Goods and services tax: the GST treatment of fees and charges imposed by NSW councils in relation to enforcement activities, essential services, provision of information, use of professional and staff time and works

This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

The relevant provisions dealt with in this Ruling are: • Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); • Division 81 of the GST Act; and • Regulation 81 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations). Unless otherwise stated, all legislative references in this Ruling are to the GST Act.

The class of entities to which this Ruling applies consists of all councils that are members of the Local Government and Shires Association of New South Wales (NSW).

Within this Ruling the class of entities is collectively referred to as Council.

The Commissioner makes this Ruling based on the precise scheme identified in this Ruling.

The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 11 to 18 of this Ruling.

If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then this Ruling: • has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • may be withdrawn or modified.

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This Ruling applies from 1 July 2013 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

The following description of the scheme is based on information provided by the applicant.

The scheme incorporates the supplies made and payments received by NSW Councils in relation to management and enforcement of regulatory functions, essential services, fines, information, professional time, staff time and works.

Council is an Australian government agency.

Council is registered for goods and services tax (GST).

The supplies made by Council are connected with Australia and made in the course or furtherance of Council's enterprise.

By force of section 220 of the Local Government Act NSW 1993 (LG Act), Council is a body politic of the State of NSW with perpetual succession and the legal capacity and powers of an individual, both in and outside the State.

Council is empowered under the LG Act to: • provide goods, services and facilities and to carry out activities, appropriate to the current and future needs of local communities and of the wider public • maintain responsibility for administering the regulatory systems under the LG Act, and • manage, improve and develop the resources of their local government areas.

Council levies charges for goods and services under various sections of the LG Act and the other NSW State statutes [1] . In particular, under subsection 608(1) of the LG Act, Council may charge and recover a fee for any service it provides.

This Ruling addresses the GST treatment of supplies made by Council in relation to enforcement activities, essential services, provision of information, use of professional and staff time and works services for which particular fees and charges are imposed. The following table sets out the GST treatment.

In this Ruling: • when we indicate a fee or charge relates to a taxable supply under section 9-5, we assume that all of the requirements of section 9-5 have been met and that the supply is not otherwise GST-free or input taxed under other provisions of the GST Act; and • if a fee or charge is not consideration for a supply and is not subject to GST by virtue of Division 81, it is referred to as being 'exempt'.

Subsection 7-1(1) provides that GST is payable on taxable supplies. As such, Council is liable to pay the GST payable on any taxable supply it makes. Section 9-5 states: 9-5 Taxable supplies You make a taxable supply 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. 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 in section 195-1)

As Council is registered for GST and makes supplies in carrying on its enterprise in Australia, the issue that arises under section 9-5 is whether such supplies are supplies for consideration.

Section 9-39 provides special rules in relation to making taxable supplies. In particular, item 8 in the table in section 9-39 provides that where there is a payment of taxes, fees and charges the special rules in Division 81 may apply.

Section 81-5 considers the effect of the payment of a tax. It states: 81-5 Effect of payment of tax Australian tax not consideration (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 tax. Regulations may provide for exceptions (1) However, a payment you make, or a discharging of your liability to make a payment, is treated as the provision of *consideration to the extent the payment is an *Australian tax that is, or is of a kind, prescribed by the regulations. (2) For the purposes of subsection (2), the *consideration is taken to be provided to the entity to which the tax is payable, for a supply that the entity makes to you.

The term 'Australian tax' is defined in section 195-1 as: Australian tax means a tax (however described) imposed under an *Australian law.

'Tax' is not defined in the GST Act. However, the following is the usual description of a tax, as cited in the High Court case of Roy Morgan Research Pty Ltd v. CMR of Taxation [2011] HCA 35 (Roy Morgan), as per Latham CJ in Matthews v. Chicory Marketing Board (Vict ) (1938) 60 CLR 263. .....a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered ...

The above description includes the words 'not a payment for services rendered'. It was discussed in Air Caledonie International v. Commonwealth (1988) 165 CLR 462 that in order to be classified as a fee for service rather than a tax, the fee or charge must be exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment.

