Water Charge (Termination Fees) Amendment Rules 2011

Administered by Department of the Environment and Energy

Legislation au F2011L00270 Rules Not in force Legislative Instrument

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EXPLANATORY STATEMENT

 

Water Act 2007

 

Water Charge (Termination Fees) Amendment Rules 2011

 

Background

 

The Water Charge (Termination Fees) Rules 2009 (termination fee rules), made under the Water Act 2007 (Water Act) and applicable in the Murray-Darling Basin, were made in June 2009 and came into force on 1 September 2009.

 

Termination fees provide a contribution from irrigators who terminate access to an irrigation infrastructure operator’s network to the ongoing costs of maintaining the infrastructure. The termination fee rules specify the circumstances under which an operator can impose a termination fee on an irrigator, and the level at which the fee can be set. The rules set the maximum termination fee at 10 times the annual total network access charge the irrigator pays to the operator for access to its network.

 

It has recently become clear that Goods and Services Tax (GST) will apply to termination fees. The termination fees rules are currently silent on the imposition of GST to recover the GST liability associated with the revenue received from the imposition of the termination fee. The lack of an express provision in the termination fees rules regarding GST means that it is uncertain whether an operator can increase the termination fee above the 10 times multiple to recover the cost of the GST.

 

To ensure compliance with the termination fee rules, operators would in effect need to impose a termination fee of approximately nine times the total network access charge and then add the GST component. This is contrary to the policy intent underlying the termination fees rules.

 

Purpose of the Amendment Rules

 

Water charge rules must contribute to achieving the Murray-Darling Basin water charging objectives and principles set out in Schedule 2 of the Water Act 2007 (Water Act), which are based on best practice water pricing agreements under the NWI. Water charging objectives broadly seek to:

a)      promote the economically efficient and sustainable use of water resources, water infrastructure assets and government resources devoted to the management of water resources;

b)     ensure sufficient revenue streams to allow efficient delivery of the required services;

c)      facilitate the efficient functioning of water markets;

d)     give effect to the principle of user-pays and achieve pricing transparency in respect of water storage and delivery in irrigation systems and cost recovery for water planning and management; and

e)      avoid perverse or unintended pricing outcomes.

 

 

The rule amendments will allow, where an operator faces a GST liability on termination fees, for the operator to impose a termination fee in excess of the 10 times multiple to recover the cost of the GST liability. As termination fees are calculated as a multiple of the network access charges, the rule amendments also ensure GST can not be recovered twice if the network access charges are ever considered as taxable.

 

By allowing operators to impose a termination fee in excess of the 10 times multiple to recover the cost of the GST liability, the rule amendments will ensure a reasonable balance between providing incentives for efficient investment in irrigation and on-farm infrastructure, rationalisation and water trade and will contribute to promoting the economically efficient and sustainable use of water infrastructure assets.

 

Terminating irrigators will be able to claim GST levied on termination fees as a business input tax credit, providing they are registered for GST and the GST claim is related to their business activities.

 

Authority

 

Subsection 92(1) of the Water Act provides that the Minister for Sustainability, Environment, Water, Population and Communities may make water charge rules, which relate to regulated water charges. Regulated water charges include charges for termination fees.

 

The Amendment Rules relate only to regulated charges for termination fees, and do not apply to charges in respect of urban water supply activities beyond the point at which the water has been removed from a Murray-Darling Basin water resource.

 

Details of the Rules are set out in the Attachment.

 

Process

 

The process for making rule amendments is set out in section 93 of the Water Act. In particular, section 93 requires the Minister to ask the Australian Competition and Consumer Commission (ACCC) for advice about rule amendments the Minister proposes to make and to have regard to that advice.

 

Section 93 also provides for regulations to set out the detailed process that the Minister must follow in making rule amendments. The Water Regulations 2008 set out this detailed process. Regulation 4.02 sets out the process the Minister must follow in requesting the ACCC’s advice.

 

The Minister requested the ACCC’s advice in May 2010. At the same time the Minister requested the ACCC to provide draft amendments as part of its advice. The ACCC provided its final advice to the Minister in June 2010.

 

Consultation

 

Under regulation 4.05 of the Water Regulations 2008 (Regulations), the Minister must undertake consultation on draft rule amendments unless the Minister is satisfied that the ACCC has already undertaken the required consultation.

 

The ACCC released draft advice and draft amendments for public comment in May 2010 before finalising its advice. Two submissions were received and both supported the amendments.

 

Under the Regulations, the Minister must also undertake further consultation if draft rule amendments, in the Minister’s opinion, are not substantially the same as those provided by the ACCC. The rule amendments are substantially the same as the draft rule amendments which the ACCC provided to the Minister together with its advice.

 

Other

 

Further explanatory material is available in final advice on an amendment to the Water Charge (Termination Fees) Rules, June 2010 provided by the ACCC and available at www.environment.gov.au/water.

 

The Amendment Rules are a legislative instrument for the purpose of the Legislative Instruments Act 2003.

 

The Amendment Rules commence on the day after they are registered.


ATTACHMENT

 

DETAILS OF THE WATER CHARGE (TERMINATION FEES) AMENDMENT RULES 2011.

 

  1. Name of Rules

Rule 1 provides that the title of the Rules is the Water Charge (Termination Fees) Amendment Rules 2011.

 

2.      Commencement

Rule 2 provides that the Rules commence on the day after they are registered.

