Private ruling: GST and outgoings and other costs payable under a commercial property lease
Published: April 2013

Ruling: Q1: Are you liable for GST in respect of outgoings paid by the tenant or reimbursed to you by the tenant under the terms of a commercial property lease? | A1: Yes | Q2: Are you liable for GST in respect of other costs paid by the tenant or reimbursed to you by the tenant under the terms of a commercial property lease? | A2: Yes

Relevant facts and circumstances: You are registered for GST. You own commercial properties and carry on a business of leasing those commercial properties. Under the lease agreement, certain outgoings in relation to the properties are required to be paid by the tenant. The outgoings in relation to question 1 specifically relate to land taxes, council rates and water rates The tenant either directly pays the relevant authority in respect of the outgoings or if paid by you, reimburses you on demand. Under the terms of lease, certain other costs in relation to the properties must also be paid by the tenant. The tenant either directly pays the relevant authority in respect of the other costs or if paid by you, reimburses you on demand.

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 Division 81

Reasons for decision: Summary: Section 7-1 of the GST Act provides that GST is payable on taxable supplies. A supply is a taxable supply if it meets all the requirements of section 9-5 of the GST Act. 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. Based on the information you have provided, the lease of the commercial premises to the tenants is subject to GST as all the requirements of section 9-5 of the GST Act are met. 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 GSTB 2000/10 provides that a supply of premises under a commercial lease together with the services required by the tenant to use the premises will be a single supply of real property subject to paragraph 5 of the Determination. Paragraph 5 states: 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. Under the terms of the agreement the tenant must pay the outgoings, specifically land tax, council rates and water supplies to the relevant authorities or if paid by you, reimburse you on demand. Based on the terms of the lease agreement, the outgoings would form part of the supply of the premises. The outgoings are not a separate supply and they are not in addition to the supply of the premises. The supply of the premises together with the outgoings the tenant is required to pay to use the premises, are a single supply of real property. The exceptions referred to in paragraph 5 of GSTD 2000/10 relate to outgoings that are in addition to the premises or separate from the supply of the premises such as typing or photocopying services. The terms of the lease agreement make it clear that the tenant must pay the rent on the premises and all outgoings whether those outgoings are paid directly to the relevant authorities or if paid by you, reimbursed to you on demand. The payment by you of the land tax, council rates and water rates may not be subject to GST because of the operation of Division 81 of the GST Act, however the reimbursement by the tenant of your expenses as required under the terms of the lease will be consideration for the supply of the premises and as such will be subject to GST. Paragraph 8 of GSTD 2000/10 states: Payment by the landlord of local council rates, land tax or water 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 on an 'Australian tax, fee or charge' F5 listed in the determination made by the Treasurer under subsection 81-5(2) of the GST Act, this is not the 'payment of [an] Australian tax, fee or charge' by the tenant and Division 81 does not apply to the tenant's reimbursement of the rates, land tax or other charges. When the tenant pays the land tax, council rates and water rates directly to the relevant authorities, the payment will be consideration for the supply of the premises and as such will be subject to GST. Paragraph 9 of GSTD 2000/10 states: 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. Whether the lease agreement deals with the payment of the rent or the outgoings under separate clauses is irrelevant. Also irrelevant is the fact that the tenant may make those payments separately, at different times or on demand. The supply of the leased premises, together with the outgoings the tenant must paid under the terms of the lease to use the premises, is a single supply of real property. The outgoings, whether paid directly to third parties or reimbursed to you, are consideration for the single supply of the premises and thus subject to GST. Paragraph 3 of the Determination 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. F3 Therefore the landlord is liable for GST on the outgoings whether paid to the landlord or directly to a third party. The tenant is also required to pay other costs to use the premises. It is clear from the terms of the lease agreement that the other costs, to be paid by the tenant or reimbursed to you if paid by you, form part of the supply of the leased premises. As explained in question 1, the other costs are not a separate supply and they are not in addition to the supply of the premises. The supply of the leased premises together with the other costs the tenant is required to pay to use the premises, are a single supply of real property. Paragraph 6 of the Determination states in part: 6. Other obligations imposed under the lease for the tenant to reimburse the landlord, or pay costs for which the landlord is liable, will also form part of the consideration for the supply of the premises. Examples are insurance, promotional levies, and reimbursement of the landlord's costs of repairs and maintenance…. Whether the lease agreement deals with the payment of the rent and the other costs under separate clauses is irrelevant. Also irrelevant is the fact that the tenant may make those payments separately, at different times or on demand. As the lease of the commercial premises and the other costs are a single supply, the other costs will also be subject to GST. As the supply of the leased premises, together with the other costs required to be paid by the tenant to use the premises are a single supply of leased premises, the other costs, whether paid directly to third parties or reimbursed to you, are consideration for the supply of the premises and thus subject to GST. Paragraph 3 of the Determination 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. F3 Therefore the landlord is liable for GST on the outgoings whether paid to the landlord or directly to a third party.