Apart from recoveries of rates or payments in the nature of rates, none of the payments, or the discharging of a liability to make such payments, as detailed in the table commencing on page 5 are a tax.

Sections 81-10 and 81-15 consider the effect of certain fees and charges and state: 81-10 Effect of payment of certain fees and charges Certain fees and charges not consideration (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). Prescribed fees and charges treated as consideration (1) However, a payment you make, or a 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. (2) 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. Fees or charges paid for permissions etc . (1) 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). Fees or charges relating to information and record-keeping etc . (1) This subsection covers a fee or charge paid to an *Australian government agency if the fee or charge relates to the agency doing any of the following: (a) recording information; (b) copying information; (c) modifying information; (d) allowing access to information; (e) receiving information; (f) processing information; (g) searching for information. 81-15 Other fees and charges that do not constitute consideration The regulations may provide that the payment of a prescribed *Australian fee or charge, or of an Australian fee or charge of a prescribed kind, or the discharging of a liability to make such a payment, is not the provision of *consideration.

The term 'Australian fee or charge' is defined in section 195-1 as: Australian fee or charge means a fee or charge (however described), other than an Australian tax, imposed under an *Australian law and payable to an *Australian government agency.

The term 'Australian law' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) and relevantly includes a State law. It includes acts and law making powers which are delegated by parliaments, such as regulations, by-laws, proclamations and orders made under Acts.

The term 'Australian government agency' is defined in section

995-1 of the ITAA 1997 and means: • the Commonwealth, a State or Territory; or • an authority of the Commonwealth or of a State or a Territory.

For the purposes of this Ruling it is accepted that Council comes within the definition of Australian government agency.

Division 81 gives effect to the principles contained in the Intergovernmental Agreement on Federal Financial Relations (Intergovernmental Agreement). Payments of taxes are exempt from the GST. Payments of fees and charges generally constitute consideration and if the requirements of section 9-5 are satisfied, the payment is for a taxable supply. Some supplies are excluded and are exempt. Division 81 provides for Regulations that prescribes payments that constitute consideration for a supply and, conversely, prescribe payments that are otherwise taxable as being a fee or charge that does not constitute consideration.

Regulation 81-10.01 of the GST Regulations sets out those fees and charges that do not fall within the principles contained in the Intergovernmental Agreement, and therefore supplies to which they relate are not intended to be exempt from GST. These fees or charges include a fee for the non-regulatory provision of information and a payment for a commercial sale of books by a government bookshop. These fees or charges are treated as consideration for a taxable supply if the other conditions of section 9-5 are met.

Regulation 81-10.01 of the GST Regulations also ensures that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 are satisfied.

The ES explains that the regulations ensure that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 are satisfied. It states: Fees and charges in this category are not excluded from being consideration for a taxable supply. This is consistent with the National Competition and Consumer Policy guidelines and ensures that a government entity is not given a competitive advantage over a private sector supplier making the same type of supply. This covers situations in which government agencies have authorised private agencies to perform activities that form part of a regulatory process, for example, certification activities which are required for a regulatory process to be followed. Where government agencies, as well as government certifiers, have authorised private certifiers to perform certification activities these fees and charges will continue to be consideration for a supply that is subject to GST. This ensures competitive neutrality between supplies made by government and non-government agencies. This paragraph applies only where a government agency is providing a supply in a competitive market, or where private suppliers have been accredited or authorised to make a supply over which the agency would otherwise have a monopoly. This paragraph does not cover supplies of information that are regulatory in nature and can only be supplied by government agencies, notwithstanding that the public may obtain such information through a private sector supplier acting as a conduit for the information from the government agency. The supply is only a taxable supply where the private sector entity charges for the supply in its own right.

Regulation 81-15.01 of the GST Regulations sets out those fees and charges that are prescribed for section 81-15 and which do not constitute consideration. Because these fees and charges do not constitute consideration, the supplies to which they relate, if any, do not satisfy the requirements of section 9-5 and are not taxable supplies.

