Private ruling: Granting of a concession deed
Date of advice: 16 December 2016
Published: May 2017

Ruling: Q1: Will the Operator, acting under a Concession Deed, be an Australian government agency for the purposes of Division 81 of the GST Act? | A1: No. | Q2: If the answer to (1) is yes, are the fees or charges for Core Services under the Concession Deed imposed under an Australian law? | A2: Not applicable. | Q3: If the answer to (2) is yes, are those Australian fees or charges covered by s 81-10(4) or (5) of the GST Act, and are not prescribed by the GST Regulations for GST purposes to constitute consideration, and therefore are within the scope of Division 81 of the GST Act? | A3: Not applicable. | Q4: If the answer to any of the above is no, is the levy collected by the Operator as an agent on behalf of the government, and therefore, within the scope of Division 81 of the GST Act and not subject to GST? | A4: Yes.

Relevant facts and circumstances: A government agency that was formed years ago supporting the statutory position of the government A government department was separated into business units, one of these business units, the Operator is, subject to the Concession Deed, required to carry out a range of regulatory functions including: ● Collecting, collating and information. ● Maintaining current and historic records in publicly available registers. ● Making specific information available, and is authorised by legislation and supporting regulations to charge fees in respect of the above functions. There will be government oversight of the private Operator and the continuation of the government's guarantee of the information. A newly created regulator will monitor and enforce the Operator's performance in respect of defined service levels, KPIs and the security of the data. In order to ensure transparency, the price of monopoly services will only be permitted to increase with increases of the CPI, over the term of the concession… And importantly the Government will retain ownership of all the data and will require that the data be housed in Australia. The Operator will be set up as a private corporation with shareholders and directors. The government does not have the ability to appoint or veto Board members of the Operator, or override their decisions. Enabling legislation To effect this concession arrangement and authorise the transaction Legislation has been enacted. Under the legislation, the following arrangements are authorised: ● The transfer of the assets and staff to a private sector entity (the Operator); ● Concession arrangements that authorise and otherwise facilitate the provision services by the Operator; and ● The transfer of the assets of the Operator back to a public sector agency or to a private sector entity on termination of the concession arrangements. The functions of the government agency may be delegated to the Operator by the Minister for the purposes of the authorised concession. The Act gives the Minister powers to take control of the operation of the business of the Operator, if the Minister thinks it reasonably necessary to do so to avert a threat or likely threat to the integrity of the information Under the Act money collected, received or held by or on behalf of the authorised operator in connection with the exercise of functions is collected, received or held by the authorised operator on its own account and for its own use and benefit and not for or on behalf of the government. Currently, the ability of the State to charge the fees and charges is allowed for under various acts and regulations Concession Deed The State will enter into a Concession Deed with the Operator. Under the Concession Deed, the Operator and the government agree to act in a manner which is reasonable and consistent with the objectives of the government. The objectives include maintaining the security, integrity and performance of the Core Assets and Core Services and ensuring the information is accurate and up-to-date. Under the Concession Deed, the Operator is to be a single purpose vehicle and must ensure its constitutional documents state that its sole purpose is to perform the concession arrangements and it is prohibited from carrying out any functions not related to the performance of the concession arrangement. Under the Concession Deed, the Operator may engage with approved subcontractors to perform the services under the Concession Deed. The Operator must not subcontract to any person the performance of any services other than to an approved subcontractor. Under the Concession Deed, the government remains responsible for the administrative, legislative and regulatory framework of the concession arrangement. Under the Concession Deed, the government will continue to have policy and portfolio responsibility for the information and the Concession; and retain all of his or her statutory powers under the legislative framework. Under the Concession Deed, the government will have responsibility for monitoring and overseeing the operation of the Concession and the Operator's dealings with Customers. Under the Concession Deed, the Operator is also delegated certain legislative powers. The Concession Deed states that the parties intend for the Operator to be compensated for the performance of the concession arrangement largely through the fees received from customers for performance of their Core Services (customer fees). Oversight and regulation of the Operator Under the Concession Deed, the Operator must provide reports to the government, including: ● its unaudited management accounts, including financial statements; audited annual financial statements; ● reconciliations between the management accounts and audited financial statements, a detailed rolling business plan covering the Operator's product development strategy, business and operational structure, performance plans, changes to fees for Non-core Services. Under the Concession Deed, the government may conduct a number of reviews, including annual reviews of the Operator's performance under this Concession Deed. Under the Concession Deed, the government has reserve powers to give the Operator directions in respect of obligations to be performed in relation to new or existing Core Services and the exercise of the Operator's delegated functions, to the extent that they are not consistent with the relevant legislative framework. The government can also carry out an administrative review of the delegated functions. Levy The levy is currently a basic levy applied as part of the lodgement fee. Under the current section of the Act, the levy is payable by the government and the government may prescribe part of the lodgement fee relating to the levy to be paid into a specified fund Account. Under the Concession Deed, this will remain unchanged and the levy will still be payable by the government. The Customer Fees exclude any levy to which the government collects. The levy is defined under the Concession Deed to mean the levy on Customers to be collected and paid into the fund by the Operator on behalf of the State. Under the Concession Deed, for each Core Service to which the levy applies, the Operator must collect and remit to the State the levy. The Operator is not remunerated for its services by way of commission. Under the Concession Deed, the Operator is not permitted to transact on the Fund Account except to remit the levies to the State. The Operator must comply with the Act in respect of the levy and must maintain all proper books of account and other records as reasonably required to comply. Under the Concession Deed, the Operator must provide a fund performance bond to the government, which may be used to pay an amount to the government in the event of failure to remit any levies.

