Edited version of your private ruling

Authorisation Number: 1012470651859

Ruling

Subject: GST & Government Charges

Question 1

Are the Corporations Australian government agencies for the purposes of Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Are the following fees charged by the Corporations deemed not to be the provision of consideration for GST purposes under section 81-10 of the GST Act?

Charges for assessing and issuing a certificate of certifiable work in relation to certain permits (certification required under an Act).

Charges for assessing, inspecting and issuing a certificate of compliance (certification required under an Act).

Charges for issuing information certificates (certification required under an Act).

Answer

Yes.

Relevant facts and circumstances

Private corporations have been incorporated to manage and provide certain utility services to the community.

The corporations are fully owned and controlled by local government authorities. They are regulated by a State Government regulator and are tightly controlled by the State Government.

The fees subject to this ruling are currently in the Treasurer's Determination.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 9-5,

A New Tax System (Goods and Services Tax) Act 1999 81-5,

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

A New Tax System (Goods and Services Tax) Act 1999 195-1 and

Income Tax Assessment Act 1997 995(1).

Reasons for decision

For Division 81 of the GST Act to apply to the fees, they have to be payable to an 'Australian government agency'. The Corporations are unique as they function as government agencies, however have been created as private companies under the Corporations Act so a close examination of the Corporations need to be made to determine if they are Australian government agencies for the purposes of Division 81 of the GST Act.

Division 995 of the ITAA 97 defines Australian government agency as:

(a) the Commonwealth, a State or a Territory; or

(b) an authority of the Commonwealth or of a State or a Territory.

Therefore to be an Australian government agency an entity must be the Commonwealth, a State or a Territory or an authority of the Commonwealth, a State or Territory.

The term Commonwealth, a State or a Territory is not a defined term under the GST Act or any other act, however, Goods and Services Tax Ruling (GSTR) 2006/5 provides the Commissioners view on the meaning of the term. Although GSTR 2006/5 does not specifically refer to or apply in the context of Division 81 of the GST Act it does set out the principles that the High Court has stated need to be considered in determining whether an entity is the 'State'. We consider that those factors may also provide some guidance for the purposes of determining whether the Corporations are an Australian Government Agency for the purposes of Division 81 of the GST Act.

Paragraph 11 of GSTR 2006/5 states;

The fundamental principle established by these cases is that, if the corporation is discharging governmental functions for the State - that is, the State is carrying on the relevant business or other function through the corporation - the corporation is the State. On the other hand, if the intention is for the corporation to perform its functions independently of, and not as an instrument of, the State - so that the concept of a State activity cannot be realistically applied to that which the corporation does - the corporation is not the State.

Similarly, the term 'authority of the State' is not a defined term under the GST Act or any other act. However, there are a number of cases¹ that provide guidance on a range of factors to be considered. These include:

· exercising control or executing a function in the public interest. It must be an instrument of government existing to achieve a government purpose

· performing traditional or inalienable functions of government and having government authority for so doing

· exercising control power or command for the public advantage or execute a function in the public interest.

The Corporations were incorporated as proprietary companies limited by shares under the Corporations Act. However the State Act provides for the application of the Corporations Act in each Relevant Corporation and each director, secretary, other officer or employee of a Relevant Corporation is declared to be an excluded matter for the purposes of section 5F of the Corporation Act. This effectively states that the Corporation Act does not apply to the Corporations for matters declared by the State to be an excluded matter. The State therefore retains control over these matters.

The Corporations are tightly regulated and controlled by the State through State legislation, and the State regulator, they are required to report to the State's treasurer. The Corporations are audited by the State auditor general.

The Corporations are wholly owned by the local government authorities (LGA) that are considered to be the State; they are controlled by the LGA and the State and are required to act in the interests of the State. The LGA are restricted from diluting their interests in the Corporations by State legislation.

The State has tight control over the conduct of the affairs of the Corporations. This is evidenced by the legislative requirement for the Corporations to have constitutions that are approved by the State Parliament and any variations to the constitutions needs to be endorsed by the Parliament. The treasurer of the State also has the statute power to direct the Corporations in writing to do something. These factors show that the State has ultimate control over the conduct of the Corporations.