Those prescribed include a fee or charge imposed on an industry to finance regulatory or other government activities connected with the industry and a fee or charge for a supply of a regulatory nature made by an Australian government agency.

However, sub-regulation 81-10.01(2) of the GST Regulations provides that despite sub regulation 81-10.01(1), a fee or charge, the payment of which is covered by subsections 9-17(3) or (4), which are about payments made by government related entities to another government related entity, and the payment is specified in regulations made for this purpose, is not the provision of consideration.

If a fee or charge is covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations, regulation 81-15.02 of the GST Regulations determines which regulation would prevail.

Subregulation 81-15.02(2) of the GST Regulations provides that the paragraphs under Regulation 81-10.01 would prevail and the fee would constitute consideration for a supply.

The following comments and explanation refer to particular groups of items in the table on pages 4 to 24 of this Ruling.

Generally, the payments received in relation to enforcement of regulatory functions are regulatory in nature and exempt from GST under paragraphs 81-15.01 (1)(d) or (f) of the GST Regulations as fees or charges imposed to compensate an Australian government agency for costs incurred in undertaking regulatory activities or for a supply of a regulatory nature. The applications of the GST to specific payments are detailed in this Ruling.

Fees or charges for essential services include those levied to recover costs imposed by another government agency (for example, for mandatory fire safety reports or health related inspections to enable Council to grant a business licence or occupation certificate for building development).

These fees are for services that are regulatory in nature. The consideration paid for a service that is regulatory in nature is exempt under section 81-15 and paragraph 81-15.01(1)(d) or (f) of the GST Regulations.

Under subsection 81-10(5) a payment, or the discharging of a liability to make a payment, is not the provision of *consideration to the extent the payment is a fee or charge paid to an *Australian government agency if the fee or charge relates to the agency doing any of the following: (a) recording information; (b) copying information; (c) modifying information; (d) allowing access to information; (e) receiving information; (f) processing information; or (g) searching for information.

The term 'information' is not defined in the GST Act and takes its ordinary meaning. The Macquarie Dictionary Online provides the following relevant meanings: 1. knowledge communicated or received concerning some fact or circumstance; 2. knowledge on various subjects, however acquired; and 3. the act of informing.

Where an Australian government agency charges a fee for supplying or accepting information in any form such as paper, electronic, disk etc. the fee will be exempt from GST under subsection

81-10(5).

Where an Australian government agency charges a fee to a third party for supplying to the public information prepared by the third party, the payment is exempt under subsection 81-10(5) if it relates to the agency allowing access to information.

Councils use internal or external professionals to carry out certain activity. The activity may be a solicitor preparing a lease for a supply of land or a scientist to perform an analysis of material samples to aid a regulatory investigation.

In some cases the Council may require a business owner to meet the cost of the activity or it may be included in the fee for an application. An individual may have a choice to provide a professionally prepared document or meet the cost of the Council obtaining it.

An administration fee for Council processing professionally-prepared advice or documents will be exempt under GST Regulation 81-15.01 if the activity is regulatory in nature.

A fee charged for council officers to provide a service that is not of a regulatory nature will be consideration for a supply.

A council may impose a fee or agree a charge for works carried out on private or council land.

Where the works are carried out on private land (such as works provided under section 67 of the Local Government Act 1993), the owner of the land is the recipient of the works. The payment by the owner of the land is consideration in connection with the supply of the works. Assuming the requirements of section 9-5 are satisfied, the payment is consideration for a taxable supply.

Payments of inspection fees for works carried out on private or public land are fees or charges imposed to finance regulatory activity or for a supply of a regulatory nature. The consideration paid for a service that is regulatory in nature is exempt under section 81-15 and paragraphs 81-15.01(1) (c), (d) or (f) of the GST Regulations.

