Class Ruling

CR 2013/25

Goods and services tax: the GST treatment of fees and charges imposed by NSW councils in relation to cemeteries, facilities, leases, legal services, libraries and sales.

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What this Ruling is about

1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

Relevant provision(s)

2. The relevant provisions dealt with in this Ruling are:

•

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act);

•

Division 81 of the GST Act; and

•

Regulation 81 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

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

Class of entities

4. The class of entities to which this Ruling applies consists of all councils that are members of the Local Government and Shires Association of New South Wales (NSW).

5. Within this Ruling the class of entities is collectively referred to as Council.

Qualifications

6. The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

7. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 11 to 17 of this Ruling.

8. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then this Ruling:

•

has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and

•

may be withdrawn or modified.

9. This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Commonwealth Copyright Administration

Copyright and Classification Policy Branch

Attorney-General's Department

3-5 National Circuit

Barton ACT 2600

or posted at: http://www.ag.gov.au/cca

Date of effect

10. This Ruling applies from 1 July 2013 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

Scheme

11. The following description of the scheme is based on information provided by the applicant.

12. The scheme incorporates the supplies made by NSW Councils in relation to management and control of cemeteries, the use of facilities, leases of land, legal services, operating libraries and sales of goods, information, rights and services.

13. Council is registered for goods and services tax (GST).

14. The supplies made by Council are connected with Australia and made in the course or furtherance of Council's enterprise.

15. By force of section 220 of the Local Government Act NSW 1993 (LG Act), Council is a body politic of the State of NSW with perpetual succession and the legal capacity and powers of an individual, both in and outside the State.

16. Council is empowered under the LG Act to:

•

provide goods, services and facilities and to carry out activities, appropriate to the current and future needs of local communities and of the wider public;

•

maintain responsibility for administering the regulatory systems under the LG Act; and

•

manage, improve and develop the resources of their local government areas.

17. Council levies charges for goods and services under various sections of the LG Act and the other NSW State statutes^[1]. In particular, under subsection 608(1) of the LG Act, Council may charge and recover a fee for any service it provides.

Ruling

18. This Ruling addresses the GST treatment of supplies made by Council in relation to cemeteries, facilities, leases, legal services, libraries and sale of things for which particular fees and charges are imposed. The following table sets out the GST treatment.

19. In this Ruling:

•

when we indicate a fee or charge relates to a taxable supply under section 9-5, we assume that all the requirements of section 9-5 have been met and that the supply is not otherwise GST-free or input taxed under other provisions of the GST Act; and

•

if a fee or charge is not consideration for a supply and is not subject to GST by virtue of Division 81, it is referred to as being 'exempt'.

Cemeteries

Facilities

Leases

Legal fees

Library

Sales

Commissioner of Taxation
1 May 2013

Appendix 1 - Explanation

20. Subsection 7-1(1) provides that GST is payable on taxable supplies. As such, Council is liable to pay the GST payable on any taxable supply it makes. Section 9-5 states:

9-5 Taxable supplies

You make a taxable supply if:

(a)

you make the supply for *consideration;

(b)

the supply is made in the course or furtherance of an *enterprise that you carry on;

(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.

(* Asterisked terms are defined in the Dictionary in section 195-1.)

21. As Council is registered for GST and makes supplies in carrying on its enterprise in Australia, the issue that arises under section 9-5 is whether such supplies are supplies for consideration.

22. 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

Australian tax

23. Section 81-5 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

(2)

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

(3)

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.

24. The term 'Australian tax' is defined in section 195-1 as:

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

25. 'Tax' is not defined in the GST Act. However, the following is 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 263.

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

26. The above description includes the words 'not a payment for services rendered'. It was discussed in Air Caledonie International v. Commonwealth (1988) 165 CLR 462 that in order to be classified as a fee for service rather than a tax, the fee or charge must be exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment.

27. Apart from legal fees that are in the nature of rates and therefore a tax, we consider that none of the other fees or charges, or the discharging of a liability to make such payments, as detailed in the table commencing on page 5 of this Ruling, are a tax.

Australian fees and charges

28. Sections 81-10 and 81-15 consider the effect of certain fees and charges and state:

81-10 Effect of payment of certain fees and charges

Certain fees and charges 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 fee or charge that is of a kind covered by subsection (4) or (5).

Prescribed fees and charges treated as consideration

(2)

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

(3)

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

Fees or charges paid for permissions etc.

(4)

This subsection covers a fee or charge if the fee or charge:

(a)

relates to; or

(b)

relates to an application for;

the provision, retention, or amendment, under an *Australian law, of a permission, exemption, authority or licence (however described).

