The short answer is 'Usually, but not always.'
Do You Need to Add GST When Oncharging Water?
The Australian Taxation Office’s (ATO) GST Determination 2000/10, outlines that when GST free expenses like water are oncharged as part of a broader taxable supply, GST must be added. However, confusion arises because water itself is typically GST-free.
Whether a strata company must add GST when oncharging water depends on whether it is acting as an agent or providing a taxable supply.
When the Strata Company Acts as an Agent:
If a strata company acts as an agent for the owners / tenants, the GST treatment reflects the nature of the original supply. Since water is generally GST-free, the strata company does not need to add GST when oncharging in these circumstances.
Indicators of an agency relationship include:
- Submeters are installed, allowing water usage to be accurately measured for each lot.
- Charges are passed on at cost, without markups or discounts.
- Responsibility for payment rests with the owners / tenants, not the strata company.
In these cases, the strata company merely facilitates payment on behalf of the owners or tenants. Clear documentation of the agency arrangement is vital to ensure compliance and support the GST-free treatment.
When the Strata Company Provides a Taxable Supply (ie: No Agency Relationship)
If the strata company is not acting as an agent, water oncharges are treated differently. The ATO considers these charges part of the broader taxable supply of services provided by the strata company, such as common property maintenance or administrative services. Instead of being a GST-free pass-through, water charges become part of the taxable supply.
Examples of non-agency arrangements include:
- Oncharges based on estimates, rather than exact water usage from submeters.
- Allocations made using unit entitlements, which may not reflect actual consumption.
In these scenarios, GST Determination 2000/10 applies. If the strata company is registered for GST, 10% must be added to all oncharged amounts, even though the original supply of water is GST-free.
Considerations for Non-GST-Registered Strata Companies
If a strata company is not registered for GST, water charges can be passed on at cost, regardless of whether an agency relationship exists. However, strata companies should be aware that:
- Water oncharges contribute to GST turnover. Combined with levies and other taxable income, these amounts must remain below the GST registration threshold ($150,000 for not-for-profits).
- Exceeding the threshold triggers GST registration. Once registered, GST must be added to all taxable supplies, including water oncharges.
Quick Takes:
- ATO ruling: GST Determination 2000/10 highlights the need to add GST to oncharges that form part of a taxable supply.
- Agency is key: Submeters and direct cost pass-throughs typically indicate an agency relationship, allowing GST-free oncharging.
- Adding GST: Without an agency relationship, GST must be added if the strata company is registered.
- Non-GST-registered strata: Water can be passed on at cost, but income must stay below the GST threshold to avoid triggering compulsory registration.
For more information, please contact the Ascend office via your strata manager.
Links:
- ATO: GST Determination 2000/10
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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