Private ruling: Goods and services tax and the supply of water
Date of advice: 14 June 2019
Published: August 2019
Date scheme commenced: The date of issue of the private ruling.

Ruling: Q1: Is your supply of water a GST-free supply under section 38-285 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Your supply of water is GST-free.

Relevant facts and circumstances: You are registered for GST. The primary nature of your business is to hire out water carts either with a driver (wet hire) or without a driver (dry hire), mostly to the civil and construction industry. Your carts are used for the distribution of water, whether it is for watering landscapes, road compaction, dust suppression etc. Each of your trucks has a permit which you, as the water carter, have applied for to allow anyone in control of your truck to fill the truck with water from a hydrant allocated within the area of the water board for which the permit applies. Those loads of water are either electronically recorded or manually submitted to the relevant water board, who, in turn, invoice you for the water drawn and that water is invoiced to you GST-free. You have always raised invoices to the customers you hire trucks to with GST added to the water on the basis that it is supplied as part of the service you provide; i.e. the truck is necessary for the sprinkling/spraying of water. The truck is of no value to the customer without water, yet water is necessary for the job to be completed and the scope of the job requires a large volume vessel to hold and distribute the water according to the customers' wishes. You are invoiced for the water drawn/used by the relevant water board and, in turn, you pass the cost of the water drawn/used by the customer along with a profit margin and GST. You invoice your customers at an hourly rate plus GST for the truck to cover costs such as driver wages, fuel, maintenance, registration etc and charge per load of water drawn/used plus GST. The customer is unable to purchase the water direct from the water board as the permit applies to the truck/vessel used to draw/transport the water. The truck and the permit are owned by you. As each job is different, it cannot be determined at the beginning of a job how many water loads may be used. Therefore, our invoices separate the truck hire charges and the water charges individually rather than at an hourly inclusive rate to ensure that your hire charges remain fair to all clients regardless of the number of water loads required. You provided copies of water permits that you hold; the terms of which form part of the facts for this private ruling.

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 38-285

Reasons for decision: Summary: Section 9-5 of the GST Act states that a supply is not a taxable supply to the extent that it is GST-free or input taxed. A supply of water is GST-free under section 38-285 of the GST Act. 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) states: 21. [...] 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. [...] 24. 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 system for the physical delivery of water to an end recipient may be the responsibility of more than one supplier of water. For example, a supplier of bulk water may supply bulk water to another supplier who makes retail supplies of water to end recipients. [...] Under a wet hire agreement, you supply the truck with a driver. Unlike an arrangement where water is delivered to, say, a rural property and transferred into a storage tank, your end recipients require the water to be supplied as part of a service that the driver performs (e.g. dust suppression, watering landscapes etc). The terms and conditions of the water permits only allow the named 'person' to take water from the reticulation systems in a specified area. This is supported by the fact that you are liable to log all water consumption and report that usage each period and you are billed for any water drawn from the water areas' hydrants etc. Failure to do so results in penalty clauses being triggered which impact your business. As such, it is only you as the permit holder who is entitled to draw water to fill the truck. You only supply water to the end recipient of a wet hire agreement when the water is supplied for the use that the hirer requires. Therefore, when you supply water to the hirer for their use, there is a change in ownership and the supply of water is a GST-free supply. While a dry hire agreement is different, the GST consequences of the supply of water are the same. Under a dry hire agreement you do not provide a driver, however you are still the entity that holds the permit to allow water to be drawn from a hydrant to fill up the truck. As paragraph 21 of GSTR 2000/25 states, a supply of water is the provision of tangible personal property. A transfer of ownership in the water must logically occur between you and the end recipient; otherwise, there would be no supply of water. Therefore, the supply of water between you and the hirer will be GST-free. Having regard to the essential character of your supplies, as is evidenced by your invoices, it is easy to determine that the transactions are a mixed supply because they have separately identifiable parts that the GST Act treats as taxable and non-taxable. It is not a composite supply where 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. As such, all you will need to adjust when raising your invoices is to calculate GST on the taxable supply of the truck (and driver if applicable) and treat the water supplied as GST-free. For completeness you do not supply a right to water under either the wet hire or dry hire agreement.