Fees or charges relating to information and record-keeping etc.

(5)

This subsection covers a fee or charge paid to an *Australian government agency if the fee or charge relates to the agency doing any of the following:

(a)

recording information;

(b)

copying information;

(c)

modifying information;

(d)

allowing access to information;

(e)

receiving information;

(f)

processing information;

(g)

searching for information.

81-15 Other fees and charges that do not constitute consideration

The regulations may provide that the payment of a prescribed *Australian fee or charge, or of an Australian fee or charge of a prescribed kind, or the discharging of a liability to make such a payment, is not the provision of *consideration.

29. The term 'Australian fee or charge' is defined in section 195-1 as:

Australian fee or charge means a fee or charge (however described), other than an Australian tax, imposed under an *Australian law and payable to an *Australian government agency.

Australian law

30. The term 'Australian law' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and relevantly includes a State law. It includes acts and law making powers which are delegated by parliaments, such as regulations, by-laws, proclamations and orders made under Acts.

Australian government agency

31. The term 'Australian government agency' is defined in section 995-1 of the ITAA 1997 and means:

•

the Commonwealth, a State or Territory; or

•

an authority of the Commonwealth or of a State or a Territory.

32. For the purposes of this Ruling it is accepted that Council comes within the definition of Australian government agency.

GST Regulations

33. Division 81 gives effect to the principles contained in the Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement). Payments of taxes are exempt from the GST. Payments of fees and charges generally constitute consideration and if the requirements of section 9-5 are satisfied, the payment is for a taxable supply. Some supplies are excluded and are exempt. Division 81 provides for Regulations that prescribe payments that constitute consideration for a supply and, conversely, prescribe payments that do not constitute consideration.

Australian fees and charges that constitute consideration

34. Regulation 81-10.01 of the GST Regulations sets out those fees and charges that do not fall within the principles contained in the Intergovernmental Agreement, and therefore supplies to which they relate are not intended to be exempt from GST. These fees or charges include a fee for the non-regulatory provision of information and a payment for a commercial sale of books by a government bookshop. These fees or charges are treated as consideration for a taxable supply if the other conditions of section 9-5 are met.

35. Regulation 81-10.01 of the GST Regulations also ensures that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 are satisfied.

36. The ES explains that the regulations ensure that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 are satisfied. It states:

Fees and charges in this category are not excluded from being consideration for a taxable supply. This is consistent with the National Competition and Consumer Policy guidelines and ensures that a government entity is not given a competitive advantage over a private sector supplier making the same type of supply.

This covers situations in which government agencies have authorised private agencies to perform activities that form part of a regulatory process, for example, certification activities which are required for a regulatory process to be followed. Where government agencies, as well as government certifiers, have authorised private certifiers to perform certification activities these fees and charges will continue to be consideration for a supply that is subject to GST. This ensures competitive neutrality between supplies made by government and non-government agencies.

This paragraph applies only where a government agency is providing a supply in a competitive market, or where private suppliers have been accredited or authorised to make a supply over which the agency would otherwise have a monopoly.

This paragraph does not cover supplies of information that are regulatory in nature and can only be supplied by government agencies, notwithstanding that the public may obtain such information through a private sector supplier acting as a conduit for the information from the government agency. The supply is only a taxable supply where the private sector entity charges for the supply in its own right.

Australian fees and charges that do not constitute consideration

37. Regulation 81-15.01 of the GST Regulations sets out those fees and charges that are prescribed for section 81-15 and which do not constitute consideration. Because these fees and charges do not constitute consideration, the supplies to which they relate, if any, do not satisfy the requirements of section 9-5 and are not taxable supplies.

38. Those prescribed include a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry and a fee or charge for a supply of a regulatory nature made by an Australian government agency.

39. However, sub-regulation 81-10.01(2) of the GST Regulations provides that despite sub regulation 81-10.01(1), a fee or charge, the payment of which is covered by subsections 9-17(3) or (4), which are about payments made by government related entities to another government related entity, and the payment is specified in regulations made for this purpose, is not the provision of consideration.

Australian fees and charges covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations

40. If a fee or charge is covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations, regulation 81-15.02 of the GST Regulations determines which regulation would prevail. For example, a fee for recovering the costs for usage of facilities is covered by both paragraph 81-10.01(c) and paragraph 81-15.01(d) of the GST regulations. In such a situation, subregulation 81-15.02(2) of the GST Regulations provides that paragraph 81-10.01(c) of the GST Regulations would prevail and the fee would constitute consideration.

Cemeteries, facilities, leases, legal, library, sales

41. The following comments and explanation refer to particular groups of items in the table on pages 5 to 26 of this Ruling.

