Edited version of your private ruling

Authorisation Number: 1012552726686

Ruling

Subject: Annual waste management infrastructure charge

Question 1

Are payments made by residents within the area to you, consideration for a taxable supply?

Answer 1

No, the payments are not consideration for a taxable supply.

Relevant facts and circumstances

You were established under an Act and you are registered for goods and services tax (GST).

You make an annual charge under a section of the Act.

The annual charge is levied against all property located within the area.

The charge is compulsory. Under a section of the Act a rate, charge, fee or other money due to you under the Act or the regulations may be recovered by you as a debt in a court of competent jurisdiction, except as provided by the Act.

The annual charge is used to cover the costs.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-10

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-10(2)

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-15(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-39

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

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

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

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies.

Under section 9-40 of the GST Act, an entity must pay the GST payable on any taxable supply that it makes. An entity makes a taxable supply under section 9-5 of the GST Act if:

· it makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia, and

· it is 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.

Section 9-39 provides special rules in relation to making taxable supplies. In particular, item 8 in the table in section 9-39 provides that where there is a payment of taxes, fees and charges the special rules in Division 81 may apply.

Division 81 of the GST Act

GST does not apply to payments of taxes, fees and charges that are excluded from GST by Division 81 of the GST Act or by regulations.

Section 81-5 of the GST Act considers the effect of the payment of a tax. It states:

81-5 Effect of payment of tax

Australian tax 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 tax.

Regulations may provide for exceptions

1. 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 that payment is an *Australian tax that is, or is of a kind, prescribed by the regulations.

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

Currently, there are no regulations that prescribe the payment of an Australian tax to be the provision of consideration.

The term 'Australian tax' is defined in section 195-1 of the GST Act as:

Australian tax means a tax (however described) imposed under an *Australian law.

The term 'Australian law' is defined by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and relevantly includes a State law.

An Australian law includes Acts and law making powers which are delegated by parliaments, such as regulations, by-laws, proclamations and orders made under Acts.

You derive your authority to impose rates and annual charges under the Act. Therefore, rates and charges are imposed under an Australian law for the purposes of Division 81 of the GST Act.

The usual description of a tax, as cited in the High Court case of Roy Morgan Research Pty Ltd v CMR of Taxation [2011] HCA 35 (Roy Morgan), as per Latham CJ in Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 26, is that it is:

….a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered…

The annual charge is compulsory and is levied by a public authority; Legislation empowers you to levy the charges and to enforce their payment. The annual charge is levied on all payers who do by incidence of their ownership of land in an area. It is not for services rendered. It is therefore, for public purposes.

As the annual charge satisfies the usual description of a 'tax' as cited in the High Court case of Roy Morgan, the Commissioner considers the annual charge to be a payment of an Australian tax for the purposes of section 81-5 of the GST Act.

Therefore, the component of the annual charge that is for the provision and ongoing maintenance of the is exempt from GST under Division 81 of the GST Act.

Goods and Services Tax Ruling GSTR 2001/8 outlines the ATO view on the characteristics of mixed or composite supplies. In this case it assists in determining whether the vouchers need to be considered separately. Paragraphs 16 to 18 of GSTR 2001/8 state:

Mixed supply

16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

…

Composite supply

17. In this Ruling, the term 'composite supply' is used to describe a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. Paragraphs 55 to 63 explain what are integral, ancillary or incidental parts.

18. A composite supply is either taxable or non-taxable. It may also be a part of a larger mixed supply…

Paragraphs 19 to 24 of GSTR 2001/8 explain how to differentiate between these types of supplies as follows.

Differentiating between mixed and composite supplies

19. Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act.

19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.7A

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

20. The distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. In deciding whether a supply consists of more than one part we take the view that you adopt a commonsense approach.

21. You may choose to treat something (or things taken together) as integral, ancillary or incidental if the consideration that would be apportioned to it (if it were a separately identifiable part of a mixed supply) does not exceed the lesser of :

· $3.00; or

· 20% of the consideration for the total supply.

22. If you choose not to apply this approach, then you need to make an objective assessment about whether the thing is integral, ancillary or incidental.

…

24. A part of a supply may, on an objective assessment, be something that forms an integral, ancillary or incidental part of the supply even if the consideration for it would exceed the lesser of $3.00 or 20% of the consideration for the total supply.

Of particular relevance to this case are paragraphs 21 to 24 provided above.

Therefore, the entire payment of the annual charge, including is exempt from GST under Division 81 of the GST Act.