Private ruling: GST and application of GST
Date of advice: 15 November 2018
Published: February 2019

Ruling: Q1: Are the amounts payable to you in relation to the following fees and charges (outgoings) by a Lessee under a lease for a supply of land and/or buildings ( Premises) subject to GST: ● water connection fees ● water (base and volumetric use) charges ● sewerage access charges ● cleansing charges (including additional cleansing) ● garbage collection charges (including additional collections), and ● fire levy? | A1: Yes, the outgoings payable by the Lessee to you form part of the consideration for a single taxable supply of Premises regardless of whether they are separately invoiced by you. As such, the outgoings are subject to GST and you are liable to remit GST in relation to those payments.

Relevant facts and circumstances: You are registered for GST. You are a ‘local government’ for the purposes of a State Local Government Act that can impose rates and charges on land and for a service, facility or activity that is supplied or undertaken by you. The services supplied by you in relation to which such rates and charges can be imposed may or may not be taxable supplies, in accordance with the relevant provisions of the A New Tax System (Goods and Services Tax) Act 1999 . You own or control Premises in your area that you lease to Lessees for a fee. Your supply of Premises to the Lessee under the lease is a taxable supply. In your capacity as lessor of the Premises, in addition to rent, the following outgoings in respect of the Premises that are to be paid by the Lessee (in accordance with the terms of the lease) are invoiced separately by you: ● water connection fees ● water (base and volumetric use) charges ● sewerage access charges ● cleansing charges (including additional cleansing) ● garbage collection charges (including additional collections), and ● fire levy. Outgoings invoiced to the Lessee by you in your capacity as lessor of the Premises are for a supply that is separate from a supply of services by you in relation to which you can impose rates and charges in your capacity as a local government. The lease provides for the leasing of the Premises subject to the covenants and conditions contained in the Schedule attached to the lease.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-15 | A New Tax System (Goods and Services Tax) Act 1999 Division 81

