights over real property are a common occurrence that may be supplied by parties other than Australian government agencies. Therefore regulation 81-10.01(h) determines that the fee or charge constitutes consideration for a supply.

Therefore we consider that the licence fees are for a supply that is of a non-regulatory nature. It is a commercial supply that provides enjoyment of property rights to individuals. While this may also have some additional benefits of restricting or managing access to and use of that real property, the main purpose of these arrangements are to maximise or utilise assets that you hold for the benefit of all citizens.

The payment of amounts under these licences is outside the scope of the fees or charges intended to be exempt under Division 81 of the GST Act. We consider for the reasons above that these are commercial activities, and are consideration for a supply.

The result is that the supply of real property by you is a supply for consideration. For these supplies all of the elements of section 9-5 of the GST Act are met. Therefore the supply is a taxable supply to the extent that the supply is not GST-free or input taxed.

You are not making an input taxed supply of residential premises

Division 40 of the GST Act considers input taxed supplies. In particular, a supply of premises that is by way of lease is input taxed under 40-35 of the GST Act if it is a supply of residential premises (other than commercial residential premises).

Section 195-1 of the GST Act provides the definition of residential premises and states:

residential premises means land or a building that:

(a) is occupied as a residence or for residential accommodation; or

(b) is intended to be occupied, and is capable of being occupied, as residence or for residential accommodation;

(regardless of the term of the intended occupation) and includes a floating home.

This definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of being occupied. Vacant land of itself can never have sufficient physical characteristics for occupation or intended occupation as a residence. The structures for which occupancies are provided are also not accommodation or capable of occupation as a residence.

Goods and Services Tax Ruling, Goods and Services Tax: commercial residential premises GSTR 2000/20 (GSTR 2000/20), provides further guidance in relation to this issue at paragraphs 24 and 25.

24. The definition of 'residential premises' in section 195-1 refers to land or a building that is occupied as a residence or for residential accommodation or is intended and capable of being occupied as a residence or for residential accommodation.

25. The definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence or for residential accommodation. Vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be or intended to be occupied as a residence or for residential accommodation.

The real property you are granting a licence over is vacant land which does not have the physical characteristics that enable it to be occupied. The use of the real property is for the relevant structure of the licensee. It is therefore considered that the supplies of the licences are not input taxed supplies of residential premises under section 40-35 of the GST Act.

Furthermore, there are also no relevant provisions in Division 38 of the GST Act to make your supply of real property GST-free.

You are not making a mixed supply

A mixed supply is a single transaction that contains separately identifiable taxable and non-taxable parts.

In your circumstances, the supplies you make (of the licence and the administrative fee) are both taxable even if they are in the same transaction. Where you make a supply that is identifiable as having more than one part and each part is taxable you do not need to apportion the consideration for the supply. GST is payable on the whole supply.