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 9-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 81-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 81-15 | A New Tax System (Goods and Services Tax) Regulation 81-10.01 | A New Tax System (Goods and Services Tax) Regulation 81-15.01.

Reasons for decision: Summary: Under Division 81 of the GST Act, certain fees and charges are not consideration. Relevantly, under subsection 81-10(1) of the GST Act 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. An Australian fee or charge is defined in section 195-1 as meaning a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency. Australian government agency is defined in section 195-1 of the GST Act to have the meaning given by section 995-1 of the ITAA 1997, which provides the following meaning: (a) the Commonwealth, a State or a Territory, or (b) an authority of the Commonwealth, a State or a Territory. Therefore, for an Operator to be an Australian government agency, the Operator must be the Commonwealth, a State or a Territory; or an authority of the Commonwealth, a State or Territory. Operator as the State If the Operator is considered to be the Commonwealth, a State or a Territory then it will be an Australian government agency for the purposes of the GST Act. The term 'Commonwealth, a State or a Territory' is not a defined term under the GST Act. Although it does not specifically refer to Division 81 of the GST Act, Goods and Services Tax Ruling 2006/5: Goods and services tax: meaning of 'Commonwealth, a State or a Territory' (GSTR 2006/5) is considered relevant in construing the meaning of that phrase. GSTR 2006/5 states that the Commonwealth, a State or a Territory relevantly includes a department, agency or organisation of the type referred to in the definition of 'government entity' in section 195-1 of the GST Act, however it also provides that it can include a corporation which is not a 'government entity' as defined in section 195-1of the GST Act. The Commissioner considers that the issue of whether the Operator is a State is to be determined in accordance with the principles developed by the High Court of Australia in cases concerning the meaning of 'a State' under section 114 of the Australian Constitution, specifically SGH Ltd v. Commissioner of Taxation [2002] HCA 18. GSTR 2006/5 provides a number of judicial principles that should be considered in determining whether the Operator is a State, including: ● the participation of the executive government in formulating policy and making decisions is an indicator that the corporation is the State; ● the absence of corporators (shareholders) has been held to be a relevant factor indicating that the corporation may be the State; ● the ability of the executive government to control the appointment and, more particularly, the removal of directors is an indicator that the corporation is the State; ● the financial arrangements for the corporation are likely to be indicative; and ● a regulatory role, even a modest one, such as the power to make by-laws, is an indicator that the corporation is an instrument of the State. Upon an examination of the relevant facts and circumstances, and in light of the judicial principles, it is clear that the ownership and control of the Operator is independent of the State, with the Operator set up with private shareholders and established as a for profit entity. Furthermore, although the State will arguably have oversight for the Operator's conduct and affairs under the Concession Deed, the Operator is ultimately responsible for governing and controlling its own business affairs and does not act as agent for the State under the Act or Concession Deed with regard to performance of its Core Services. The executive government of the State does not participate in determining the policies or making decisions for the Operator, nor does it have the ability to appoint or veto Board members or override their decisions. As such, there is a clear separation between the State and the Operator and the Commissioner is of the view that the Operator is not the State Operator as an authority of the State The term 'an authority of the Commonwealth, a State or a Territory' is not defined in either the GST Act or the ITAA 1997. However, a number of decided cases have considered the meaning of 'authority of a State' and 'authority'. The Commissioner has also set out his view on the meaning of 'authority of a State' in ATOID 2012/94: Fringe Benefits Tax Associate: authority of the State (ATOID 2012/94) with regard to the common law authorities, in considering subsection 159(2) of the Fringe Benefits Tax Assessment Act 1986 . In ATOID 2012/94 the Commissioner considers the relevant common law authority of Committee of Direction of Fruit Marketing v. Australian Postal Commission (1980) 144 CLR 577 (the Fruit Marketing case) in considering the meaning of an authority of a State. In this case the High Court unanimously decided that the Committee of Direction of Fruit Marketing was an authority of the State of Queensland for the purposes of the Postal Services Act 1975 . Gibbs J stated at 580: The expression "authority of a State" refers to a body which exercises power derived from or delegated by the State, but the fact that a body is established under State law and possesses power conferred upon it by State law will not necessarily mean that the body is an authority of a State...The words "authority of a State" naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - ie, for the purposes of and in the interests of the community or some section of it. In some cases it may be decisive that the body concerned is given exceptional powers of a kind not