Guidelines on Goods and Services Tax and termination fees
June 2014
Guidelines on Goods and Services Tax and termination fees
These guidelines are published by the Australian Competition and Consumer Commission (ACCC) to assist Irrigation Infrastructure Operators (IIOs) to charge Goods and Services Tax (GST) on termination fees in compliance with the Water Charge (Termination Fees) Rules 2009 and the Australian Consumer Law. These guidelines do not cover when IIOs can charge GST on termination fees under the Australian tax law.
These guidelines are for guidance purposes only and do not constitute legal advice. They should be read with the ACCC publication A guide to the water charge (termination fees) rules, available on the ACCC’s website: www.accc.gov.au/water.
The ACCC is responsible for monitoring and enforcing compliance with the Water Charge (Termination Fees) Rules under the Water Act 2007 (Cth). The ACCC is also responsible for enforcing the Australian Consumer Law under the Competition and Consumer Act 2010 (Cth).
Exclusion of GST from the calculation of maximum termination fee
The Water Charge (Termination Fees) Rules set out a methodology for calculating the maximum termination fee an IIO can charge a terminating irrigator. Specifically, the IIO must not charge an amount that exceeds the total network access charge (TNAC) multiplied by 10 (or a lesser amount specified in a contract or arrangement between the irrigator and the IIO).[1]
The Water Charge (Termination Fees) Rules permit only GST exclusive amounts to be used in calculating the TNAC.[2]
Adding GST to termination fees
Under the Australian tax law, GST may apply to termination fees levied by an IIO. In such circumstances, the Water Charge (Termination Fees) Rules allow the IIO to increase the total amount of the termination fee by an amount of GST.[3]
The Australian Tax Office publishes information on its website which explains when to charge GST: www.ato.gov.au. The ACCC encourages IIOs to seek independent legal or financial advice if they are unsure whether they should charge GST on the termination fees they levy.
Presentation of GST on schedule of charges
To ensure compliance with the Australian Consumer Law, an IIO that charges a termination fee to which GST applies should state the GST-inclusive indicative termination fee on their schedule of charges.
The Australian Consumer Law is a national law that aims to protect consumers and ensure fair trading in Australia. The Australian Consumer Law prohibits misleading or deceptive conduct.[4] An IIO that charges a termination fee to which GST applies but does not quote a GST-inclusive indicative termination fee on their schedule of charges may mislead irrigators to believe that the termination fee they will pay upon termination will be less than it actuallyis.
[1] r. 7(1) of the Water Charge (Termination Fees) Rules.
[2] r. 3 of the Water Charge (Termination Fees) Rules.
[3] r. 7(2) of the Water Charge (Termination Fees) Rules.
[4] s. 18 of the Australian Consumer Law.