The following New South Wales Acts were considered in preparing this ruling: • Environmental Planning and Assessment Act 1979 (NSW) (EPAA Act) • Food Act 2003 (NSW) • Government Information (Public Access) Act 2009 (NSW ) ( GIPA ) • Local Government Act 1993 (NSW) (LG Act) • Privacy and Personal Information Protection Act 1998 (NSW ) • Protection of the Environment Operations Act 1997 (NSW) • Road Transport (General) Act 2005 (NSW) • Roads Act 1993 (NSW) • State Emergency Services Act 1989 (NSW) • Water Management Act 2000 (NSW)

Section 220 of the LG Act states: 220 Legal status of a council 1. A council is a body politic of the State with perpetual succession and the legal capacity and powers of an individual, both in and outside the State. 2. A council is not a body corporate (including a corporation). 3. A council does not have the status, privileges and immunities of the Crown (including the State and the Government of the State). 4. A law of the State applies to and in respect of a council in the same way as it applies to and in respect of a body corporate (including a corporation).

Chapter 7 of the LG Act relates to the regulatory functions of Councils. The introduction to this Chapter states: Chapter 7 - What are the regulatory functions of Councils? The major regulatory functions of Councils are found in this Chapter. It lists the activities that are regulated and it sets out the means of their regulation. A Council, in relation to a range of activities within its area, exercises regulatory functions of 2 main kinds. First--various activities can only be carried out if the Council gives its approval (for example, the operation of a caravan park). Some of these approvals may also be granted as part of the development consent process under Part 4 of the Environmental Planning and Assessment Act 1979 . Second--a Council can order a person to do, or to stop doing, something (for example, a Council can order a person to keep fewer animals on specified premises). Failure to obtain or to comply with an approval and failure to comply with an order are made offences under sections 626, 627 and 628. A Council is not given power to regulate activities by other means. For example, the Chapter does not confer power to require a person to hold a periodic licence. In exercising its regulatory functions, the Council must observe any relevant statutory criteria and any other criteria contained in a local policy it may have adopted after public consultation.

Part 1 of Chapter 7 of the Local Government Act 1993 details the activities that require the approval of council. These are: A. Structures or places of public entertainment 1. Install a manufactured home, moveable dwelling or associated structure on land. B. Water supply, sewerage and stormwater drainage work 1. Carry out water supply work; 2. Draw water from a council water supply or a standpipe or sell water so drawn; 3. Install, alter, disconnect or remove a meter connected to a service pipe; 4. Carry out sewerage work; 5. Carry out stormwater drainage work; and 6. Connect a private drain or sewer with a public drain or sewer under the control of a council or with a drain or sewer which connects with such a public drain or sewer. C. Management of waste 1. For fee or reward, transport waste over or under a public place; 2. Place waste in a public place; 3. Place a waste storage container in a public place; 4. Dispose of waste into a sewer of the council; 5. Install, construct or alter a waste treatment device or a human waste storage facility or a drain connected to any such device or facility; and 6. Operate a system of sewage management (within the meaning of section 68A). D. Community land 1. Engage in a trade or business; 2. Direct or procure a theatrical, musical or other entertainment for the public; 3. Construct a temporary enclosure for the purpose of entertainment; 4. For fee or reward, play a musical instrument or sing; 5. Set up, operate or use a loudspeaker or sound amplifying device; and 6. Deliver a public address or hold a religious service or public meeting. E. Public roads 1. Swing or hoist goods across or over any part of a public road by means of a lift, hoist or tackle projecting over the footway. 2. Expose or allow to be exposed (whether for sale or otherwise) any article in or on or so as to overhang any part of the road or outside a shop window or doorway abutting the road, or hang an article beneath an awning over the road. F. Other activities 1. Operate a public car park; 2. Operate a caravan park or camping ground; 3. Operate a manufactured home estate; 4. Install a domestic oil or solid fuel heating appliance, other than a portable appliance; 5. Install or operate amusement devices; 6. Use a standing vehicle or any article for the purpose of selling any article in a public place; and 7. Carry out an activity prescribed by the regulations or an activity of a class or description prescribed by the regulations.

Under Part 10 of Chapter 15 of the Local Government Act 1993 Councils are authorised to charge and recover an approved fee for applications for approvals they provide.

