Private ruling: GST and sewerage services
Date of advice: 10 July 2018
Published: September 2018
Ruling period: From 1 April 2014

Ruling: Q1: Are the fees charged by entity A to lot owners in relation to costs incurred from entity B for sewerage services provided to lot owners, subject to GST? | A1: No, the fees charged by entity A to lot owners for sewerage services are not subject to GST. | Q2: If the fees in question 1 are not subject to GST, is entity A entitled to a refund of the GST paid once it has refunded the lot owners the GST originally charged on those fees? | A2: Entity A is only entitled to a refund of GST from 1 April 2014 where the relevant requirements are satisfied.

Relevant facts and circumstances: Entity A is registered for GST on an accruals basis with quarterly tax periods. Entity A is the proprietor of common property and its members are the owners of the lots. It is not known if any of the lot owners are registered for GST in respect of their use or ownership of a lot. Water services are supplied and charged to lot owners by a public body. The only water services supplied and charged to entity A relate to the common property. The lots are not serviced by any public sewerage system and an on-site sewerage system was required. Entity B is the owner of the on-site sewerage system. Entity A and entity B entered into an Agreement for entity B to provide sewerage services to lot owners. Under the Agreement, as consideration for the services rendered by entity B, entity A shall pay a fee (exclusive of GST). No GST has been included in the fee charged to entity A as it has been treated as consideration for a GST-free supply of sewerage services. The fee charged to entity A for the sewerage services is wholly allocated to the lot owners on the basis of lot liabilities. Up to now, the tax invoices provided to lot owners have included GST on the sewerage services. As yet, entity A has not reimbursed any GST to the lot owners but it does intend to do so if the sewerage services are determined not to be subject to GST. Entity A is subject to the relevant State Act which outlines the functions that it is required to carry out. Under the relevant State Act, for a fee, a person may apply for a certificate which lists the services provided to lot owners. The certificate for entity A states that it provides sewerage services.

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 38-290 | A New Tax System (Goods and Services Tax) Act 1999 Division 142 | A New Tax System (Goods and Services Tax) Act 1999 section 142-5 | A New Tax System (Goods and Services Tax) Act 1999 section 142-10 Schedule 1 to the Taxation Administration Act 1953 subsection 105-65(1)

Reasons for decision: Summary: Based on the information provided, the fees charged by entity A to lot owners in relation to costs incurred from entity B for sewerage services provided to lot owners, are not subject to GST. This is because the fees are consideration for a GST-free supply of sewerage services that entity A makes to the lot owners. | Detailed Reasoning - Detailed reasoning: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity must pay GST on any taxable supply that it makes. Under section 9-5 of the GST Act, an entity makes a taxable supply if: ● the entity makes the supply for consideration ● the supply is made in the course or furtherance of an enterprise that the entity carries on ● the supply is connected with the indirect tax zone (Australia), and ● the entity is registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case, entity A is the proprietor of common property and its members are the owners of the lots. The ATO considers that a body corporate carries on an enterprise of providing management services to its members, contracting with contractors, acting in a business-like way and undertaking to discharge its responsibilities under the relevant Act which includes managing and maintaining the common property and assets. Also, where an owners corporation is registered for GST its management services will usually be subject to GST. This ATO view has been supported by the Administrative Appeals Tribunal (Tribunal) decision in Body Corporate, Villa Edgewater CTS 230092 v FC of T 2004 ATC 2056; (2004) 55 ATR 1162; [2004] AATA 425 (Villa Edgewater case). The conclusions made by the Tribunal in the Villa Edgewater case include that the body corporate is a separate legal entity with an existence that is independent of its membership and that statute makes the body corporate responsible for certain tasks for which the members are liable to contribute funds so that these tasks can be carried out. Also, the members are the recipients of the services provided by the body corporate and that it makes no difference whether the body corporate discharged its obligations through servants or agents. Therefore, on the facts provided, entity A is conducting an enterprise of supplying management services to its members, these services are connected with the indirect tax zone as they are provided in Australia and entity A is registered for GST. In addition, a supply of management services would generally not be GST-free or input taxed. Consequently, the issue that arises under section 9-5 of the GST Act is whether the sewerage services are consideration for a taxable supply. Entity A is subject to the relevant State Act and that Act outlines the functions that it is required to carry out. In this case, the lots are not serviced by any public sewerage system and an on-site sewerage system was required. As a