ordinarily possessed by an individual or a company, and that those powers are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government. On the other hand, in some cases it may be decisive that the body is conducted in the interest, and for the profit, of its members. In all cases, however, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question. By way of example, Gibbs J also said that a private gas supply company which provided a public service for profit and which was set up under the laws of a state and having special statutory powers does not thereby become an authority of the state. In FC of T v. Bank of Western Australia Ltd ; FC of T v. State Bank of New South Wales Ltd 96 ATC 4009; (1995) 133 ALR 599 the meaning of the word 'authority' was considered by the Full Federal Court in the context of the phrase 'the official use,... and not for sale by,... an authority which is completely controlled by,... a State' in the Sales Tax (Exemptions and Classifications) Acts 1935 and 1992 . In that case Hill J looked at a number of Australian cases as to the meaning of the word 'authority'. He derived the following propositions from those cases: ● A question whether a particular entity is an authority will be a question of fact and degree dependent upon all the circumstances of the case: The Western Australian Turf Club v. FC of T 78 ATC 4133; (1978) 139 CLR 288 (Western Australian Turf Club) per Stephen J with whom Barwick CJ agreed at ATC 4134; CLR 290. No one factor will be determinative, rather there will be a 'range of considerations': the Fruit Marketing case at 580. ● A private body, corporate or unincorporated, established for profit will not be an authority: Renmark Hotel Inc v. FC of T (1949) 8 ATD 424; (1949) 79 CLR 10 (Renmark Hotel) per Rich J at ATD 429; CLR 17, FC of T v. Silverton Tramways Co Ltd (1953) 10 ATD 295; (1953) 88 CLR 559 ( Silverton Tramways ) per Dixon CJ at ATD 297; CLR 566. ● Incorporation by legislation is not necessary before a body may be classified as an authority: Renmark Hotel per Rich J at ATD 430; CLR 19, Western Australian Turf Club at ATC 4135; CLR 293. ● For a body to be an authority of a State or of the Commonwealth, the body in question must be an agency or instrument of government set up to exercise control or execute a function in the public interest. It must be an instrument of government existing to achieve a government purpose: the Fruit Marketing case. ● The body in question must perform a traditional or inalienable function of government and have governmental authority for so doing: Renmark Hotel per Rich J at ATD 428; CLR 16, General Steel Industries Inc v. Commissioner for Railways (NSW) (1964) 112 CLR 125 per Barwick CJ at 134, Re Anti-Cancer Council of Victoria ; Ex parte the State Public Services Federation (1992) 175 CLR 442 per Mason CJ, Brennan and Gaudron JJ at 450-451. ● It is not necessary for a person or body to be an authority that he, she or it have coercive powers, whether of an administrative or legislative character: Renmark Hotel per Rich J at ATD 430; CLR 18. Conversely the fact that a person or body has statutory duties or powers will not of itself suffice to characterise that person or body as an authority: Western Australian Turf Club per Stephen J at ATC 4137; CLR 297. ● At least where the question is whether a body is a 'public authority' the body must exercise control power or command for the public advantage or execute a function in the public interest: Silverton Tramways per Dixon CJ at ATD 297 and 298; CLR 565 and 567. The central concept is the ability to exercise power or command: the Fruit Marketing case per Gibbs J at 580. In FC of T v. Bank of Western Australia Ltd , the Court held that on the particular facts, the lack of ability of each bank to exercise authority or command led to the conclusion that it was not an authority in the normal sense of the expression. Under the common law it is clear that there is no one determinative factor in ascertaining if an entity is an authority of the State but rather it is a matter of determining the range of relevant considerations in the context of the facts and circumstances. In considering the judicial principles discussed above the following factors are relevant: ● Established for Profit Under the common law it has been established that a private body, corporate or unincorporated, established for profit will not be an authority. In Renmark Hotel Inc v. FC of T (1949) 8 ATD 424 Rich J provided the following discussion: No-one would describe as a public authority an electric lighting company which had obtained statutory powers but possessed a share capital issued to shareholders and which carried on for profit, but we might call it a public utility…. …… The question whether the body concerned is acting for private profit is treated in the English authorities as a most important feature - almost the determining one. A body may be a public authority and still make profits - the important thing is that the profits must not go to the benefit of the corporators or other persons conducting the body. (He referred to Griffiths v. Smith (1941) AC 170.) There is no closed category of public authorities. Of course, a public function must be exercised... Therefore, whether the Operator is set up for the profit of shareholders is a relevant consideration in determining whether it is an authority of a State. Although Renmark Hotel Inc v. FC of T deals with the meaning of a 'public authority' the guidance is still relevant for present purposes. In FC of T v State Bank of New South Wales Ltd 96 ATC 4009 Hill J stated that, although most of the cases had considered the word “authority” in the context of “public