Goods and services tax: GST treatment of waste management services supplied by NSW councils

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 • Division 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 Association of New South Wales (NSW) and the Shires Association of 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 9 to 19 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on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled, and • may be withdrawn or modified.

This Ruling applies from the 26 August 2015 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. This ruling replaces CR 2013/19, which is withdrawn under section 358-20 of Schedule 1 to the Taxation Administration Act 1953 with a date of effect the same as the 26 August 2015. 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.

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

By force of section 220 of the Local Government Act 1993 (NSW) (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 waste management services (WMS) under sections 496, 501 and 502 of the LG Act. [1] Additionally, under subsection 608(1) of the LG Act, Council may charge and recover a fee for any service it provides.

Under section 496 of the LG Act, Council must make and levy charges for domestic WMS.

The term 'domestic waste management services' is defined in the Dictionary in the LG Act as: 'domestic waste management services' means services comprising the periodic collection of domestic waste from individual parcels of rateable land and services that are associated with those services.

Under subsection 496(2), section 502 or subsection 608(1) of the LG Act, Council may levy charges for domestic WMS according to the actual use of the service. These situations include where: • the ratepayer requests an additional waste 'pick up' • Council agrees to provide a WMS to non-rateable land, such as, Crown land, school, church manse or police residence, or • Council agrees to provide a WMS to properties outside their normal service area (sometimes called scavenging area).

Council may provide WMS for non domestic customers, for example, shops, factories and office buildings. In some areas the private sector is competing with Council for the provision of these services. Council charges for WMS to non domestic customers are made under either section 501, 502 or subsection 608(1) of the LG Act.

Once the ratepayer has requested a WMS and Council has decided to provide and charge for this service, then the ratepayer is liable to pay the charge under section 561 of the LG Act. Any debt is then subject to enforcement procedures by law.

Council may also provide other services in relation to waste. These are: • WMS provided within the grounds of apartment block complexes • the supply, exchange or removal of bins or crates used in connection with the kerbside collection of waste • a one off fee for changing a smaller kerbside bin to a larger one or vice versa • removing a kerbside bin from a council's footpath (after a period of 48 hours since waste collection) and placement of that bin within the relevant property • the occasional kerbside 'council clean up' for larger items, such as, whitegoods, furniture and mattresses that are not normally taken in the regular weekly or fortnightly WMS • WMS to a collection point where a group of rural landowners take their domestic waste to a common area for pick up • an application and renewal fee for listing on a council's approved list of private waste removal companies in relation to construction and demolition waste. The provider receives a discounted rate to a waste disposal site when on the approved list, and • fees and charges in relation to waste disposal sites, garbage tips and refuse transfer stations. These include: - general, recycling and green waste - rural waste facility access cards, and - issuing of new or replacement keys to waste disposal sites.

This Ruling addresses the GST treatment of the supply of WMS by Council on or after 1 July 2015.

Under section 81-15 and by virtue of regulation 81-15.01 of the GST Regulations, certain fees and charges are exempt [2] from GST. These include fees and charges for supplies of: • the kerbside collection of waste [3] or the supply, exchange or removal of bins or crates used in connection with the kerbside collection of waste, and • a regulatory nature made by an Australian government agency. [4]

The following are examples of supplies of the kerbside collection of waste (domestic or non-domestic) that are exempt from GST due to paragraph 81-15.01(1)(a) of the GST Regulations: • where a base fee for kerbside waste service availability is charged • additional 'pick ups' of kerbside waste • kerbside waste collection provided to properties outside the normal service area • WMS to a collection point where a group of rural landowners take their domestic waste to a common area, that is not a waste disposal facility, for pick up • the supply, exchange or removal of bins or crates used in connection with the kerbside collection of waste • changing a smaller kerbside bin to a larger one or vice versa • removal of waste from a house on Crown land, school, church manse or police residence • removing a kerbside bin from Council footpath (after a period of 48 hours since waste collection) and placement of that bin within the relevant property, and • the occasional kerbside 'Council clean up' for larger items, such as, whitegoods, furniture and mattresses that are not normally taken with the regular weekly or fortnightly WMS.

An example of a supply that is exempt from GST because it is of a regulatory nature is where the respective fee or charge is for an application or renewal for listing on Council's approved list of private waste removal companies in relation to construction and demolition waste.

There are certain supplies to which Division 81 does not have an effect and therefore are not excluded from being for consideration by virtue of Division 81. These supplies need to be considered against the general rules in section 9-5 to determine if they are taxable. Examples of supplies of waste management services that are taxable supplies where the requirements of section 9-5 are satisfied are: • services in relation to waste disposal sites, garbage tips and refuse transfer stations. These include: - general, recycling and green waste - rural waste facility access cards, and - issuing of new or replacement keys to waste disposal sites.

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; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with the indirect tax zone; 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 provides WMS in carrying on its enterprise in Australia, the issue that arises under section 9-5 is whether such services 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 (2) 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. (3) 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. Federal Commissioner of Taxation (2011) 244 CLR 97, as per Latham CJ in Matthews v. Chicory Marketing Board (Victoria) (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.