Cemeteries

42. Cemetery fees and charges are generally considered to be consideration for taxable supplies for purposes of the GST Act. However, section 81-10 provides that the payment, or the discharging of a liability to make a payment, is not the provision of consideration for GST purposes to the extent the payment is an Australian fee or charge that 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).

43. Fees and charges that relate to the granting of permission or the management of information are not consideration for a supply. Fees and charges that relate to the performance of activity or use of facilities will be the provision of consideration for GST purposes.

Facilities

44. The payment of a fee for the provision of a permission, authority or licence is covered under subsection 81-10(4) and would not be the provision of consideration. However, the payment or a discharging of your liability to make a payment, is treated as the provision of consideration to the extent the payment is an *Australian fee or charge that is, or is of a kind, prescribed by the regulations.

45. GST Regulation 81-10.01 of the GST Regulations relevantly provides that for subsection 81-10(2), the following kinds of Australian fee or charge are prescribed:

•

a fee for parking a motor vehicle in a ticketed or metered parking space;

•

a toll for driving a motor vehicle on a road; or

•

a fee for hire, use of, or entry to a facility, except for an entry fee to a national park.

46. Accordingly, a fee or charge for the hire or entry to a municipal Council facility or the use of municipal Council equipment is consideration for a supply. Where a supply satisfies the positive requirements of section 9-5 of the GST Act, the supply is taxable. However, the supply is not a taxable supply to the extent that it is either GST-free or input taxed.

Leases

47. An application fee for a new lease of council land, a covenant variation or public road reserve is consideration for a taxable supply. This includes an application to formalise an existing encroachment on council land by the creation of an easement, positive covenant or lease etc. It also includes any application to lease, licence or purchase council property. The application fee may include the costs of the preparation by council of the lease and stamp duty as well as fees associated with investigating the application. A fee for preliminary investigations and reports to Council upon an application to purchase community land is also consideration for a taxable supply.

Approval to occupy footway

48. Under section 125 of the Roads Act 1993 (NSW) a Council may grant an approval that allows a person who conducts a restaurant adjacent to a footway of a public road, to use part of the footway for the purposes of the restaurant. We consider the granting of an approval under this section is a permission for purposes of section 81-10(4).

Library

49. The operation of libraries in NSW is governed by the Library Act 1939 and the Library Regulation 2010. Certain fees are imposed by Council to regulate the use of the libraries. These fees are exempt from GST under paragraph 81-15.01(1)(f) of the GST Regulations as they are for supplies of a regulatory nature.

Legal

50. Council may incur legal fees in administering their activity and is entitled to claim input tax credits if the legal services are taxable supplies to it.

51. The Local Government Act provides that Legal fees recouped in the recovery of rates take the nature of rates. These receipts are therefore regarded as taxes and are not consideration for a supply under section 81-5.

Sales

52. Generally, the supplies of goods and services by Council for consideration are taxable supplies unless the supply is GST-free or input taxed.

53. Where the payment is not treated as consideration under Division 81, the supply is not a taxable supply under section 9-5.

54. Where the payment is treated as consideration under Division 81, and the positive requirements of section 9-5 are met, the supply is a taxable supply.

Appendix 2 - Legislative references

New South Wales Acts

55. The following New South Wales Acts were considered in preparing this ruling:

Library Act 1939 (NSW)

Library Regulation 2010 (NSW)

Local Government Act 1993 (NSW)

Roads Act 1993 (NSW)

Local Government Act 1993 (NSW)

56. Section 220 of the LG Act states:

220 Legal status of a council

(1)

A council is a body politic of the State with perpetual succession and the legal capacity and powers of an individual, both in and outside the State.

(2)

A council is not a body corporate (including a corporation).

(3)

A council does not have the status, privileges and immunities of the Crown (including the State and the Government of the State).

(4)

A law of the State applies to and in respect of a council in the same way as it applies to and in respect of a body corporate (including a corporation).

57. Section 608 of the LG Act states:

608 Council fees for services

(1)

A council may charge and recover an approved fee for any service it provides, other than a service provided, or proposed to be provided, on an annual basis for which it is authorised or required to make an annual charge under section 496 (domestic waste management services ) or 501 (water supply, sewerage, drainage services etc.).

(2)

The services for which an approved fee may be charged include the following services provided under this Act or any other Act or the regulations by the council:

•

supplying a service, product or commodity

•

giving information

•

providing a service in connection with the exercise of the council's regulatory functions-including receiving an application for approval, granting an approval, making an inspection and issuing a certificate

•

allowing admission to any building or enclosure.

