ATO ID 2006/340: GST and whether a sublease of real property is a long-term lease
Date of decision: 15 December 2006
Business line: Indirect Tax

Issue
For the purposes of the definition of 'long term lease' in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), are the terms of a sublease substantially the same as those under which the supplier held the real property?

Decision
No. For the purposes of the definition of 'long term lease' in section 195-1 of the GST Act, the terms of the sublease are not substantially the same.

Facts
The supplier is registered for goods and services tax (GST) and is not an Australian government agency. The supplier leases an area of real property (the head lease) from an Australian government agency. Under the terms of the head lease, the supplier: Subsequent to entering into the head lease, the supplier constructed a block of residential units on the real property and granted subleases over the individual units to other parties. Under the terms of each sublease, the sublessee:

Reasons for decision
Summary: A 'long-term lease' is defined in section 195-1 of the GST Act as a supply by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) for at least 50 years if: Whether, for the purposes of paragraph b) of the definition, the terms of a sublease applying to the sublessee are substantially the same as those for the supplier under the head lease is a question of fact and degree in each particular case. Consideration needs to be given to matters such as: A comparison of the sublease here with the head lease indicates the terms of each lease are not substantially the same. The amount of rental payable, the way it is worked out and paid, the area of property leased, and how the leased property can be used are all significantly different. While the period of occupancy for the head lease (in perpetuity) may be said to be substantially the same as the sublease (99 years with an option for further 99 years), all the other essential terms are not substantially the same. As the supplier is not an Australian government agency, and paragraph b) of the definition is not satisfied, the sublease is not a long term lease.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Related public rulings and determinations: Taxation Determination TD 2000/45
Related ATO interpretative decisions: ATO ID 2006/113 | ATO ID 2001/635
Subject references: Agreements spanning 1 July 2000 Goods and services tax GST input tax credits & creditable acquisitions GST lease and real property GST long term lease GST property & construction GST real property GST residential premises GST transitional issues Time of supply/acquisition