Edited version of private advice

Authorisation Number: 1052119311318

Date of advice: 15 June 2023

Ruling

Subject: GST and water carryover

Question

Are you correctly invoicing the GST given you are an agent to the transaction?

Answer

No.

The scheme commences on:

The date of issue of this private ruling

Relevant facts and circumstances

You operate an online water exchange for the trading of water allocation and also broker over-the-counter (off-trading platform) transactions for sale of water entitlements, leases, forwards and carryover/parking products/services.

You act as a broker for the above transactions and match the buyer and seller of the product/service. You charge a transaction fee to both parties in relation to this administration service.

Water allocation owners lose their water at the end of the season unless it is "parked" or "carried over" against a water entitlement - either their own or a third party's entitlement.

Therefore, you provide an administration service via a contract between two parties to enable one party to park their water allocation on another party's water entitlement. You invoice and provide product and cash settlement services to complete this transaction. You provided a contract example as part of your private ruling application.

Example

Client A pays Client B a carryover/parking fee at the end of the water season for Client B to hold/park Client A's water allocation from the end of one season (30 June) until the beginning of the next water season (1 July) when water allocation is returned to the owner, Client A.

Client A is paying for the space on Client B's licence. Client A is not obligated to move any water onto Client B's licence; however, Client A still pays the parking fee as they have contracted to use that space.

Currently (based on previous tax advice), you are charging GST on this parking service to Client A and then passing this on to Client B. You remit the GST to the ATO after charging Client A and then claim the GST from the ATO after sending the invoice/statement to Client B. This has a net zero impact for you (ignoring the GST on your administration fee).

You also provided a sample contract for water allocation which included the following terms:

1. Agreement

1.1 In consideration of the payment of the Holding Fee by the Allocation Owner to the Licence Owner, the Licence Owner agrees to the transfer of the Water Allocation to the Holding Licence to be held by the Licence Owner on behalf of the Allocation Owner (known at law as a bailment arrangement) from the date the Water Allocation is transferred into the Holding Licence until the date the Water Allocation is transferred out of the Holding Licence.

2. Payment of Holding Fee

2.1 The Allocation Owner must pay the Holding Fee in accordance with the Payment Terms.

[...]

3. Transfer of Water Allocation

3.1 The Allocation Owner will transfer the Water Allocation to the Holding Licence on or before the Transfer In date.

3.2 The Licence Holder must transfer the Water Allocation to the Return licence or other water licence nominated in writing by the Allocation Owner.

3.3 Both parties authorise XXX:

(a) to act on its behalf to complete any documentation required under this clause and to provide the documentation to the other party and to the Water Authority as required under this clause;

(b) to request any information from the Water Authority as required to process the application to transfer the Water Allocation.

3.4 The parties acknowledge that XXX is carrying out administrative functions under this Contract and release XXX from any liability associated with this Agreement, unless such liability is caused by an action (or lack of action) of XXX.

[...]

4. Ownership

4.1 The Water Allocation remains the property of the Allocation Owner at all times.

4.2 The Holding Licence remains the property of the Licence Owner at all times.

4.3 The Licence Owner must not transfer, lease or assign the Water Allocation or the Holding Licence during the term of this contract without agreement from the Allocation Owner.

Reasons for decision

Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37) provides the Commissioner's view on how GST applies to transactions made through an agent.

11. For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

General agents

18. General agents have authority arising out of, and in the ordinary course of their business, to do some act or acts on behalf of their principals in relation to that business. The term 'general agents' also refers to an agent who is authorised to act on behalf of a principal, generally in transactions of a particular kind or incidental to a particular business. That is, the principal of a general agent is bound by any acts of the agent that are incidental to the ordinary conduct of the agent's business or effective performance of his duties, even if the principal has imposed limitations on the agent's authority. Share brokers, solicitors or property managers are examples of this type of agency relationship.

Clause 3.3 of the sample contract you provided states that both parties authorise you:

(a) to act on its behalf to complete any documentation required under this clause and to provide the documentation to the other party and to the Water Authority as required under this clause;

(b) to request any information from the Water Authority as required to process the application to transfer the Water Allocation.

As an agent, your GST responsibilities are limited to the supplies you make in your own right. The administrative/brokerage fees paid by each party are consideration for your supply of agency services.

Where you are a general agent for each party to the contract, any invoice you issue on their behalf should conform to the GST status of, and instructions provided by, the contracting party.

For example, in a carryover transaction, the allocation owner pays a holding fee to the licence owner for the use of capacity in their holding licence. The holding fee is consideration for the supply of capacity made by the licence owner. As ownership in the water allocation is not transferred, then this transaction is neither a supply of water nor the supply of a right to water. If the licence owner is registered for GST, you should obtain instructions from them to ensure the correct GST treatment is reflected in the tax invoice.

Other types of transaction, such as a trade of water entitlement, may involve a GST-free supply of a right to water. However, in your role as agent, you will still only be liable for the GST on your agency services and should issue tax invoices based upon instructions received from the supplying party.