The supply of certain utility services to the community has traditionally been made by the government. This function that has been historically viewed by the community as a government role was transferred to the Corporations to improve efficiency and to provide a platform for the State Government to make further public investment in this sector.

The Corporations can issue permits under the State Act, certify works, carry out works on public land. They also have the power to enter private land and complete work on that land as well as restricting use in periods of shortages. This indicates that the Corporations have a regulatory role that is normally conducted by a government body.

Where an entity has the authority of the State they act on legitimate power that has been provided by the State in acting on behalf of the government. Typically, an authority of the State is created by special legislation and run by a board of directors.

Careful consideration of all of these characteristics indicate that although the Corporations have been established under the Corporations Act, significant requirements and functions under general corporations law do not apply to the Corporations, and they have been created for a public purpose being the provision of certain utility services. It is clear that the purpose of the Corporations are to execute a function in the public interest, that the functions are a function of government and in doing so they are instruments of government existing to achieve a government purpose. In addition the State has significant influence and control through the regulator, the State Treasurer, and statute law on how the Corporations conduct and manage their responsibilities of managing the State's utility assets and services.

Based on the factors above we accept that the Corporations are Australian government agencies for the purposes of Division 81 of the GST Act.

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

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. We acknowledge that the fees considered in this ruling are covered by the determination and therefore remain exempt until that time.

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.

In particular section 81-5 of the GST Act provides that the payment of an Australian tax is not consideration, and section 81-10 of the GST Act considers that the payment of certain Australian fees and charges are not consideration. Regulations pursuant to Division 81 have also been made that specifically include or exempt certain payments from being the provision of consideration (see regulations 81-10.01 and 81-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Australian tax, fee or charge

As a starting point, it is necessary to determine whether the taxes, fees or charges described meet the specific requirements of an Australian tax, fee or charge before the further substantive requirements of Division 81 and the regulations made under Division 81 can be considered.

An Australian tax is a tax (however described) imposed under an Australian law. 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)).

Australian government agency has the meaning given by section 995-1 of ITAA 1997. This in turn provides that Australian government agency means the Commonwealth, a State or a Territory, or an authority of the Commonwealth or of a State or a Territory.

There also needs to be a clear authority to impose a particular tax, fee or charge before it can be considered to be imposed under a state law.

Application fees charged by the Corporations

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).

Subsection 81-10(5) of the GST Act considers relevant fees or charges relating to information or record-keeping. A payment is not the provision of consideration to the extent that the fee or charge relates such things as recording, copying, modifying, and allowing access to information.

However, regulations have been made with the effect of treating some fees and charges as the provision of consideration (regulation 81-10.01) and other fees and charges as not being the provision of consideration (regulation 81-10.01) for a supply to the extent that the payment is an Australian fee or charge that is, or is of a kind, prescribed by the regulations (Section 81-10(2) GST Act).

If the fee or charge is of the type prescribed in the regulations, this will override subsections 81-10(4) or (5) of the GST Act, even where it may satisfy the types of fees considered in those subsections.

The relevant fees and charges are as follows:

· Application fee - (paid to Corporations) relating to requirement for regulated entity's consent before grant of certain permits under the State Act,

· Application fee - (paid to Corporations) for certification of works under the State Act, and

· Application fee - (paid to Corporations) for issuing an information statement.

· Division 81 of the GST Act will apply to the fees and charges as follows:

· subsection 81-10(4) of the GST Act will apply to the application fees relating to the granting of a permit as it is for permission,

· section 81-15 GST Act will apply to the application fee for certification of works as it is a fee or charge for a supply of a regulatory nature made by an Australian government agency (regulation 81-15.01 (f) of the GST Act), and

· Subsection 81-10(5) of the GST Act will apply to the application fee for issuing an information statement as it is for allowing access to information.

Therefore, the fees and charges, as they are provided for under an Australian law, payable to an Australian government agency, and satisfy the requirements under section 81-10 of the GST Act, will not be the provision of consideration for a supply from 1 July 2013.

As previously discussed, fees and charges listed in the Treasurer's determination as at 30 June 2011 remain exempt from GST until 1 July 2013.

¹ See for example ATO ID 2012/94 which considers 'authority of the State' in a Fringe Benefits Tax context.