Generally, a supply of water and a supply of sewerage services are GST-free. However, the GST provisions relating to water and sewerage contain various conditions that first need to be met to qualify for GST-free treatment. It is also necessary to clarify the precise supplies being made, as depending on the terms of the arrangement, not all supplies will qualify as GST-free.
By way of illustration, Councils may collaborate with surrounding water and sewerage authorities — whether other local councils or government-owned entities — to deliver essential services. A common arrangement involves transporting bulk and/or transporting sewerage for treatment. This raises an important question: Are these services GST-free, or are they taxable supplies?
Under section 38-285(1) of the GST Act, the supply of water is generally GST-free. However, this exemption does not apply if the water is supplied in containers with a capacity of less than 100 litres (see s. 38-295(2) and paragraph 15 of GSTR 2000/25).
Where bulk water is transported in quantities exceeding 100 litres, the GST treatment depends on the nature of the supply:
This distinction is clarified in paragraphs 61 to 65 of GSTR 2000/25, which emphasise the need to identify whether the transport is bundled with the water supply or provided as a standalone service. For ease of reference we have included this extract below, highlighting relevant comments:
Fees charged for supplies
61. Suppliers of water, sewerage services and storm water draining services impose various fees and charges as consideration for or in connection with supplies that they make. These fees and charges may be for, or in connection with, the supplies referred to in Subdivision 38-I or for, or in connection with, separate supplies that are not GST-free.
62. It is important to recognise that the description of the fee or charge, by itself, may not be conclusive in determining the nature of any particular supply. However, the method of fee calculation can provide positive guidance in some situations as to whether or not a fee or charge is consideration for a GST-free supply.
63. Where a GST-free and a taxable supply are charged for in the one fee, the supplier needs to separate out the fees for the taxable supply. For example, where there is a GST-free supply of water, together with a supply of purification chemicals for a single price, the supplier needs to separately identify the price charged for the chemicals. This contrasts with a supply of water by delivery by road vehicle if the cost of the transport of that water is part of the supplier’s obligations under the contract of supply. In the first case, two distinct supplies are made. In the latter case, the consideration paid by the recipient for the supply of the water includes the transport of the water.
64. However, where the delivery of water is clearly not one of the obligations of the supplier under the contract for a supply of water, this shows that a separate transport or delivery fee is not being included as an input to the business of supplying water. The recipient is being separately charged for the supply of the transport service which is not GST-free.
65. Where an entity makes a supply that is not covered by Subdivision 38-I, the cost to that entity of acquiring a Subdivision 38-I supply becomes a business cost. The Subdivision 38-I supply cannot be passed on to the recipient of the supply as a GST-free supply. For example, a supplier of commercial accommodation cannot attribute a portion of the value of the supply to the supply of water. The supplier is not supplying water, but commercial accommodation. One of the inputs to the business of supplying the accommodation is the cost of the supply of water.
Section 38-290(1) of the GST Act provides that a supply of sewerage services is GST-free. Section 38-290(2) outlines that the removal of waste matter from residential premises not serviced by sewers is also GST-free, provided the waste is of a kind typically removed via sewers.
In the context of transporting sewerage – for example, from other entities to Council for treatment – the GST treatment again hinges on the nature of the supply:
Where the Council is engaged solely for transport, it is acting as a subcontractor, and the supply is not a GST-free supply of sewerage services – it would be a taxable supply.
Again for ease of reference we have included paragraphs 42 and 44 from GSTR 2000/25 below:
42. A sewerage service includes a service of accepting and treating sewage and waste water at a sewage treatment plant. However, this does not include accepting and treating toxic waste that cannot be accepted into the sewerage system.
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44. A supply of a sewerage service does not include supplies made to enable the end recipient to collect, direct the flow of, store, or transfer waste water or refuse to the point where it is accepted into a supplier’s network.
To determine the correct GST treatment, entities should:
While the general proposition is that a supply of water and a supply of sewerage services is GST-free, care needs to be taken to understand the precise supplies being made as well as whether the specific conditions in the relevant GST provisions are met. The ATO rulings, in this case GSTR 2000/25, also provide useful guidance.
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