Edited version of your private ruling

Authorisation Number: 1012456945632

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Ruling

Subject: GST and fees and charges

Question 1

Is the payment of the fees to you excluded from goods and services tax (GST) under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it is imposed on or after 1 July 2013?

Answers

Yes. The payment of the fees by the property owner to you, do not constitute consideration.

Note

I note that the governing body of which you are a member has lodged an application for a class ruling for fees in connection with water, sewerage and drainage with the ATO of which the fees that are the subject of this ruling are considered.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· You are a single purpose local government authority with a primary responsibility to provide bulk water in a particular council area.

· You are registered for GST.

· By force of a particular section of the governing Act, you are a body politic of your State with perpetual succession and the legal capacity and powers of an individual, both in and outside the State.

· You are empowered under the relevant Act to:

- provide goods, services and facilities and to carry out activities, appropriate to the current and future needs of local communities and of the wider public;

- maintain responsibility for administering the regulatory systems under the relevant Act; and

- manage, improve and develop the resources of local government areas.

· Under a particular subsection of the relevant Act you may charge and recover an approved fee for any service you provide including water, sewerage and drainage fees, other than a service provided, or proposed to be provided, on an annual basis for which you are authorised or required to make an annual charge under other section of the relevant Act.

· A particular Subsection of the relevant Act provides the services for which you can charge fees under this section.

· A further section of the relevant Act sets out which activities including water, sewerage and drainage work which require approval, and provides that failure to obtain approval is an offence under a section of the relevant Act

· A section of the relevant Act sets out what services you can impose an annual charge.

· The day to day running of your enterprise is the responsibility of the General Manager, who, along with Managers and staff acts on the governing body's decisions by developing and putting into practice their policies and resolutions.

· As part of your enterprise you charge or intend to charge your clients the following fees:

- Fee A

Each year a device which is attached to a customer's asset must be assessed by a qualified tradesperson to ensure it is functioning correctly. The tradesperson then needs to register his certification with you so that you can record that the device has been successfully assessed.

Effective 1 July 2013, you intend to charge a non-compliance fee to those customers who do not comply with your notice requesting they re-register their device.

- Fee B.

This fee is charged to a particular type of entity which allows them to access and draw from certain of your assets.

- Fee C - request by certain entities disputing information provided by you.

These entities who dispute the information can request their asset be tested. You charge a fee to the entity for the test.

Relevant legislative provisions

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

Section 9-5

Paragraph 9-5(a)

Section 9-10

Section 9-30

Section 38-285

Section 81-5

Section 81-10

Subsection 81-10(1)

Subsection 81-10(2)

Subsection 81-10(4)

Subsection 81-10(5)

Section 81-15

Section 195-1

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

Regulation 81-10.01

Regulation 81-15.01

Regulation 81-15.02

Income Tax Assessment Act 1997

Section 995-1

Reasons for decision

Summary

For the reasons discussed below, payment of the tax, fee or charge in question is not the provision of consideration for a supply. Therefore a taxable supply is not made, and the transaction is not subject to GST.

Detailed reasoning

Background

GST is payable on taxable supplies. Section 9-5 of the 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.

Also, relevant to your circumstances, chapter 4 of the GST Act contains special GST rules that apply in particular circumstances. 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. The application of this Division must be considered in your circumstances.

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.

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 2013. The fees considered in this ruling are not covered by the Determination.

Division 81 of the GST Act was amended as of 1 July 2011. The amended legislation continues the intention that regulatory charges that do not relate to particular goods or services will be exempt from GST. In this context, Division 81 of the GST Act allows entities to self assess the GST treatment of a payment of an Australian tax or an Australian fee or charge in accordance with certain principles.

Sections 81-10 and 81-15 of the GST Act consider the effect of certain fees and charges and state:

Certain fees and charges not consideration

(1) A payment, or the discharging of a liability to make a payment, is not the provision of *consideration to the extent the payment is an *Australian fee or charge that is of a kind covered by subsection (4) or (5).

Prescribed fees and charges treated as consideration

(2) However, a payment you make, or a discharging of your liability to make a payment, is treated as the provision of consideration to the extent the payment is an *Australian fee or charge that is, or is of a kind, prescribed by the regulations.

