Draft Goods and Services Tax Ruling

GSTR 2000/D8

Goods and Services Tax: GST-free supplies of water, sewerage services, storm water draining services and emptying of a septic tank.

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  View the Erratum notice for this document.
  This document has been finalised.

FOI status:

draft only - for comment

Preamble

What this Ruling is about

1. Subdivision 38-I of A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') makes GST-free a supply of:

•

water;

•

sewerage services; and

a service that consists of

•

the emptying of a septic tank; or

•

draining storm water.^[F1]

2. This Ruling explains the Commissioner's view of what activities are covered by the relevant supplies in Subdivision 38-I.

3. A supply of water may come under Subdivision 38-A of the GST Act, dealing with supplies of food. This Ruling does not consider the operation of Subdivision 38-A, which may be the subject of other Rulings.

4. Suppliers of water, sewerage services, septic tank emptying and storm water draining services impose various fees and charges as consideration for or in connection with the supplies referred to in Subdivision 38-I. This Ruling also outlines the Commissioner's view on how a number of common fees and charges are treated for purposes of the GST Act.

5. However, this Ruling does not consider what Australian taxes, fees and charges are excluded from the GST Act because they are covered by a written determination made by the Treasurer under subsection 81-5(2). Division 81 treats the payment of certain Australian taxes, fees and charges as the provision of consideration for a supply made to the payer, unless the tax, fee or charge is specified in a written determination of the Treasurer.

6. Certain terms used in this Ruling are defined or explained in the Definitions section of this Ruling. These terms, when first mentioned elsewhere in the body of the Ruling, will appear in bold .

7. Unless otherwise stated, all legislative references in this Ruling are to the GST Act.

Date of effect

8. This Ruling, when finalised, will take effect on and from 8 July 1999 (the date of Royal Assent to the Goods and Services Tax ('GST') Legislation).

Background

9. GST is payable on any taxable supply that you make.^[F2] A supply is not a taxable supply to the extent that it is GST-free or input taxed.^[F3] A supply is GST-free if it is GST-free under Division 38 or under a provision of another act.

10. A supply is also not a taxable supply if it is not for consideration. The payment of any Australian tax, fee or charge that you make is treated by subsection 81-5(1) as the provision of consideration to the entity to which the tax, fee or charge is payable for a supply that the entity makes to you. However, the payment of any tax, fee or charge that is specified in a written determination made by the Treasurer under subsection 81-5(2) is treated as not being the provision of consideration.

11. Accordingly, some supplies may not be taxable supplies because the tax, fee or charge that is payable for each supply is specified in a written determination made under subsection 81-5(2), even though the supply is not covered by Subdivision 38-I.

12. Other supplies may not be taxable supplies because they are covered by Subdivision 38-I and because the tax, fee or charge that is payable for each supply is specified in a written determination made under subsection 81-5(2).

13. Subdivision 38-I makes GST-free a supply of:

•

water;

•

sewerage services; and

a service that consists of

•

the emptying of a septic tank; or

•

draining storm water.^[F4]

A supply of a right to receive a GST-free supply, such as a GST-free supply of water, is also GST-free.^[F5]

14. In Australia, water, sewerage services and storm water draining services are provided by public and private entities. Septic tanks are used in areas that are not connected to sewers.

Ruling with explanations

A supply of water

15. A supply of water is GST-free.^[F6] However, a supply of water is not GST-free under Subdivision 38-I if it is supplied in a container, or transferred into a container, that has a capacity of less than 100 litres.

Water

16. Water is not defined in the GST Act and takes its ordinary meaning.^[F7] Usually this means referring to current dictionary definitions.

17. The Macquarie Dictionary defines 'water' as

1. the liquid which in a more or less impure state constitutes rain, oceans, lakes, rivers, etc., and which in a pure state is a transparent, odourless, tasteless liquid, a compound of hydrogen and oxygen,.....

and 'liquid' as

1....neither gaseous nor solid...^[F8]

18. Therefore, water includes:

•

drinkable water;

•

untreated bulk water; and

•

recycled water,

but does not include:

•

ice; or

•

steam.