result, entity A entered into an agreement with entity B and in consideration for this, entity A agreed to pay a fee. In line with the conclusions in the Villa Edgewater case and the requirements of the relevant State Act, it is considered that entity A acquired the sewerage services in its own capacity in order to on-supply the sewerage services to each lot owner. This is confirmed by the certificate for entity A which states that it provides sewerage services. Section 38-290 of the GST Act provides, in part, that a supply of sewerage services is GST-free. The Commissioner’s view on what constitutes a ‘sewerage service’ is contained in Goods and Services Tax Ruling GSTR 2000/25. Of relevance to this case is paragraph 39 of GSTR 2000/25 which states, in part: The supply of a service which enables an end 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 carriage of the discharge through the network to a treatment plant, and the treatment of the sewage, are also sewerage services. … The system for the supply of sewerage services to end recipients may be the responsibility of more than one supplier. For example, a supplier of bulk sewage removal services may supply those services to another supplier who makes retail supplies of sewerage services to end recipients. The facts show that, up to now, only the supply of sewerage services between entity B and entity A have been treated as GST-free. However, based on the information provided, it is considered that entity A is also providing sewerage services when it on-supplies the sewerage services it acquires from entity B to the lot owners. Accordingly, the fees charged by entity A to the lot owners in respect of the sewerage services are not subject to GST. | Summary: Due to the four year period of review, there is no entitlement to a refund of the GST remitted to the ATO in respect of the quarterly tax periods prior to 1 April 2014. In respect of the quarterly tax period 1 April 2014 to 30 June 2014, entity A will only be entitled to a refund of the overpaid GST on the sewerage services if the lot owners have been reimbursed the GST originally charged on the fees for those sewerage services and the recipient, being the lot owner, is not registered or required to be registered for GST in respect of the acquisition of the sewerage services. That is, there is no entitlement to a refund of overpaid GST in respect of GST registered lot owners even where the GST has been refunded to them. In respect of the quarterly tax periods from 1 July 2014, entity A will only be entitled to a refund of the excess GST on the sewerage services if the lot owners have been reimbursed the GST originally charged on the fees for these sewerage services. This is regardless of whether the lot owner is registered for GST or not. | Detailed Reasoning - Detailed reasoning: As determined above in Question 1, the supplies of sewerage services made by entity A to the lot owners are GST-free under section 38-290 of the GST Act. However, entity A remitted GST to the ATO in respect of these supplies. In relation to a refund of overpaid or excess GST, there are a number of provisions that need to be considered. Firstly, for tax periods starting on or after 1 July 2012, self-assessment will apply. This means that requests for a refund of GST must be made within a four year period of review. The period of review starts when a notice of assessment is given and ends four years and one day after that date. From 1 July 2012, the Commissioner is deemed to have made an assessment when a Business activity statement (BAS) is lodged. Once a period of review has expired an assessment can no longer be amended unless, among other things, one of the exceptions applies. One of the exceptions to the period of review is to give effect to a private ruling requested during the period of review. In this case, the private ruling application was lodged within the period of review for the June 2014 quarterly tax period and each subsequent quarterly tax period. Secondly, a refund of GST is also subject to section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) for tax periods starting before 31 May 2014 and Division 142 of the GST Act for tax periods starting on or after 31 May 2014. Therefore, where the requirements of section 105-65 of Schedule 1 to the TAA or Division 142 of the GST Act are satisfied, entity A will be entitled to claim a refund of the overpaid or excess GST but only for the quarterly tax periods starting from 1 April 2014. There is no entitlement to a refund of GST for the quarterly tax periods ending prior to 1 April 2014 as they are outside of the period of review. It should be noted that as section 105-65 of Schedule 1 to the TAA applies to tax periods starting before 31 May 2014, it will only be relevant for the June 2014 quarterly tax period (1 April 2014 to 30 June 2014) while Division 142 of the GST Act will be relevant for the quarterly tax periods from 1 July 2014. For refunds or credits relating to tax periods starting before 31 May 2014, subsection 105-65(1) of Schedule 1 to the TAA provides that where a supply was treated as a taxable supply to any extent and the supply is not a taxable supply to that extent, the Commissioner is not obliged to refund the overpaid GST unless: ● the Commissioner is satisfied that the supplier has reimbursed the overpaid GST to the recipient of the supply, and ● the recipient of the supply is not registered or required to be registered for GST. These conditions seek to ensure that the supplier does not receive a windfall gain