Private ruling: Application of GST to operation fees
Published: June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you making a taxable supply for which you receive payment of the operation fee? | A1: No; the payment is not consideration for a taxable supply because under GST Regulation 81-15.01, the payment does not constitute consideration for a supply

Relevant facts and circumstances: You are an Australian government agency for purposes of the GST Act. You perform services as required under State Regulations and Rules agreed between three Australian government agencies created by the State. The agencies consist of an Operator who manages the system, a Regulator who regulates the participants of the system, and you who support the operation of the system. The Operator collects fees paid by participants of the system. From these collections, the Operator recovers its own costs and reimburses the other two Australian government agencies for costs they have incurred in supporting the system.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 s ection 7-1 | A New Tax System (Goods and Services Tax) Act 1999 s ection 9-5 | A New Tax System (Goods and Services Tax) Act 1999 s ection 9-10 | A New Tax System (Goods and Services Tax) Act 1999 s ection 9-15 | A New Tax System (Goods and Services Tax) Act 1999 Division 81 | A New Tax System (Goods and Services Tax) Act 1999 s ection 81-15 | A New Tax System (Goods and Services Tax) Act 1999 s ection 195-1 | A New Tax System (Goods and Services Tax) Regulations 1999 Regulation 81-15.01

Reasons for decision: Detailed Reasoning - The basic rules: Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on supplies that are taxable supplies. Section 9-5 of the GST Act defines a taxable supply as: 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 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. (*Asterisked terms are defined in the Dictionary under section 195-1 of the GST Act) | Detailed Reasoning - Supply: A supply is broadly defined by section 9-10 of the GST Act as any form of supply whatsoever. It includes goods, services, property, or the creation, grant, transfer, assignment or surrender of any right. An act or activity is a supply for GST purposes if it meets any relevant criteria. Goods and Services Tax Ruling GSTR 2006/9 GST: Supplies examines the meaning of 'supply' in the GST Act. The ruling focuses on analysing the various arrangements in which supplies are made. The ruling also considers the meaning of consideration and the requirement for a sufficient nexus between the supply and the consideration. Your activities, for which you receive the operation fee, are detailed under the Rules. You have the function of operating the system in a secure and reliable manner for the purposes of the Regulations. Your other functions, as detailed in the Rules 2 are: · to procure adequate ancillary services as required; · to assist the Operator in the processing of applications for participation and for the registration, de-registration and transfer of facilities; · to develop procedures, and amendments and replacements for them, where required by the Rules; · to release information required to be released by the Rules; and · to monitor Participants' compliance with the Rules. You provide regular updates of system usage and demand to assist the market participants to decide supply and demand issues. The supplies are taxable supplies if the requirements of section 9-5 of the GST Act are satisfied. | Detailed Reasoning - Consideration: Consideration is also broadly defined by section 9-15 of the GST Act. Consideration includes any payments, acts, refraining from acting or forbearances that are made for a supply, in response to a supply, or to induce a supply. It does not matter if the consideration is paid by a person other than the recipient of the supply. Under the Regulations, costs identified in performing functions under the Rules are to be recovered by way of fees paid by registered participants. The rules provide that the Operator will recover its budget, your costs and costs of the Regulator from a operation fee. The operation fee represents costs recovered for services required under the Regulations or the Rules. The payment by Operator to you is paid to an Australian government agency. Accordingly, Division 81 of the GST Act may impact this payment. | Detailed Reasoning - Division 81 of the GST Act: Division 81 of the GST Act covers a fee or charge paid to an Australian government agency. The payment of the system operation fee paid by IMO to Western Power for the system management services is an Australian fee or charge paid to an Australian government agency. Section 81-15 of the GST Act states that the regulations may provide that the payment of a prescribed Australian fee or charge, or the discharging of a liability to make such a payment, is not the provision of consideration. If the payment is not the provision of consideration, the requirement of paragraph 9-5(a) of the GST Act will not be satisfied and the supply to which the payment relates will not be a taxable supply. The A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) were amended, with effect from 1 July 2012, to ensure that the GST treatment of supplies by Australian government agencies remained consistent with the principles agreed with the States. GST Regulation 81-15.01 relevantly provides: | Detailed Reasoning - 81-15.01 Fees and charges which do not constitute consideration: (1) For section 81-15 of the Act, the following kinds of Australian fees and charges are prescribed: (c) a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry; (d) a fee or charge to compensate an Australian government agency for costs incurred by the agency in undertaking regulatory activities; (f) a fee or charge for a supply of a regulatory nature made by an Australian government agency; Regulation 13 of the Regulations and the Rules confer on you the function of operating the system in a secure and reliable manner. In providing the infrastructure service for participants, you are promoting the efficient, safe and reliable production and supply of the services. In doing so, your service satisfies paragraphs 81-15.01(1)(c), (d) and (f) of the GST Regulations to varying degrees. The services provided by you is managed and controlled in accordance with directions of the Regulator In our view the payment is a fee or charge that compensates an Australian government agency for costs incurred in undertaking regulatory activities. Under GST Regulation 81-15.01, the payment from Operator to you for the service provided does not constitute consideration for a supply. This is because the payments are fees or charges to compensate an Australian government agency, namely you, for costs incurred in undertaking regulatory activities; this has effect from 1 July 2012. Because the payment is not the provision of consideration for a supply, the requirement of paragraph 9-5(a) of the GST Act is not satisfied; the supply to which the payment relates is not a taxable supply.