•

Ice and steam do not fall within the ordinary meaning of water, as they are not liquids.

19. Water is commonly supplied in a number of forms. Its source may lie in dams, rivers or streams, or it may be produced by the desalination of seawater. Water that has been used may also be recycled or treated for a number of uses, such as for the irrigation of flora and parkland.

20. Water may be treated either to:

•

remove contaminants; or

•

add substances, such as fluoride.

A supply of water

21. '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. In State Electricity Commission of Victoria & Anor v. FC of T, (the SECV case) Heerey and Merkel JJ found that electricity and electrical power were 'goods' for the purposes of the Sales Tax Assessment Act 1992, being tangible personal property capable of being bought and sold in quantifiable amounts.^[F9] Evidence given equated voltage with the pressure under which water flows through a pipe and current with the rate of flow of water in a pipe.

22. Appropriate analogies can be drawn between the system for the distribution of electricity discussed in the SECV case and the 'supply of water' referred to in section 38-285. A 'supply of water' is the provision of tangible personal property - that is, 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. In this Ruling, we refer to this as a delivery of water.

23. In an urban environment, the delivery of water may occur through reticulated pipes that provide a continuously available supply of water at adequate pressure. It may also occur through other means, such as by access to natural water courses and aquifers, access to canal and channel systems, or by delivery by road vehicle to the storage facility of recipients not serviced by reticulated pipes. Access to water systems can be provided by the opening of an outlet to obtain irrigation water or by pumping water from a dam directly into a recipient's premises.

24. A supply of water 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 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. For recipients receiving water through a canal and channel system, a supplier's responsibility usually ceases at that part of the system where the flow of water is physically regulated or timed by the supplier, for example, at an irrigation outlet. Appendix 1 shows a schematic view of how water may be delivered.

25. 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 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.

Supply of a right to receive a GST-free supply of water

26. Paragraph 9-30(1)(b) applies to make the supply of a right to receive a supply of water GST-free. A supply of a right to receive a supply of water includes:

•

a right to receive a supply of a quantity of water; or

•

a right to receive a supply of water for a specified period; or

•

a tradeable right to receive a supply of water.

27. Where a recipient of a right to receive a GST-free supply of water trades that right, for example, by making a supply of the right to a third party, that supply is also GST-free. Water rights may be capable of being exercised for a specified period or for a specified quantity of water from a designated source of supply. A water quota may have been acquired by a water authority from a dam holder and be sold on to an irrigator without any delivery of the water while the water authority held the right.

28. Another example of a right to receive a supply of water is where a ratepayer is provided with a right to receive an urban supply. This is frequently the case with vacant allotments.

29. A supply of a right to receive a supply of water is made when the right is granted or transferred by the supplier of water.

Supplies that are not supplies of water

30. There are a number of supplies that involve either water itself or its use that do not fall within the meaning of a supply of water. These supplies may be grouped into three main categories.

Supplies that are separate supplies to a supply of water

31. Some activities that are performed by suppliers of water may have some connection with a supply of water, but remain separate supplies. These separate supplies include:

•

selling information, such as plans of water pipe locations;

•

performing site inspections on request or as required;

•

granting approvals for building or development as part of a supplier's statutory duties; and

•

issuing permits.

Supplies made in connection with the recipient's use or application of water

32. A supply that enables a recipient to use, store or treat water, once it has been supplied, is not a supply of water.^[F10] These supplies may be furnished by a plumber, for example, in installing or repairing the water pipes and fittings on a recipient's property, or by a hardware outlet that supplies taps, shower fittings and bathroom accessories. Consulting services that provide advice on flow rates, design and operation of farm irrigation systems and the supply of fittings, sprinkler parts, piping, hoses, pumps and valves are not GST-free. These are not supplies of the good, water. They relate to the application of water by the recipient rather than to the supply of water.