The relevant sections of the LGA, namely sections 496, 501, 502 and subsection 608(1) use the words 'levying', 'charges', 'services', 'service to that land' and 'fee' in relation to WMS. A payment to Council of a charge for a WMS is for an identified service provided. For this reason, we do not consider a payment, or the discharging of a liability to make payment, for a WMS to be a tax.

In contrast, a payment of ordinary rates satisfies the definition of a 'tax' as it is not for services rendered to the ratepayer. The activities of council of maintaining roads and parks, and the infrastructure of the council area are of benefit to anyone living in or visiting the council area, i.e. to the world at large.

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 (2) 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. (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. Fees or charges paid for permissions etc. (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). Fees or charges relating to information and record-keeping etc. (5) 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. Therefore, the LG Act is an Australian law.

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.

Where a fee or charge does not constitute consideration because of subsection 81-10(1) as a result of being a fee or charge covered by subsections 81-10(4) or (5), the operation of subsection 81-10(2) will make a fee or charge constitute consideration if it is prescribed by regulation 81-10.01 of the GST Regulations. Paragraph 81-10.01(1)(d) of the GST Regulations prescribes that a fee for the use of a waste disposal facility is consideration.

Where a fee or charge is not exempt as a result of the application of subsection 81-10(1) it still may be exempt if it is prescribed under regulation 81-15.01 of the GST Regulations which sets out those fees and charges that are prescribed for section 81-15 and which do not constitute consideration. One of these is the kerbside collection of waste or the supply, exchange or removal of bins or crates used in connection with kerbside collection of waste. Waste includes green waste and recyclables.

The ES states the following in relation to fees and charges for the kerbside collection of waste: Fees and charges for kerbside collection of waste Item [4] - paragraph 81-15.01(1)(a) and subregulation 81-15.01(2) This paragraph and subregulation ensure that fees and charges for the kerbside collection of waste are not treated as the provision of consideration, and therefore do not give rise to a taxable supply under Division 81. Kerbside waste collection fees are often, but not always, covered by general council rates. It is intended that all fees and charges for kerbside collection of waste are not consideration for a supply, so that these services are exempt from GST. This is regardless of whether the fees paid in relation to the service are compulsory or optional as kerbside collection of waste is a basic activity of local government. Kerbside collection includes a regular waste collection service conducted by an Australian government agency where, for practical reasons, the waste must be collected from inside the property boundary of the ratepayer, such as a waste service for residents of a high-rise residential complex. However, additional waste collection undertaken by a commercial entity is not considered to be kerbside collection even though it may be collected from the kerbside in some circumstances. Examples of Australian fees and charges that will fall within this paragraph include, but are not limited to: • Fees for kerbside collection of green waste as part of the normal kerbside waste collection stream; • Fees for supply, exchange or removal of bins or crates used in connection with kerbside waste, including recyclables; and • Fees for removal of waste from high rise residential apartments where residents have paid for this on their rates notice.

Another fee or charge that is prescribed for section 81-15 by virtue of regulation 81-15.01 of the GST Regulations is a fee or charge for a supply of a regulatory nature made by an Australian government agency.

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. However, for regulation 81-10.01 to apply the fee or charge must first be covered by subsections 81-10(4) or (5). Fees and charges such as the kerbside collection of waste or for the supply exchange or removal of bins or crates used in the connection with the kerbside collection of waste, where they can also be made by private suppliers, are not covered by regulation 81-10.01 as they are not covered by subsections 81-10(4) or (5).

Sections 496, 501, 502, 560 and subsection 608(1) of the LG Act state: 496 Making and levying of annual charges for domestic waste management services (1) 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. (2) A council may make an annual charge for the provision of a domestic waste management service for a parcel of land that is exempt from rating if: (a) the service is available for that land, and (b) the owner of that land requests or agrees to the provision of the service to that land, and (c) the amount of the annual charge is limited to recovering the cost of providing the service to that land. 501 For what services can a council impose an annual charge? (1) A council may make an annual charge for any of the following services provided, or proposed to be provided, on an annual basis by the council: • water supply services • sewerage services • drainage services • waste management services (other than domestic waste management services) • any services prescribed by the regulations. (2) A council may make a single charge for two or more such services. (3) An annual charge may be levied on each parcel of rateable land for which the service is provided or proposed to be provided. 502 Charges for actual use A council may make a charge for a service referred to in section 496 or 501 according to the actual use of the service. 561 Who is liable to pay charges? The person liable to pay a charge is: (a) the person who, if the charge were a rate and if the land on which the charge is levied were rateable in respect of that rate, would be liable under section 560 to pay the rate, or (b) the Crown in respect of land owned by the Crown, not being land held under a lease for private purposes. 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.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provision(s) 2 Class of entities 3 Qualifications 5 Date of effect 8 Scheme 9 Ruling 20 Appendix 1 - Explanation 25 Division 81 28 Fees and Charges 34 Fees and charges that constitute consideration 39 Fees and charges that do not constitute consideration 40 Fees and charges covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations 43 Appendix 2 - Legislative references 44 Appendix 3 - Detailed contents list 45