(3)

In particular, a council may charge an approved fee for inspecting premises that are reasonably required to be inspected in the exercise of the council's functions, whether or not the inspection is requested or agreed to by the owner or occupier of the premises.

(4)

However, a council may not charge an approved fee for the inspection of premises that are not used for a commercial activity, except where it is necessary to inspect the premises in connection with an application for an approval concerning the premises or in connection with any inspection that is reasonably necessary to determine if an approval has been complied with.

...

(6)

If inspections of premises are reasonably necessary to determine if an approval has been complied with:

(a)

an approved fee may be charged for such an inspection only if the charging of the fee has been included as a condition of the approval, and

(b)

an approved fee may not be charged for such an inspection before the approval is granted, and

(c)

an approved fee may not be charged for the inspection of any thing for which the council relies on a certificate under section 93 that the thing has been done in compliance with the approval.

(7)

An approved fee charged for inspecting premises must be repaid to the person who paid it if the inspection is not carried out.

(8)

An approved fee charged in connection with a service provided at an airport established and maintained by the council may be recovered from the holder of the certificate of registration issued under the Civil Aviation Regulations of the Commonwealth for the aircraft in respect of which the service was provided. This subsection applies whether or not the holder is the person to whom the service is actually provided.

58. Sections 125 and 126 of the Roads Act 1993 state:

Part 9 - Regulation of works, structures and activities

Division 1 - Footway restaurants

125 Approval to use footway for restaurant purposes

(1)

A council may grant an approval that allows a person who conducts a restaurant adjacent to a footway of a public road (being a public road that is vested in fee simple in the council) to use part of the footway for the purposes of the restaurant.

(2)

An approval may be granted on such conditions (including conditions as to payments in the nature of rent) as the council determines.

(3)

An approval may not be granted in respect of a footway of a classified road except with the concurrence of RMS.

(4)

The term of an approval is to be such period (not exceeding 7 years) as is specified in the approval.

(5)

An approval lapses at the end of its term or, if the part of the footway the subject of the approval ceases to be used for the purposes of a restaurant, when that use ceases.

126 Authority to erect structures

(1)

A council:

(a)

may authorise the holder of an approval to erect and maintain structures in, on or over any part of the footway the subject of the approval, or

(b)

may, at the request and cost of the holder of the approval, erect and maintain any such structure.

(2)

The council may erect and maintain structures in, on or over any part of the footway the subject of an approval for the protection of public health and safety.

Appendix 3 - Detailed contents list

59. The following is a detailed contents list for this Ruling:

Not previously issued as a draft

References

ATO references:
NO 1-3Z0XULW

Related Rulings/Determinations:

TR 2006/10

Subject References:
Division 81 - Payment of taxes, fees and charges
GST
Government entities
GST consideration
GST regulations

Legislative References:
ANTS (GST)A99 7-1(1)
ANTS (GST)A99 9-5
ANTS (GST)A99 9-17(3)
ANTS (GST)A99 9-17(4)
ANTS (GST)A99 9-39
ANTS (GST)A99 Div 81
ANTS (GST)A99 81-5
ANTS (GST)A99 81-10
ANTS (GST)A99 81-10(4)
ANTS (GST)A99 81-10(5)
ANTS (GST)A99 81-15
ANTS(GST)A99 195-1
ANTS(GST)R99 81-10.01
ANTS(GST)R99 81-10.01(1)
ANTS(GST)R99 81-10.01(1)(c)
ANTS(GST)R99 81-10.01(1)(g)
ANTS(GST)R99 81-10(2)
ANTS(GST)R99 81-15.01
ANTS(GST)R99 81-15.01(1)
ANTS(GST)R99 81-15.01(1)(c)
ANTS(GST)R99 81-15.01(1)(e)
ANTS(GST)R99 81-15.01(1)(f)
ANTS(GST)R99 81-15.01(2)
ANTS(GST)R99 81-15.02(2)
ITAA 1997 995-1
TAA 1953
Copyright Act 1968
Library Act 1939 (NSW)
Local Government Act 1993 (NSW)
Roads Act 1993 (NSW)
Library Regulation 2010 (NSW)

Case References:
Air Caledonie International v. Commonwealth
(1988) 165 CLR 462
[1988] HCA 61

Matthews v. Chicory Marketing Board (Vict)
(1938) 60 CLR 263
Roy Morgan Research Pty Ltd v. CMR of Taxation
[2011] HCA 35
2011 ATC 20-282
80 ATR 1
244 CLR 97

Other References:
Explanatory Statement to ANTS (GST) Amendment Regulation 2012 (No. 2)