 

3.      Amendment of the Water Charge (Termination Fees) Rules 2009

Rule 3 sets out the schedule to amend the Water Charge (Termination Fees) Rules 2009.

 

Schedule

 

Part 1, Rule 3, Definitions – The definition of “total network access charge” is amended to exclude any amount of Goods and Services Tax (GST) from the calculation of the charge. This is so that GST can not be added to the network access charge, prior to calculation of the termination fee, ensuring GST can not be recovered twice.

 

Part 3, Rule 7, Calculation of termination fee – This rule is amended to include a second sub-rule, to provide that where GST is payable in respect of a taxable supply relating to the termination or surrender of the whole or part of a right of access, the termination fee may be increased by an amount not exceeding the GST payable in respect of that taxable supply. This applies to circumstances where termination fees may be imposed under Rule 6, or determined under a contract referred to in Rule 7(1) paragraph (b).

Overview

The Water Charge (Termination Fees) Amendment Rules 2011 were enacted to address the issue of Goods and Services Tax (GST) applicability to termination fees, which had not been expressly addressed in the Water Charge (Termination Fees) Rules 2009. The Water Charge (Termination Fees) Rules 2009, made under the Water Act 2007, were designed to provide a contribution from irrigators who terminate access to an irrigation infrastructure operator's network towards the ongoing costs of maintaining the infrastructure. However, the lack of an express provision regarding GST meant it was uncertain whether an operator could increase the termination fee above the 10 times multiple to recover the cost of the GST. This uncertainty was contrary to the policy intent of the termination fees rules. The Amendment Rules allow operators to impose a termination fee in excess of the 10 times multiple to recover the cost of the GST liability, ensuring a balance between efficient investment in irrigation and on-farm infrastructure and promoting the economically efficient and sustainable use of water infrastructure assets. The rules were made by the Minister for Sustainability, Environment, Water, Population and Communities under the authority of the Water Act 2007 and were subject to consultation with the Australian Competition and Consumer Commission (ACCC), which provided advice and draft amendments. The Amendment Rules aim to contribute to the Murray-Darling Basin water charging objectives and principles, including promoting the economically efficient and sustainable use of water resources and infrastructure.

Scope and Application

The Water Charge (Termination Fees) Amendment Rules 2011 apply to irrigators in the Murray-Darling Basin who terminate their access to irrigation infrastructure, specifically addressing the imposition of termination fees by irrigation infrastructure operators. These rules aim to ensure that operators can recover the Goods and Services Tax (GST) liability associated with termination fees without compromising the policy intent behind the existing termination fee rules. The Amendment Rules operate within the jurisdictional framework of the Water Act 2007, which is a Commonwealth Act, thus extending its reach across the Murray-Darling Basin, a significant water resource area in Australia. The rules explicitly exclude charges for urban water supply activities beyond the point at which the water has been removed from a Murray-Darling Basin water resource. The amendments are crafted to avoid the double recovery of GST by ensuring that the GST is not included in the calculation of the network access charges. The Amendment Rules provide a legislative mechanism for operators to impose a termination fee in excess of the prescribed multiple to recover the cost of the GST liability, thereby aligning with the overarching objectives of promoting efficient and sustainable water use and ensuring transparent water pricing. The Amendment Rules are set to commence on the day after their registration.

Key Provisions

The Water Charge (Termination Fees) Amendment Rules 2011 (the Amendment Rules) make changes to the Water Charge (Termination Fees) Rules 2009 (the Termination Fee Rules) under the Water Act 2007 (the Act). These amendments address the issue of Goods and Services Tax (GST) being applicable to termination fees, which previously led to uncertainty about whether operators could increase the termination fee to cover the GST liability. The key provisions of the Amendment Rules are found in Rule 3, which amends the Termination Fee Rules, and Rule 7, which updates the calculation of the termination fee to include the GST component (Rule 3, Part 1 and Part 3). Under the Amendment Rules, operators of irrigation infrastructure in the Murray-Darling Basin are now permitted to impose a termination fee in excess of the previously stipulated 10 times multiple of the annual total network access charge if they are required to pay GST on termination fees (Rule 3, Part 3). This change ensures that operators can recover the cost of GST without having to impose a fee that exceeds the prescribed multiple and subsequently add GST, which would be contrary to the policy intent of the Termination Fee Rules. Moreover, the Amendment Rules exclude any amount of GST from the calculation of the "total network access charge" to prevent double taxation (Rule 3, Part 1). Irrigators who terminate their access to an irrigation infrastructure operator’s network must now comply with the updated calculation method for termination fees, which allows for the recovery of GST costs (Rule 3, Part 3). Operators must ensure that the termination fee does not exceed the GST payable in respect of the taxable supply related to the termination or surrender of the right of access. This requirement ensures that termination fees are calculated in a manner that aligns with the objectives of the Water Act, including promoting economically efficient and sustainable use of water infrastructure assets. The Amendment Rules do not impose any new criminal or civil penalties for breach. However, operators who fail to comply with the updated termination fee calculation method may face legal challenges from irrigators who argue that the fee is excessive or not properly calculated. Additionally, operators who do not accurately account for GST in the termination fee may face scrutiny from tax authorities, potentially leading to financial penalties or legal action. The Termination Fee Rules themselves do not specify penalties for non-compliance, but operators must ensure their actions align with the overarching objectives of the Water Act and avoid any unintended consequences resulting from incorrect fee calculations.

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.