A supply that involves an incidental use of water

33. Certain supplies of goods or services involve an incidental use or provision of water. An example is the use of water as an aid in a supply of a service of shampooing or cleaning carpet. In this instance there is no contract to supply water to the recipient, the contract is merely to provide a cleaning service. The fact that the water is used as an aid in the cleaning process further suggests that water is not the subject of a supply in its own right. This principle also applies to comparable situations including laundry services and car washing services.

A supply of sewerage services

34. Section 38-290 provides that, 'a supply of sewerage services is GST-free.' The term 'sewerage services' is not defined in the GST Act and takes its ordinary meaning.^[F11]

35. The Macquarie Dictionary defines the following:

'sewerage' 1. the removal of waste water and refuse by means of sewers. 2. a system of sewers. 3. the pipes and fittings conveying sewage.

'sewer' an artificial conduit , usually underground, for carrying off waste water and refuse, as from a town or city.

'sewage' the waste matter which passes through sewers.^[F12]

36. The supply of a service that enables a recipient to discharge waste water, including water containing human waste, into a network of sewer pipes connected to the recipient's premises is the supply of a sewerage service. The discharge may be of either domestic or commercial origin. The carriage of the discharge through the network to a treatment plant, and the treatment of the sewage, are also sewerage services. The supply commences at the point where a recipient's pipes connect with or feed into the supplier's network.

37. Under measures announced by the Treasurer,^[F13] all sewerage and similar services used by domestic consumers will be GST-free. This will make GST-free, alternative waste removal services that are provided to domestic consumers. Therefore, a service of collecting and disposing of nightsoil (human waste) or sullage^[F14] at a sewage treatment plant will be GST-free. This is despite the fact that the waste does not pass through sewers. The servicing of a Bio-system will also be GST-free.

38. A sewerage service includes a service of accepting and treating sewage and waste water at a sewage treatment plant. However, this does not include accepting and treating toxic waste that cannot be accepted into the sewerage system.

39. Charges for sewerage services are often calculated independently of actual use. A charge for the right to use a sewerage service, or a right to discharge waste water, is GST-free.

Supplies that are not supplies of sewerage services

40. A supply of a sewerage service does not include supplies made to enable the recipient to collect, direct the flow of, store, or transfer waste water or refuse to the point where it is accepted into a supplier's network.

41. For example, services of installation, maintenance or repair of a building's toilet systems, sullage tanks or water disposal systems are supplies that are not GST-free.

42. A supply of goods, such as a toilet suite (sometimes referred to as a prime cost item) or an alternative toilet system, for example a chemical toilet or a Bio-system, is not a sewerage service, nor is the supply of garbage disposal units used in kitchens.

43. Suppliers of sewerage services may also supply a range of other goods and services. It may be said that these supplies are connected with the business of the supply of sewerage services but they are not in themselves sewerage services. The sale of plans of sewer pipe locations, administrative services for photocopying and site inspection are examples of such supplies that are not GST-free.

A supply of a service of draining storm water

44. Section 38-300 provides that a service that consists of draining storm water is GST-free. The term, 'draining storm water' is not defined in the GST Act and takes its ordinary meaning.^[F15]

45. The Macquarie Dictionary defines the following:

'stormwater' a sudden, excessive run off of water following a storm.

'drain' 2. to draw off or take away completely.^[F16]

46. Butterworths Australian Legal Dictionary describes 'stormwater' as follows:

1. Runoff of excessive rainfall from an impervious surface such as a roof...2. Water which is carried in storm water drains other than sewage water: (Qld) Health Act 1937 s5(1).^[F17]

47. A supply of a service of draining storm water is the acceptance by the supplier of excess run-off of water (caused by heavy rainfall) from a recipient's premises into a network of drains or pipes, sometimes in conjunction with a run-off into a natural water course. The acceptance occurs at the point where the pipes or drains controlled by the consumer meet the pipes or drains that form part of the network controlled by the supplier of the service.

48. Charges for draining storm water may be calculated independently of actual usage. Where such charges are in respect of a right to use a storm water draining service, the supply of the right is GST-free.

