Private ruling: GST and fees and charges
Published: October 2011

Ruling: Q1: Is the payment of a particular fee (Fee) the payment of an Australian tax or an Australian fee or charge for the purposes of Division 81 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. | Q2: Does the payment of the Fee fall within the exemptions in A New Tax System (Goods and Services Tax)(Exempt Taxes Fees and Charges) Determination 2011 (No 1)? | A2: Yes. | Q3: Is there any other taxable supply made by Entity A to Entity B for which payment of the Fee is consideration? | A3: No.

Relevant facts and circumstances: Entity A is a body corporate established under a particular Act. Entity A is registered for GST. Entity B is a body corporate established by another particular Act. Entity B is registered for GST. Entity A is able to able to recoup the costs incurred in the performance of its functions under a particular Act. The Fee is made payable to Entity B under another particular Act. Under the guiding rules Entity B is required to pass on the Fee to Entity A Where Fee paying entities do not meet their obligations under the Act it provides that it is an offence and a penalty can apply. You've also stated that Entity A and Entity B have not entered into any contracts or memorandum of understanding agreements regarding their functions relating to Entity A making supplies to Entity B.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 and | A New Tax System (Goods and Services Tax) Act 1999 Division 81.

Reasons for decision: Summary: The Fee is an Australian fee or charge under subsection 81-10(4) of the GST Act as it is imposed under an Australian law, payable to an Australian government agency and is for the retention of a permission. | Detailed Reasoning - Detailed reasoning: GST is a broad based indirect tax payable on consumption in Australia. Generally, GST is payable on the value added at each stage of the commercial chain of dealing with goods, services and other things. The GST Act describes these dealings as supplies. In the absence of a supply GST cannot arise. The basic rules require an entity, the supplier, to make the supply and generally another entity, the recipient, to acquire the supply. GST on a taxable supply is payable by the supplier who is registered or required to be registered for GST. The requirements for a taxable supply are stated in section 9-5 of the GST Act. This provision provides that a supply is taxable 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The words 'A supply is any form of supply whatsoever' in subsection 9-10(1) of the GST Act cover all supplies regardless of whether they concern goods or services. Subsection 9-10(2) does not limit subsection 9-10(1) and includes such things as goods, services provision of information, rights and obligations. Something that is not listed in subsection 9-10(2) but falls within subsection 9-10(1) will be a supply. When considering supplies we look to the arrangement in which the supplies are made. An arrangement may be evidenced by written agreements, legal instruments, Ministerial directions, departmental guidelines and memoranda of understanding. The first requirement under section 9-5 of the GST Act is that you make a supply for consideration. The definition for consideration in section 195-1 provides that that consideration for a supply means any consideration within the meaning given by section 9-15, in connection with the supply. Hence, consideration for a supply is defined as being consideration in connection with a supply. Section 9-15 of the GST Act provides that consideration includes any payment, or any act or forbearance, in connection with a supply of anything and any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. Furthermore, it doesn't matter whether the payment, act or forbearance was voluntary. The Commissioner takes the view that the words 'in connection with the supply or acquisition' in section 195-1 of the GST Act, and the phrases 'in connection with a supply of anything' and 'it does not matter whether the payment, act or forbearance was voluntary' in section 9-15 mean that there does not have to be an enforceable relationship for there to be a sufficient nexus between the supply and a payment. Nor does the consideration have to be agreed in advance. Entity A's functions provided for under the Act are to monitor and regulate. The law provides that Entity A can recover its costs by calculating the Fee which is to be paid by paying entities. Furthermore, the Act provides for the obligation to make payments by paying entities is required to pay an amount to Entity B. Where an amount is owing to Entity B it is an offence and penalties can apply. Furthermore, the guiding rules provide that the Entity B will pass Entity A the Fee amount. | Detailed Reasoning - Division 81 of the GST Act: When the GST was introduced, the Commonwealth, states and territories agreed that the GST would apply to the commercial activities of government at all levels and that the non-commercial activities would be outside the scope of GST. In particular that Division 81 of the GST Act would exempt from GST regulatory charges that do not relate to particular goods or services, including, fees and charges levied on specific industries and used to finance particular regulatory or other activities in the government sector. Division 81 of the GST Act has been amended so that those Australian taxes, fees and charges currently not subject to GST under the A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011 (N0.1) (Treasurer's Determination) will remain not subject to GST until 1 July 2012 and thereafter will be assessed under the changes made. Under an item of the A New Tax System (Goods and Services Tax)(Exempt Taxes Fees and Charges) Determination 2011 (No 1) it lists the Fee, the relevant Act , and the notes section provides - compulsory Fee payable by paying entities . The GST treatment of all new Australian taxes or Australian fees and charges that are not currently entered on the Treasurer's Determination will be self assessed under the changes made with effect from 1 July 2011. Those Australian taxes or Australian fees and charges that are not covered by the changes made and meet the requirements of section 9-5 of the GST