at the expense of the end consumer by retaining in full a GST-inclusive price for a supply on which GST is not payable and that the symmetry envisaged by the GST system is not disturbed. Miscellaneous Taxation Ruling MT 2010/1 sets out the Commissioner’s view on the application of section 105-65 of Schedule 1 to the TAA. As explained in subparagraph 128(e) of MT 2010/1, the Commissioner will generally not give the supplier a refund of overpaid GST where the recipient is registered for GST as the Commissioner may not be able to reclaim the input tax credit previously claimed by the recipient. On the facts provided, for the quarterly tax period 1 April 2014 to 30 June 2014, entity A treated the GST-free sewerage services as taxable supplies but, as yet, entity A has not reimbursed the lot owners the overpaid GST. However, it does intend to do so. We have also been advised that it is not known if some of the lot owners are registered for GST in respect of their use or ownership of a lot. Therefore, at this stage, as all of the conditions of subsection 105-65(1) of Schedule 1 to the TAA have not been satisfied, entity A is not currently entitled to a refund of overpaid GST. However, entity A will be entitled to a refund of the overpaid GST on the sewerage services when all of the conditions of subsection 105-65(1) of Schedule 1 to the TAA have been satisfied. That is, in this case, when the lot owners who are not registered or required to be registered for GST have been reimbursed the overpaid GST to which they are entitled. In relation to any lot owners that are registered for GST in respect of their use or ownership of a lot, entity A will not be entitled to any refund of overpaid GST in these cases even where the overpaid GST has been refunded to the GST registered lot owners. In respect of the amendments to the June 2014 quarterly BAS (1 April 2014 to 30 June 2014), they can be made in a later BAS where the conditions in Goods and Services Tax: Correcting GST Errors Determination 2013 GSTE 2013/1 are met. Division 142 of the GST Act, which replaces section 105-65 of Schedule 1 to the TAA for tax periods starting on or after 31 May 2014, provides that an entity can self-assess its entitlement to a refund of an amount of ‘excess GST’ according to objective criteria. Under subsection 142-5(1) of the GST Act ‘excess GST’ is an amount of GST that has been taken into account in an entity’s assessed net amount but is not actually payable. In relation to refunding the excess GST, section 142-10 of the GST Act provides that the excess GST that has been passed on to a recipient is taken to have always been payable and payable on a taxable supply, until the recipient has been reimbursed for the passed-on excess GST. This means that an amount of excess GST will only be refundable if: ● it has not been passed on to the recipient, or ● it has been passed on to the recipient and the recipient has been reimbursed. If the excess GST has not been passed on or it has been passed on and the recipient has been reimbursed, section 142-10 of the GST Act does not apply and a supplier may, subject to the period of review, be entitled to a refund of that excess GST. The Commissioner’s view on the meaning of the terms ‘passed on’ and reimburse’ for determining whether section 142-10 of the GST Act applies to an amount of excess GST is explained in Goods and Services Tax Ruling GSTR 2015/1. Of relevance to this case is paragraph 24 of GSTR 2015/1 which provides that it is envisaged that the supplier ‘passes on’ the GST to the recipient of the supply. That is, there is an expectation that in the context of the GST system excess GST will be passed on to the customer when a supply is treated as a taxable supply. Following on from this, paragraph 25 of GSTR 2015/1 provides that if excess GST has been included on a tax invoice, this is prima facie evidence that the excess GST has been passed on. In this case, it is clear from the tax invoices supplied to the lot owners each quarter that the excess GST was passed on. In addition, entity A has not yet reimbursed the lot owners for the excess GST included in the fee for the sewerage services but it does intend to do so. Until the excess GST has been reimbursed to the lot owners, section 142-10 of the GST Act will apply to treat the excess GST as always having been payable, and payable on a taxable supply. However, once the lot owners have been reimbursed, section 142-10 of the GST Act ceases to apply to that part of the excess GST that has been reimbursed and as such, entity A will be entitled to claim a refund of the excess GST that has been reimbursed. This is the case regardless of whether the lot owner is registered for GST or not, as illustrated in Example 8 at paragraphs 87 to 89 in GSTR 2015/1. Unlike section 105-65 of Schedule 1 to the TAA, the recipient’s registration status is not relevant. Notwithstanding the above, the supplier and the recipient can choose not to disturb the status quo. In relation to the amendments, paragraph 18 of GSTR 2015/1 explains that as entity A has made a supply of sewerage services to the lot owners, the reimbursement of the excess GST will be an adjustment event under Division 19 of the GST Act. This means that entity A will have a decreasing adjustment which is attributable to the tax period in which the reimbursement is made to the lot owners. Any GST registered lot owners who have claimed an input tax credit in relation to the acquisition of the sewerage services and been reimbursed will have an increasing adjustment.