(3) For the purposes of subsection (2), the consideration is taken to be provided to the entity to which the fee or charge is payable, for a supply that the entity makes to you.

Fees or charges paid for permissions etc.

(4) This subsection covers a fee or charge if the fee or charge:

(a) relates to; or

(b) relates to an application for;

the provision, retention, or amendment, under an *Australian law, of a permission, exemption, authority or licence (however described).

Fees or charges relating to information and record-keeping etc.

(5) This subsection covers a fee or charge paid to an *Australian government agency if the fee or charge relates to the agency doing any of the following:

(a) recording information;

(b) copying information;

(c) modifying information;

(d) allowing access to information;

(e) receiving information;

(f) processing information;

(g) searching for information.

81-15 Other fees and charges that do not constitute consideration

The regulations may provide that the payment of a prescribed *Australian fee or charge, or of an Australian fee or charge of a prescribed kind, or the discharging of a liability to make such a payment, is not the provision of *consideration.

Australian fee or charge

The term 'Australian fee or charge' is defined in section 195-1 as:

Australian fee or charge means a fee or charge (however described), other than an Australian tax, imposed under an *Australian law and payable to an *Australian government agency.

Note: the * denotes a defined term within the GST Act.

The term 'Australian law' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and relevantly includes a State law. It includes acts and law making powers which are delegated by parliaments, such as regulations, by-laws, proclamations and orders made under Acts.

The term 'Australian government agency' is defined in section 995-1 of the ITAA 1997 and means:

the Commonwealth, a State or Territory; or

an authority of the Commonwealth or of a State or a Territory.

For the purposes of this Ruling it is accepted that you comes within the definition of Australian government agency.

Where the fees are paid to an Australian government agency and are imposed under an Australian law (which includes a law of a State) it will be an Australian fee or charge.

In your case the fees are imposed under the relevant Act and the relevant Regulations.

We consider that the relevant Act and the relevant Regulations are a state law, and therefore satisfy the definition of an Australian law. Therefore the fees are imposed under an Australian law.

We also consider that the fees are payable to an Australian government agency. You are a single purpose local government authority which by virtue of a section of the relevant Act, provides that you are a body politic of the your State, with perpetual succession and the legal capacity and powers of an individual, both in and outside the State.

You come within the definition of an Australian government agency in section 995-1 of the Income Tax Assessment Act 1997 (ITAA).

We therefore accept that in your circumstances, based on these relevant factors, you therefore meet the definition of an Australian government agency for the purposes of Division 81 of the GST Act.

Having established that the fees are an Australian fee or charge, it is necessary to consider whether they are a fee or charge that does not constitute consideration under Division 81 of the GST Act and therefore not subject to GST.

Application of Division 81

Division 81 of the GST Act gives effect to the principles contained in the Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement). Payments of taxes are exempt from the GST. Payments of fees and charges generally constitute consideration and if the requirements of section 9-5 of the Act are satisfied, the payment will be for a taxable supply. Some supplies are excluded and will be exempt. The Act provides for regulations to prescribe payments that constitute consideration for a supply and, conversely, prescribe payments that are otherwise taxable as being a fee or charge that does not constitute consideration.

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 an application for, the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority or licence (however described).

Regulations may be made (under subsection 81-10(2) of the GST Regulations) that prescribe fees and charges that are to be treated as consideration. Such regulations have been made in Division 81 of the GST Regulations, at regulation 81-10.01 of the GST Regulations.

Similarly, section 81-15 of the GST Act allows the making of regulations that provide that the payment of a prescribed Australian fee or charge, or of an Australian fee or charge of a prescribed kind, or the discharging of a liability to make such a payment, is not the provision of consideration. Such regulations have been made at Division 81 of the GST Regulations. In particular, regulation 81-15.01 of the GST Regulations prescribes fees and charges which do not constitute consideration.

Fees and charges that constitute consideration

Regulation 81-10.01 sets out those fees and charges that do not fall within the principles contained in the Intergovernmental Agreement, and therefore supplies to which they relate are not intended to be exempt from GST. A fee for the provision of information, if the provision of information is of a non-regulatory nature, is consideration for a supply. For example, a payment for a commercial sale of books by a government bookshop is treated as consideration for a supply, and if the other conditions of section 9-5 are met, it will be a taxable supply.

