• Property and Construction Industry Partnership - issues register - section 16 - security and other deposits

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    Issue Number Index Date

    16

    Security and other deposits

    16.1

    What is the GST treatment of Security Deposits?

    09/04/01

    16.2

    What is the GST treatment of Deposits not subject to Division 99 of the GST Act?

    30/05/2013

    16.3

    Is a deposit paid under a standard land contract subject to Division 99 of the GST Act?

    09/04/01

    16.4

    Does Division 99 of the GST Act apply to rental bonds paid under commercial leases?

    18/10/02 (a)

    'the GST Act'

    A New Tax System (Goods and Services Tax) Act 1999

    'the GST Regulations'

    A New Tax System (Goods and Services Tax ) Regulations 1999

    'the Transition Act'

    A New Tax System (Goods and Services Tax Transition) Act 1999

    'the Transition Regulations'

    A New Tax System (Goods and Services Tax Transition) Regulations 2000

    Relevant Determination

    GSTD 2000/1External Link Goods and services tax: is the scope of Division 99 of the A New Tax System (Goods and Services Tax) Act 1999 limited to holding deposits?

    Relevant Rulings

    GSTR 2000/28External Link Goods and services tax: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract

    Relevant sections

    Division 99 'Deposits as Security' of the GST Act

    16.1 What is the GST treatment of security deposits?

    For source of ATO view, refer to paragraphs 7–9 of GSTR 2006/2External Link - Goods and services tax: deposits held as security for the performance of an obligation.

    ATO position

    GSTR 2006/2External Link deals with the scope of Division 99 of the GST Act which provides a special rule about attribution for security deposits. A security deposit is an amount paid by the recipient of a supply pursuant to an agreement whereby the deposit may be forfeited by the recipient to the supplier if the recipient defaults. Section 99-5 of the GST Act provides that a deposit held as security for the performance of an obligation is not treated as consideration for a supply unless the deposit is forfeited on default or is applied as all or part of the consideration for a supply. As a result you do not account for GST or input tax credits when a deposit to which the Division applies is received or provided. The supplier accounts for the GST payable in the tax period in which the deposit is forfeited, or all or part of the deposit is applied as consideration for the supply. The recipient accounts for input tax credits in the tax period in which the deposit is forfeited or the supplier applies the deposit as all or part of the consideration for a supply.

    16.2 What is the GST treatment of deposits not subject to Division 99 of the GST Act?

    For source of ATO view, refer to GSTR 2006/2External Link - Goods and services tax: deposits held as security for the performance of an obligation.

    ATO position

    Where an amount of money represents a part payment or an instalment towards the purchase price of the product it will not be a payment to which Division 99 of the GST Act applies. Paragraphs 31 to 36 of GSTR 2006/2External Link gives an example of such a transaction. Example 2 illustrates the situation in which a purchaser pays $100 of the purchase price upon delivery with the balance being paid in one months time. The first payment is clearly understood by both parties to be a part payment of the agreed purchase price and not a forfeitable deposit. Division 99 of the GST Act does not apply to this payment.

    16.3 Is a deposit paid under a standard land contract subject to Division 99 of the GST Act?

    For source of ATO view, refer to:

    • GSTR 2000/28External Link - Goods and services tax: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract
    • GSTR 2006/2External Link - Goods and services tax: deposits held as security for the performance of an obligation.

    ATO position

    The GST treatment of deposits paid under a standard land contract is discussed in ruling GSTR 2000/28External Link. Division 99 of the GST Act applies to a deposit paid under a standard land contract. As a result, the payment of such a deposit will not trigger attribution of GST payable or input tax credits at the time the deposit is paid. This is the case if you account for GST on a cash basis or if you do not account for GST on a cash basis. Where a vendor makes a taxable supply upon a deposit being forfeited the vendor will attribute the GST payable to the tax period during which the deposit is forfeited. This applies if the vendor accounts for GST on a cash basis or if the vendor does not account for GST on a cash basis. Where a purchaser makes a creditable acquisition upon a deposit being forfeited, and holds a tax invoice, the purchaser attributes the input tax credit to the tax period during which the deposit is forfeited. This applies if the purchaser accounts for GST on a cash basis or if the purchaser does not account for GST on a cash basis.

    16.4 Does Division 99 of the GST Act apply to rental bonds paid under commercial leases?

    For source of ATO view, refer to GSTR 2006/2External Link - Goods and services tax: deposits held as security for the performance of an obligation.

    ATO position

    Yes, if the bond is paid as a security deposit for the lessee to perform all its obligations under the lease. See also Issue 10.4.5.

    • Last modified: 30 Jun 2013QC 16498