authority”, it was difficult to see how “public” significantly altered the meaning of the word “authority” and, to the extent that it did affect meaning, it could only be in the emphasis upon the public character of the body or the public nature of the activity carried on, rather than the intrinsic characteristics of the body itself. Therefore, the principles in Renmark Hotel Inc v. FC of T are applicable. In accordance with the Concession Deed the Operator will be established as a single purpose vehicle with its sole purpose to perform the services under the Concession. In connection with the core services performed under the Concession, the Operator will collect and retain fees for the Operator's own benefit, with the Act also confirming that money collected, received or held by or on behalf of the Operator is collected, received and held by the Operator on its own account and for its own use and benefit. The Act also specifically states that these amounts are not collected, held or received for or on behalf of the State. The Operator, as a privately owned body with shareholders, will conduct its business affairs and activities in the interest, and for the profit, of its members. In particular, the Operator will earn a profit to the benefit of its shareholders and/or directors. The State Government does not hold any interest in the shareholding of the Operator and cannot appoint or remove directors or override the decisions of the Board. Therefore, although the Corporation is established with a public purpose, it will be delivering its services for a private profit, with the business being conducted for the benefit and under the direction of its private members. There is also no nexus between the profits that are retained by the Operator for the Core Services delivered, and the State Government, as the Operator derives profits from its business activities and does not remit any fees from the Core Services to the government. As such, the Commissioner contends that as the Corporation is established as a private corporation that derives profit for the benefit of shareholders and directors, this is a strong indicator that the Corporation is not an authority of a State. ● Agency or instrument of government set up to exercise control or execute a function in the public interest Article I The Operator may be considered an instrument of the State set up to exercise control in the public interest as the State arguably has oversight over the conduct of the Operator's affairs, delegates its powers and functions to the Corporation and has the power to 'step in' under limited and exceptional circumstances. The following factors are relevant to whether the Operator is an instrument of government set up to control or execute a function: ● Under the Concession Deed, the Operator is required to be set up as a single purpose vehicle with a sole purpose to perform the concession. The Operator is also prohibited from carrying out any functions not related to the performance of the concession arrangement. ● Under the Concession Deed, the Operator is required to provide a number of reports (including business plans and financial accounts) to the government, and the government may perform annual reviews of the Operator's performance. ● Under the Concession Deed, the Customer Fees for Core Services are subject to pricing restrictions and adjustments to Customer Fees. ● Under the Concession Deed, the government has reserve powers to give the Operator directions in respect of compliance with a Ministerial direction or change of law, where there is a risk of adverse impact on the security and integrity of the, Core Services or Core Assets, or where it is otherwise in the public interest. ● Under the Act the Minister has emergency “step-in” powers which authorises the Minister to take control of the operation. ● Under the Concession Deed, a relevant committee comprising representatives of the government and the Operator will be established to oversee the Operator's compliance and provision of the services. Therefore, after a consideration of the above factors, it may be arguable that the Operator is an instrument of government set up to exercise control or execute a function in the public interest. However, it is also relevant to consider if the Operator can be properly characterised as an instrument of government existing to achieve a government or public purpose, as another primary purpose of the Operator is that it is run for the benefit of its shareholders and directors, and therefore its purpose is not merely to execute a public function, but also to generate profit for private shareholders. Hence, this may be relevant to considering the extent to which the Operator is set up for a public purpose. Traditional or inalienable function Article II The Operator will be carrying on activities which have historically been the function of the government and traditionally viewed by the community as a regulatory function of government. The Operator also has delegated authority to perform these functions (as discussed above). On this basis, the Operator is arguably performing a traditional or inalienable function of government through delegated governmental authority for so doing. ● Government authority and exceptional powers to exercise command and power The Operator possesses powers to perform the Core Services, which are delegated from the State. These powers relate to the Core Services and may be regarded as exceptional in nature as they are widely regarded as the proper function of a State and will become the sole responsibility of the Operator under the Concession Deed and Act. Article III | Detailed Reasoning - Conclusion: In consideration of the above