Part 2 of Chapter 7 of the Local Government Act 1993 authorises a council to order a person to do or to refrain from doing a thing. The orders a council may give under the Local Government Act 1993 include: 1. Orders requiring or prohibiting the doing of things to or on premises; 2. Orders requiring that premises be used or not used in specified ways; 3. Orders requiring the preservation of healthy conditions; 4. Orders requiring the protection or repair of public places; and 5. Orders requiring compliance with approval.

Councils are authorised to charge fees in relation to the issue of such notices. The fees cover the costs incurred in performing compliance work and inspections.

Chapter 15 of the Local Government Act 1993 (LG Act) relates to how Councils are financed. A Council may, in accordance with Chapter 15 of the LG Act, obtain income from. • rates • charges • fees • grants • borrowings and • investments

Under Part 10 of Chapter 15 of the LG Act, Councils are authorised to charge and recover an approved fee for any service they provide. Section 608 of the LG Act states: 608 Council fees for services (1) A council may charge and recover an approved fee for any service it provides, other than a service provided, or proposed to be provided, on an annual basis for which it is authorised or required to make an annual charge under section 496 or 501. (2) The services for which an approved fee may be charged include the following services provided under this Act or any other Act or the regulations by the council: • supplying a service, product or commodity; • giving information; • providing a service in connection with the exercise of the council's regulatory functions-including receiving an application for approval, granting an approval, making an inspection and issuing a certificate; and • allowing admission to any building or enclosure. (3) In particular, a council may charge an approved fee for inspecting premises that are reasonably required to be inspected in the exercise of the council's functions, whether or not the inspection is requested or agreed to by the owner or occupier of the premises. (4) However, a council may not charge an approved fee for the inspection of premises that are not used for a commercial activity, except where it is necessary to inspect the premises in connection with an application for an approval concerning the premises or in connection with any inspection that is reasonably necessary to determine if an approval has been complied with. (5) If inspections of premises are reasonably necessary to determine if an approval has been complied with: (a) an approved fee may be charged for such an inspection only if the charging of the fee has been included as a condition of the approval, and (b) an approved fee may not be charged for such an inspection before the approval is granted, and (c) an approved fee may not be charged for the inspection of any thing for which the council relies on a certificate under section 93 that the thing has been done in compliance with the approval. (6) An approved fee charged for inspecting premises must be repaid to the person who paid it if the inspection is not carried out. (7) An approved fee charged in connection with a service provided at an airport established and maintained by the council may be recovered from the holder of the certificate of registration issued under the Civil Aviation Regulations of the Commonwealth for the aircraft in respect of which the service was provided. This subsection applies whether or not the holder is the person to whom the service is actually provided.

Under section 496, a council must make and levy an annual charge for the provision of domestic waste management services for each parcel of rateable land for which the service is available.

Under section 501, a council may make an annual charge for the following services: • water supply services • sewerage services • drainage services • waste management services (other than domestic waste management services); and • any services prescribed by the regulations

In determining the amount of a fee for a service, a Council must take into consideration the following factors: (a) the cost to the council of providing the service, (b) the price suggested for that service by any relevant industry body or in any schedule of charges published, from time to time, by the Department of Local Government, (c) the importance of the service to the community, and (d) any factors specified in the regulations.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provisions 2 Class of entities 3 Qualifications 5 Date of effect 9 Scheme 10 Ruling 18 Appendix 1 - Explanation 20 Division 81 23 Australian tax 23 Australian fees and charges 28 Australian law 30 Australian government agency 31 GST Regulations 33 Australian fees and charges that constitute consideration 34 Australian fees and charges that do not constitute consideration 37 Australian fees and charges covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations 40 Enforcement of regulatory functions, essential services, provision of information, professional time, staff time and works 42 Enforcement of regulatory functions 43 Essential services 44 Provision of information 46 Professional time 50 Staff time 53 Works 54 Appendix 2 - Legislative References 57 Appendix 3 - Detailed contents list 69