Supplies that are not supplies of services of draining storm water

Supplies that are separate supplies to a supply of draining storm water

49. Some activities that are performed by suppliers of a service of draining storm water may have a connection with draining storm water, but remain separate supplies. An example is the supply of information to the public as a client service. Such information includes the supply of plans, maps and other statistical information to licensed tradespeople. These supplies are not GST-free. Other supplies such as inspections and approvals given for building or development applications are also not GST-free.

Supplies that collect, direct the flow of, store or transfer storm water

50. Supplies of goods or services made to a recipient to enable the recipient to collect, direct the flow of, store or transfer storm water to a point where it is accepted into a network of pipes is not a supply of a service of draining storm water. Examples of these types of supplies are the installation of, repairs to, and replacement of, gutters, pipes, drain covers and grates on the storm water recipient's property.

A service of emptying a septic tank

51. Section 38-295 provides that the emptying of a septic tank is GST-free.

52. The Macquarie dictionary defines a 'septic tank' as:

a tank in which solid organic sewage is decomposed and purified by anaerobic bacteria.

53. The supply, installation or repair of a septic tank is not GST-free.

Fees charged for supplies

54. Suppliers of water, sewerage services and storm water draining services impose various fees and charges as consideration for or in connection with supplies that they make. These fees and charges may be for, or in connection with, the supplies referred to in Subdivision 38-I or for, or in connection with, separate supplies that are not GST-free.

55. It is important to recognise that the description of the fee or charge, by itself, may not be conclusive in determining the nature of any particular supply. However, the method of fee calculation can provide positive guidance in some situations as to whether or not a fee or charge is consideration for a GST-free supply.

56. Where GST-free and taxable supplies are charged for in the one fee, the supplier needs to separate out the fees for the taxable supply.^[F18]

57. Where an entity makes a supply that is not covered by Subdivision 38-I, the cost to that entity of acquiring a Subdivision 38-I supply becomes a business cost. The Subdivision 38-I supply cannot be passed on to the recipient of the supply as a GST-free supply. For example, a supplier of commercial accommodation cannot attribute a portion of the value of the supply to the supply of water. The supplier is not supplying water, but commercial accommodation. One of the inputs to the business of supplying the accommodation is the cost of the supply of water.

Charges for GST-free supplies

58. The broad categories of fees and charges discussed at paragraphs 59 to 66 are designed to assist a supplier to determine whether or not the related supply is subject to GST. A more specific list of fees is included in Appendix 2. Both the fees and charges at paragraphs 59 to 66 and those listed in Appendix 2 are to be read subject to this Ruling.

GST-free charges

Standard ongoing fees

59. Volumetric charges and use fees for the supply of water or sewerage and drainage services (fees charged to water or sewerage and drainage service recipients on a use basis) and fixed periodic charges (often termed access charges, or fees), are GST-free.

Valuation based charges

60. Charges or fees for the making of Subdivision 38-I supplies that are calculated by reference to land values or a level of capital improvement to land, either in their own right or in combination with variable use, fixed fee or other fees, are GST-free.

Facilities charges

61. A fee based on the number of flushing devices is a fee for a GST-free supply of sewerage services.

Irregular fees

62. A fee charged to cover a connection from the border of the recipient's property to an adjacent existing water, sewer or storm water main or pipe controlled by the supplier is consideration for a GST-free supply. This fee may include the installation of a meter on the supplier's property, and tapping and tee insertion into the main pipe.

Special project charges

63. A fee charged to recipients in a particular area to cover the costs of a supplier-initiated program of capital improvements or maintenance where the improvements are designed to enhance a sewerage service or service of draining storm water is GST-free.

Fees that are not for a GST-free supply

Developer contributions

64. Cash contributions, or the transfer on completion, of capital works, made by developers to obtain various rights and approvals to develop land or construct buildings or other works, are not consideration for a supply of water, sewerage services or a service of draining storm water.

65. Often, a land developer will install pipes on land being developed and provide these capital works to a supplier of water on completion of the development. In some cases, the supplier may require a cash contribution to be made by the developer towards the installation of these and other works.