Reasons for decision: Summary: All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise stated. | Detailed Reasoning - Rent payable under the lease agreement: Section 7-1 provides that GST is payable on taxable supplies. A supply is a taxable supply if it meets all the requirements of section 9-5. The requirements of a taxable supply are that: (a) the supply is made for consideration (b) the supply is made in the course or furtherance of an enterprise that the supplier carries on (c) the supply is connected with Australia, and (d) the supplier is registered or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Under section 9-15, the term ‘consideration’ is broadly defined as including any payment, or any act or forbearance, ‘in connection with’, ‘in response to’ or ‘for the inducement’ of a supply. Based on the information you have provided, rent payable under the lease is consideration for your supply of Premises made in the course of your enterprise. As such, the lease of the Premises to the Lessee is subject to GST as all the requirements of section 9-5 are met. | Detailed Reasoning - Outgoings: Goods and Services Tax Determination 2000/10 (GSTD 2000/10) deals with outgoings payable by tenants under a commercial property lease and whether such outgoings are part of the consideration for a supply of the premises. Paragraph 1 of GSTD 2000/10 provides that a supply of premises under a lease together with the services required by the tenant to use the premises will, subject to paragraph 5, be a single supply of real property for the purposes of the GST Act. Under section 195-1, ‘real property’ is defined as including ‘a licence to occupy land or any other contractual right exercisable over or in relation to land’. Where a single supply is made, the reimbursement or payment of the landlord’s outgoings is consideration for the supply of the premises. Paragraph 5 of GSTD 2000/10 states: 5. Whether a single supply or multiple supplies are made under a lease will depend on the nature of the supply and the terms of the individual agreement. There may be services referred to as outgoings which are provided to the tenant in addition to the premises and which are separate from the supply of the premises. For example, if the landlord makes a supply of office services such as typing and photocopying and makes a discrete charge for this supply based on the tenant's use of the services, this is a supply which is separate from the supply of the premises. If a payment is for a service that would normally be expected to form part of the supply of the premises and is merely incidental to the supply of the premises, then that payment will be for the supply of the premises. This means, if a payment is for a service that would normally be expected to form part of the supply of the Premises and is merely incidental to the supply of the Premises, then that payment will be for the supply of the Premises as a single supply. In your case, the outgoings payable by the Lessee form part of a single supply of Premises you provide to the Lessee under the lease agreement. The provision of those services in connection with the outgoings is only incidental to your supply of real property. The payment that the Lessee makes to you constitutes further consideration for your supply of Premises for the purposes of section 9-15. Therefore, the payment is consideration for a single supply of real property you make to the Lessee under the lease. | Detailed Reasoning - Supply to landlord is not a taxable supply: As it has been established above that you are making a single supply for consideration, it is next necessary to examine whether the supply is GST-free or input taxed. Paragraphs 7 to 10 of GSTD 2000/10 discuss circumstances where the supply to the landlord is not a taxable supply, including where the supply is a GST-free supply of water and sewerage services under Subdivision 38-I or exempt under Division 81, and state: | Detailed Reasoning - Supply to landlord is not a taxable supply: 7. If a single supply is made under the lease we do not consider that the payment of outgoings by the tenant is a payment for a supply that has the same character as the supply made by a third party to the landlord. The payment is made by the tenant for the supply by the landlord of the premises and not for the particular supply made to the landlord to which the outgoings relates. Therefore if the landlord is making a taxable supply, it will not matter whether the outgoing, when incurred by the landlord, was a taxable supply to the landlord. For example, the landlord's cost of acquiring a GST-free supply in order to supply the premises becomes a business cost of the landlord. This has implications where the supply made to the landlord is not subject to GST (e.g., because of Division 81 of the GST Act) or is a GST-free supply (e.g., because of Subdivision 38-I of the GST Act). | Detailed Reasoning - Supply to landlord is not subject to GST: 8. Payment by the landlord of local council rates, land tax or other charges may not be subject to GST because of the operation of Division 81. If the tenant is required under the terms of the lease to reimburse the landlord's expenditure of an Australian tax or an Australian fee or charge under Division 81 of the GST Act, this is not the payment of an Australian tax or an Australian fee or charge by the tenant. Division 81 of the GST Act does not apply to the tenant's reimbursement of the rates, land tax or other charges. 9. If the tenant makes payment directly to the entity levying the tax, fee or charge, this payment will be consideration for the supply of the premises not payment for a supply that the entity levying the tax, fee or charge makes to the tenant. Therefore Division 81 does not apply to payments for the supply by a landlord under a lease and the payment of the tax, fee or charge by the tenant forms part of the consideration for the supply of the premises. | Detailed Reasoning - Supply to landlord is GST-free: 10. Supplies of water and sewerage services to the landlord may be GST-free. Where the supply under the lease to the tenant involves an incidental provision of water this will not be a supply of water for the purposes of the GST Act. Unless the lease agreement specifies that the landlord will make a separate supply of water to the tenant, any contribution by the tenant to the landlord's expenditure on water will not be consideration for a GST-free supply of water. Where a single supply is made by the landlord, the amount payable by the tenant in respect of water or sewerage will be subject to GST if the supply of the premises is a taxable supply. As such, regardless of whether the outgoings for which you are liable as landlord of the Premises are not a taxable supply or GST-free, the payment of outgoings by the Lessee is not a payment for a supply that has the same character as the supply made to you. The outgoings payable are made essentially for your supply of the Premises and not for the particular supply made to you to which the outgoings relate. As such, the payment of the outgoings to you is part of the consideration for your taxable supply of Premises to the Lessee. It does not carry the same character as the supply made to you (e.g. GST-free or not subject to GST). Whether the lease deals with the payment of the rent and the outgoings under separate clauses or they are invoiced separately is irrelevant. As the lease of the Premises and the outgoings forms a single taxable supply, the outgoings are subject to GST. | Detailed Reasoning - Conclusion: The supply of Premises, involving outgoings payable by the Lessee under the terms of the lease to use the Premises, is a single supply of real property. The outgoings invoiced separately by you as the lessor are consideration for the supply of the Premises and are subject to GST. Paragraph 3 of GSTD 2000/10 states: If the supply of premises is a taxable supply, GST is payable on the value of the supply. The value of a supply of premises is equal to the GST-exclusive consideration for the supply of the premises. Therefore the landlord is liable for GST on the outgoings whether paid to the landlord or directly to a third party. Accordingly, you are liable to remit GST in respect of the outgoings invoiced separately by you to the Lessee because the outgoings paid form part of the consideration for your taxable supply of Premises.