Regulation 81-10.01 also ensures that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 of the Act are satisfied.

Fees and charges that do not constitute consideration

Regulation 81-15.01 sets out those fees and charges that are prescribed for section 81-15 and which do not constitute consideration. This regulation adds to the kinds of fees and charges that are already made exempt from GST under subsections 81-10(4) and (5) of the GST Act.

Because these fees and charges do not constitute consideration, the supplies to which they relate, if any, do not satisfy the requirements of section 9-5 of the Act and are not taxable supplies.

Those fees and charges that are prescribed include a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry and a fee or charge for a supply of a regulatory nature made by an Australian government agency.

The Explanatory Statement to the A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No. 2) explains that the regulations ensure that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 are satisfied. It states:

Fees and charges in this category are not excluded from being consideration for a taxable supply. This is consistent with the National Competition and Consumer Policy guidelines and ensures that a government entity is not given a competitive advantage over a private sector supplier making the same type of supply.

This covers situations in which government agencies have authorised private agencies to perform activities that form part of a regulatory process, for example, certification activities which are required for a regulatory process to be followed. Where government agencies, as well as government certifiers, have authorised private certifiers to perform certification activities these fees and charges will continue to be consideration for a supply that is subject to GST. This ensures competitive neutrality between supplies made by government and non-government agencies.

This paragraph applies only where a government agency is providing a supply in a competitive market, or where private suppliers have been accredited or authorised to make a supply over which the agency would otherwise have a monopoly.

This paragraph does not cover supplies of information that are regulatory in nature and can only be supplied by government agencies, notwithstanding that the public may obtain such information through a private sector supplier acting as a conduit for the information from the government agency. The supply is only a taxable supply where the private sector entity charges for the supply in its own right.

The word 'regulatory' is not defined in the GST Act or the Regulations. However, the Explanatory Statement (ES) to A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No.2) states

"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"

Generally where only Government organisations have the legislative authority to do certain things, it will be regulatory in nature.

Sub-regulation 81-15.01(1) of the Regulations contains a list of fees and charges that will not be subject to GST because they are taken not to constitute consideration. This list includes:

(f) a fee or charge for a supply of a regulatory nature made by an Australian government agency.

The ES provides a number of examples that would fall under paragraph 81-15.01(1)(f) and states the following:

The payment of fees and charges of a kind prescribed by regulation 81-15.01 are not the provision of consideration and therefore do not give rise to a taxable supply. The regulation adds to the kinds of fees and charges that are already made exempt from GST under the operation of subsections 81-10(4) and (5) of the Act.

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.

In some instances, although the consumer acquires something that may be of intrinsic value to the consumer, the acquisition is made in the context of satisfying a regulatory requirement of an Australian law. The following are examples of fees and charges for supplies that have a regulatory character:

· ·A fee or charge for providing a copy of a birth, death or marriage certificate;

· A compulsory inspection fee for checking that the foundations of a building comply with a building code;

· A fee for reviewing a film to give it an appropriate audience rating before it can be exhibited at a public cinema;

· A fee for the supply and fitting by a government department of a compulsory device to limit the speed of a heavy road transport vehicle;

· A fee for land registry services such as titling, valuation or surveying, undertaken by a government agency in providing those services; and

· Fees and charges imposed by an Australian government agency associated with:

- Towing and impounding a vehicle where the driver has committed a traffic offence;

- Seizing and destroying goods that are not permitted to be imported into Australia;

- Impounding animals;

- Releasing seized abandoned shopping trolleys; and

- Erecting a stock crossing sign on the side of a road that a farmer has stock regularly crossing.

Paragraph 81-15.01(1)(d) of the GST Regulations provides that a fee or charge to compensate an Australian government agency for costs incurred by the agency in undertaking regulatory activities will not be consideration.

Additionally paragraph 81-15.01(1)(f) of the GST Regulations provides that a fee or charge for a supply of a regulatory nature made by an Australian government agency does not constitute consideration and therefore GST does not apply.

Each of the taxes, fees or charges imposed are considered below to determine whether their payment is the provision of consideration in light of Division 81.

Fee A

Each year a device which is attached to a customer's asset must be assessed by a qualified tradesperson to ensure it is functioning correctly. The tradesperson then needs to register his certification with you so that you can record that the device has been successfully assessed.