66. There is an argument that the works provided or the cash contributed are consideration for one or more supplies made under Subdivision 38-I. The Commissioner considers that if the works or cash are consideration for any supply, then they are more properly described as consideration for the right to develop the land.^[F19]

Definitions

67. The following terms are defined for the purposes of this Ruling. Terms with asterisks are defined in section 195-1 of the GST Act.

Access charge

68. A fixed rate charge by the supplier for access to a supply.

Australian tax, fee or charge*

69. A tax imposed under a law of the Commonwealth, a State or a Territory, or a fee or charge imposed under such a law and payable to the Commonwealth, a State or a Territory, or to an authority of such.

Bio-system

70. A self-contained sewage unit that does not use anaerobic decomposition.

Developer contribution

71. A fee levied by a supplier upon property developers to recover part of the costs incurred in providing water and waste services to new developments. As a condition of development consent, a supplier notifies a property developer of the charges and/or works that must be provided before development can commence.

GST-free*

72. A supply is GST-free if:

(a)

it is a GST-free under Division 38 or under a provision of another Act; or

(b)

it is a supply of a right to receive a supply that would be GST-free under paragraph (a).^[F20]

Outlet

73. A point where irrigation water is delivered from a network of channels or canals controlled by the supplier to a channel or canal controlled by the recipient.

Rate and encumbrance certificates

74. Certificates issued by a supplier to indicate accrued fees and charges that apply to a property.

Sludge

75. Sediment deposited during the treatment of sewage.

Standpipe

76. A vertical pipe which can be connected directly into a water supplier's infrastructure to access a water supply. It can be a metered or unmetered pipe.

Supply*

A supply is any form of supply whatsoever.^[F21] Without limiting subsection 9-10 (1), supply includes any of these:

(a)

a supply of goods

(b)

a supply of services

(c)

a provision of advice or information.

(d)

a grant, assignment or surrender of real property;

(e)

a creation, grant, transfer, assignment or surrender of any right;

(f)

a financial supply;

(g)

an entry into, or release from , an obligation;

(i)

to do anything; or

(ii)

to refrain from an act; or

(iii)

to tolerate an act or situation;

(h)

any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).^[F22]

78. It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply.^[F23]

79. However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money.^[F24]

Tapping and tee insertion

80. The process of gaining access to a water main and making a connection to enable water to be drawn.

Taxable supply*

81. 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. ^[F25]

Tip leachate

82. Waste water emanating from garbage tips or other filled ground.

Volumetric charge

83. A compulsory charge based on the degree of use of a supply.

Detailed contents list

84. Below is a detailed contents list for this Draft Ruling:

Your comments

85. If you wish to comment on this draft Ruling, please send your comments promptly by 17 May 2000 to:

Commissioner of Taxation
3 May 2000

Appendix 1

Appendix 2

This Draft Ruling has been finalised by GSTR 2000/25

References

ATO references:
NO 2000/3875

Subject References:
access charge
aquifers
Bio-system
canals
channels
dams
developer contributions
drainage
gst
gst-free supplies
irrigation
reticulated pipes
rights
septic tank
sewage
sewer
sewerage
sewerage services
storm water
sullage
trade waste
volumetric charge
water
water courses
water meter

Legislative References:
ANTS(GST)A 7-1
ANTS(GST)A 9-5
ANTS(GST)A 9-10
ANTS(GST)A 9-30
ANTS(GST)A 9-30(1)(b)
ANTS(GST)A 9-40
ANTS(GST)A 9-80
ANTS(GST)A Div 38
ANTS(GST)A Subdiv 38-A
ANTS(GST)A Subdiv 38-I
ANTS(GST)A 38-285
ANTS(GST)A 38-290
ANTS(GST)A 38-295
ANTS(GST)A 38-300
ANTS(GST)A Div 81
ANTS(GST)A 81-5(1)
ANTS(GST)A 81-5(2)
ANTS(GST)A 195-1

Case References:
State Electricity Commission of Victoria & Anor v FC of T
[1999] FCA 1329
99 ATC 5007
(1999) 42 ATR 820

FCT v Kurts Development Ltd
98 ATC 4877
(1998) 39 ATR 493