factors, the Operator shows characteristics of an authority of the State. However, the factors that indicate the Operator would not be an authority of the State are that it is set up for profit, it is owned and controlled by private shareholders and directors, the Corporation is ultimately run for the benefit of its shareholders and directors, and the State has a lack of control over the business activities and affairs of the Operator due to it being established as a private corporation and it not being carried on solely for a public purpose. We consider that these are key factors which impact upon the proper characterisation of the Corporation and lead to the conclusion that on balance the Operator is not within the scope of being an authority of a State. Therefore, the Commissioner does not need to consider the other elements of Division 81 of the GST Act as the fees under the Concession Deed are not payable to an Australian Government Agency. Article IV Levy At issue, is whether the Operator is acting as agent on behalf of the government in collecting the levy, such that the levy can be held to be paid to an Australian government agency. An Australian fee or charge is defined in section 195-1 as meaning a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency. Fee or charge imposed under an Australian law We consider that the levy is imposed under an Australian law. Fee or charge payable to and Australian government agency The levy is currently applied as part of the lodgement fee. The Levy is defined under the Concession Deed to mean the levy on Customers to be collected and paid into the fund by the Operator on behalf of the government. Under the current section of the Act, the levy is payable by the State and the State may prescribe part of the lodgement fee relating to the levy to be paid into the specified fund. After the parties enter into the Concession Deed, this will remain unchanged. Under the Concession Deed, for each Core Service to which the levy applies, the Operator must collect and remit to the government the levy. Also, under the Concession Deed, the Operator is not permitted to transact on the fund account except to remit the levies to the Registrar-General. Under the Concession Deed, the Operator must comply and must maintain all proper books of account and other records as reasonably required to comply with the Act. These accounts may be produced for audit by the Auditor General in the State. Under the Concession Deed, the Operator must provide a performance bond to the government, which may be used to pay an amount to the government in the event of failure to remit any levies. The Customer Fees under the Concession Deed specifically exclude any levy to which the government collects. Therefore, from the terms of the Concession Deed and in accordance with the Act the Operator appears to collect the levy on behalf of the government. Agency relationships Broadly, relevant documentation in respect to the current arrangements, the descriptions used by the parties and the conduct of the parties could infer the existence of an agency relationship. Relevantly, the Commissioner considers that the following factors may show that an entity is an agent under an agency relationship, but notes that no single factor by itself is determinative: ● Any description of an entity as an agent, having authority to act for another party, in an agreement (expressed or implied) between the entity and the other party; ● Any exercise of the authority that the entity is given to enter into legal relations with a third party; ● Whether the entity bears any significant commercial risk; ● Whether the entity acts in its own name: ● Whether the entity is remunerated for its services by way of commissions and whether it is entitled to keep any part of its remuneration secret from another party; ● Whether the entity decides the price of things that the entity might sell to third parties. On this basis, the levy may be considered as being collected by the Operator as agent on behalf of the government as: ● The levy is described in the Concession Deed as a levy to be collected and paid into the fund by the Operator on the government's behalf. ● The levy is not collected as part of the Customer Fees and is kept in a separate Special Deposits Account, to which the government is the beneficiary. ● The Operator is not permitted to transact on the fund account except to remit the levies to the government ● The amount of the levy is not decided by the Operator and is regulated by a pricing regime. ● While the Operator is not remunerated for its services by way of commission, we do not consider this a factor relevant to this arrangement as the levy is provided to the State and is not used to derive profit in the commercial sense. Therefore, since the Customer pays the levy to the Operator as an agent on behalf of the Government, the levy is payable to the government, which is an Australian government agency. Section 81-15 and the GST Regulations Other fees or charges may be prescribed by the GST regulations to not constitute consideration under section 81-15. Relevantly, the GST Regulations prescribe that the Australian fees or charges for a supply of a regulatory nature made by an Australian government agency do not constitute consideration. We consider that the levy is for a supply of a regulatory nature as: ● It is a supply made by a government agency, and the government is legislatively empowered to make the relevant supply ● It is made for a regulatory purpose On this basis, the levy is of a kind contemplated under section 81-15 of the GST Act and therefore should not constitute consideration for the purposes of Division 81 of the GST Act.