Edited version of private advice

Authorisation Number: 1051904594757

Date of advice: 18 January 2022

Ruling

Subject: GST and supply of water

Question

Is the payment received by the Entity from the Members for the use of water by each Lot consideration for a GST-free supply of water by the Entity and therefore not subject to GST?

Answer

Yes. The payment received by the Entity from the Members is consideration for a supply of water by the Entity which is GST-free under section 38-285 A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, it is not subject to GST.

Relevant facts and circumstances

The Entity manages a complex comprising a number of Lots.

The Entity is registered for GST.

The Entity incurs costs to procure water for supply to the Members and for use in the common areas. The Entity then seeks payment from the Members for the use of water by each Lot.

The arrangement for the supply of water and on-charge is as follows:

•         The Entity enters into a contract with the Water Provider and pays for the total consumption of water.

•         The Entity undertakes the meter reading of each of the Members' sub-meters to determine the specific amount of water consumed by each Lot.

•         The Entity bills the Members for the amount of water consumed at the same rate to that charged to it by Water Provider.

Under the management arrangement, the Entity arranges access to utilities, including water. A separate sub-meter is installed on each Lot for the purpose of determining the water consumption by that Lot. The Entity undertakes the meter reading of each of the Members' sub-meters to determine the amount of water consumed by each Lot. The Entity bills the Members for the amount of water consumed at the same rate to that charged to it by Water Provider.

There is a single Water Provider meter for the entire complex. There is no formal agreement between the Entity and Water Provider, a state government authority, regarding the supply of water to the complex. The invoice issued by Water Provider is in the name of the Entity, who is liable to pay Water Provider for the charges. The Water Provider does not charge GST on the supply of water.

The Entity provided a copy of a water use and service charge account issued by the Water Provider.

The Entity provided a sample of a tax invoice issued to a Member for the supply of utilities including water usage.

Relevant legislative provisions

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 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 38-285.

Reasons for decision

Under section 38-285 of the GST Act, a supply of water is GST-free. However, a supply of water is not GST-free under Subdivision 38-I of the GST Act if it is supplied in a container, or transferred into a container, that has a capacity of less than 100 litres.

Goods and Services Tax Ruling GSTR 2000/25 Goods and services tax: GST-free supplies of water, sewerage and sewerage-like services, storm water draining services and emptying of a septic tank (GSTR 2000/25) explains the Commissioner's view on the supply of water, sewerage services and services consisting of the emptying of a septic tank or the draining of storm water.

According to paragraphs 20 and 21 of GSTR 2000/25, 'a supply of water' in section 38-285, refers to the delivery or the making available of water, as goods, to a recipient's premises. A 'supply of water' is the provision of tangible personal property - goods. In other words, the supply of water means the change in ownership or control and transfer of physical possession of water from a supplier to a recipient.

Paragraph 22 of GSTR 2000/25 provides that in an urban environment, the delivery of water may occur through reticulated pipes that provide a continuously available supply of water at adequate pressure.

Paragraph 23 of GSTR 2000/25 states:

A supply of water to an end recipient through reticulated pipes is made at that part of the recipient's premises where the supplier's responsibility for the supply ceases. This is the point of supply to end recipients. In an urban environment, a supplier's responsibility for the supply of water usually ceases at the water meter, a property boundary or a point close to a property boundary...

Application to this case

There is a single Water Provider meter for the entire complex. There is no formal agreement between the Entity and Water Provider, a state government authority, regarding the supply of water to the complex. The invoice issued by Water Provider is in the name of the Entity, who is liable to pay Water Provider for the charges. The Water Provider does not charge GST on the supply of water.

According to the principle in paragraphs 22 and 23 of GSTR 2000/25, there is a supply of water by the Water Provider to the Entity where the Water Provider delivers the water to the Entity and this is measured at the water meter at the Complex boundary. It is considered that the Entity obtains the ownership of the water supplied by Water Provider at the point of the single Water Provider meter for the entire complex.

Based on the management arrangement, the Entity arranges access to utilities, including water. A separate sub-meter is installed on each Lot for the purpose of determining the water consumption by that Lot. The Entity undertakes the meter reading of each of the Members' sub-meters to determine the amount of water consumed by each Lot. The Entity bills the Members for the amount of water consumed at the same rate to that charged to it by the Water Provider.

In looking at the above steps undertaken by Entity as part of the management arrangement, the Entity is delivering the water it receives from Water Provider to the Members for which it charges a fee. The delivery of the water to Members is measured by sub-meters and charged accordingly. The fee for the delivery of the water is also itemised to be differentiated from other services. All of these leads to the conclusion that the delivery of the water (which is a supply according to the meaning of supply as contained in section 9-10 of the GST Act) is separately identifiable. Such supply is also not incidental or ancillary to the supply of the management services. As such, it is considered that the Entity's delivery of water to the Members is a separate supply of water. Further, pursuant to section 9-15 of the GST Act, the payment received by the Entity from the Members for the use of water is the consideration for this supply of water as there is a sufficient nexus between the payment and the supply of the water.

As the Entity is making a supply of water to the Members, this supply is GST-free under section 38-285 of the GST Act. Therefore, the payment received by the Entity from the Members for the use of water is not subject to GST as it is consideration for a GST-free supply.