Act will be taxable supplies, unless excluded by regulation. Under the amendments, the payment of an Australian fee or charge of a kind to which subsection 81-10(4) and (5) apply will not be treated as the provision of consideration (for a supply) and also will not attract GST. Section 81-10 of the GST Act provides that: (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). (2) However, a payment you make, or 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. (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). Section 195-1 of the GST Act defines Australian fee or charge to mean: a fee or charge (however described), other than an Australian tax, imposed under an Australian law and payable to an Australian government agency. Furthermore, an Australian government agency has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 which provides: (a) the Commonwealth, a State or a Territory; or (b) an authority of the Commonwealth or of a State or a Territory. A supply to which a payment, or the discharging of a liability to make such a payment, relates will not be subject to GST to the extent the payment is for a fee or charge covered by subsection 81-10(4) of the GST Act. For a supply to which a fee or charge relates not to be subject to GST, the fee or charge must be imposed under an Australian law and be payable to an Australian government agency. To the extent a payment, or the discharging of a liability to make such a payment, is a payment or discharge of an Australian fee or charge that relates to, or relates to the application for, the provision, amendment or retention under an Australian law, of a permission, exemption, authority or licence, it will not be treated as the provision of consideration. Therefore, any supply to which the fee or charge relates will not be subject to GST. A fee or charge in relation to the provision, amendment or retention of a permission, exemption, authority or licence includes but is not limited to: · application fees, licences, permits and certifications that are required by government prior to undertaking an occupation; and · regulatory charges imposed to undertake an activity (for example, compulsory testing fees for regulatory purposes, compulsory inspection fees for regulatory purposes, a permit for restaurants to occupy the footpath, and a licence for an event to close roads). As noted, this exemption applies to an Australian fee or charge imposed in relation to, or to the application for, the retention of a permission, exemption, authority or licence. An example of such a fee would be a periodic compulsory inspection fee, made under an Australian law and payable to an Australian government agency, for the retention of a permit. In such cases, the inspection fee is directly related to the retention of the permission and would not be subject to GST. | Detailed Reasoning - Application of Division 81 of the GST Act: An Australian fee or charge means a fee or charge provided for under an Australian law and payable to an Australian government agency. Furthermore, there is a requirement under subsection 81-5(4) of the GST Act that the fee or charge relates to the provision, retention, or amendment, under an Australian law of a permission, exemption, authority or licence (however described). The Act provides for Entity A to recover its costs by a Fee for carrying out its functions. Furthermore, the Act provides that it is Entity B that is required to be paid the Fee and that it is an offence and a penalty can apply where a paying entity who is required to pay an amount to Entity B does not do so. In this situation the amount is imposed under an Australian law and Entity B is an Australian government agency as it is an authority of a State. Furthermore, as a paying entity can commit an offence and incur a penalty for not paying amounts owed to Entity B when due and payable the payment of the Fee is to retain the permission of being able to operate. As such the Fee is an Australian fee or charge covered by subsection 81-10(4) of the GST Act. Hence, the Fee will not be the provision of consideration when paid to Entity B as subsection 81-10(4) of the GST Act is satisfied. | Summary: The Fee falls within the exemptions in a particular item of the A New Tax System (Goods and Services Tax)(Exempt Taxes Fees and Charges) Determination 2011 (No 1). | Detailed Reasoning - Detailed reasoning: An item of the A New Tax System (Goods and Services Tax) (Exempt Taxes Fees and Charges) Determination 2010 (No 2) lists the Fee under an Act and the notes section provides - the paying entities that are to pay the Fee. The Fee therefore satisfies the requirement and is not consideration for a supply. | Summary: There is no supply from Entity A to Entity B for which Entity B passes the Fee to Entity A. | Detailed Reasoning - Detailed reasoning: When indentifying supplies we consider the context of the transaction. A supply is a taxable supply, if, among other things, the supply is made for consideration. Thus, there must be some nexus or connection between a particular supply and particular consideration which is provided for under the supply. The definition of consideration in section 9-15 of the GST Act extends beyond payments to include such things as acts and forbearance to act. It may include voluntarily made payments, and payments made by persons other than the recipient of a supply. A payment will be consideration for a supply if the payment is 'in connection with', 'in response to' or 'for the inducement' of a supply. In this situation, Entity A is undertaking functions provided for under legislation and under the legislation they are able to recover costs in carrying out their required functions. Furthermore, you have stated that there are no agreements between Entity A and Entity B that would indicate that Entity A is providing anything that would be a supply to Entity B for which Entity B passes on the consideration to Entity A for. Hence, there is no supply from Entity A to Entity B for which the Fee would be consideration for and the required nexus test is not satisfied. Therefore, paragraph 9-5(a) of the GST Act is not satisfied and the passing of the Fee from Entity B to Entity A is out of scope for GST.

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