Where customers do not comply with your notice requesting they re-register their device you intend to charge a non-compliance fee to those customers.

In considering the fee we must first consider the nature of the original fee to which the non-compliance fee relates.

Regulation 81-10.01 ensures that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 of the Act are satisfied.

Regulation 81-15.01 sets out those fees and charges that are prescribed for section 81-15 and which do not constitute consideration. This regulation adds to the kinds of fees and charges that are already made exempt from GST under subsections 81-10(4) and (5) of the GST Act.

We consider that the original fee is of the kind covered by paragraph 81-15.01(1)(f) of the GST Regulations which provides that a fee or charge for a supply of a regulatory nature made by an Australian government agency does not constitute consideration and therefore GST does not apply.

In this instance, it is considered that the non-compliance fee takes on the character of the original fee which is a fee or charge for a supply of a regulatory nature made by an Australian government agency and does not amount to consideration.

Accordingly Fee A is also a fee or charge for a supply of a regulatory nature made by an Australian government agency and does not amount to consideration and therefore GST does not apply.

Fee B.

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 an application for, the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority or licence (however described).

Paragraph 4.27 of Explanatory Memorandum to the Tax Laws Amendment (2011 Measures No.2) Act 2011 gives examples of these fees and charges and includes

"…application fees, licences, permits and certifications that are required by government prior to undertaking an occupation (for example medical and legal professionals' right of practice licences…"

We consider that your fee is a fee or charge for a relevant type of permission. However, it is necessary to also consider this subject to the regulations that 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 GST 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))

In your case we consider that subsection 81-10(2) of the GST Act does not apply because the fee is of a regulatory nature and therefore regulation 81-10.01 of the GST Regulations does not apply.

As the fee is of the kind covered by subsection 81-10(4), subsection 81-10(1) applies and there is no consideration for a supply. Therefore no taxable supply is made and the fee is not subject to GST.

Fee C

A request by certain entities disputing, information provided by you.

These entities who dispute the information provided by you can request their asset be tested. You charge a fee to the entity for the test.

The fee is for the removal of the asset by an accredited organisation at the customer's request to determine the accuracy of the asset.

Section 9-5 of the GST Act states:

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.

(Terms marked with an *asterisk are defined in section 195-1 of the GST Act).

In this case, you will operate and maintain the assets for consideration in the course of carrying on its enterprise. The supply is connected to Australia and you are registered for GST. As the supply does not fall within any provision in the GST Act which would make it input taxed, it needs to be determined whether the supply would be GST-free.

A supply of water is GST-free under subsection 38-285(1) of the GST Act.

GSTR 2000/25 outlines the ATO's view as to what constitutes a GST-free supply of water under section 38-285 of the GST Act.

Paragraph 24 in GSTR 2000/25 states:

Activities performed by the supplier of water up to and including the point of supply to the recipient of water are GST-free if they are integral to the physical delivery of water to the recipient. The system for the physical delivery of water to an end recipient may be the responsibility of more than one supplier of water. For example, a supplier of bulk water may supply bulk water to another supplier who makes retail supplies of water to end recipients. The following will be GST-free:

· initial connection, re-connection, disconnection, water meter installation, and tapping and tee insertion;

· irrigation channel water scheduling and channel attendance (including channelling from natural water courses);

· irrigation channel maintenance up to and including the point of supply (where it is charged to the water supply recipient); and

· water meter reading and testing.

Appendix 1 to GSTR 2000/25 explains what 'point of supply' represents and shows that the point of supply is after the location of the water meters for both urban and rural water recipients, that is, it is on the end user's side of the meters.

Paragraph 24 in GSTR 2000/25 explains that activities performed by the supplier of water up to and including the point of supply to the recipient of water are GST-free if they are integral to the physical delivery of water to the recipient. This includes irrigation channel maintenance up to and including the point of supply (where it is charged to the water supply recipient) and water meter reading and testing (see paragraph 24 quoted above).

Item 9 in Appendix 2 to GSTR 2000/25 under the heading 'Charges for supplies of water that are GST-free under Subdivision 38-I' (Item 9) lists as GST-free:

Water meter (including a sub-meter) reading, testing and service charges.

As such, you will be making a GST-free supply under section 38-285 of the GST Act when you test the water meter and charges the property owner a fee.