ATO Interpretative Decision

ATO ID 2001/524 (Withdrawn)

Goods and Services Tax

GST and the surrender of the right to lease a commercial premise
FOI status: may be released

This ATO ID is a straight application of the law and does not contain an interpretative decision.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, the lessee of commercial premises, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it surrenders the lease.

Decision

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it surrenders its lease.

Facts

The entity is the lessee of commercial premises. The entity agrees to surrender its lease, thereby releasing the lessor from its obligations under the lease. The lessor of the commercial premises pays the entity a lump sum, which is a payment to the entity for releasing the lessor from its obligations under the lease.

The entity is registered for goods and services tax (GST). The transaction is made in the course or furtherance of an enterprise carried on by the entity in Australia.

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

•: it makes a supply for consideration; and
•: the supply is made in the course or furtherance of an enterprise that the entity is carrying on; and
•: the supply is connected with Australia; and
•: the entity is registered or required to be registered.

The existence of a 'supply' is an essential element in determining whether the transaction is a taxable supply under section 9-5 of the GST Act.

Section 9-10 of the GST Act discusses the meaning of the word 'supply' for GST purposes. Paragraph 9-10(2)(e) of the GST Act provides that a supply includes a creation, grant, transfer, assignment or surrender of any right. In addition, paragraph 9-10(2)(g) of the GST Act provides that a supply includes a release from an obligation to do anything.

In this case, the entity is surrendering its right under the lease and in so doing, the entity is also releasing the lessor from its obligations under the lease. Accordingly, the entity is making a supply under section 9-10 of the GST Act.

The lessor of the commercial premise has paid the entity a lump sum, which is a payment to the entity for surrendering the lease. This satisfies the requirement under section 9-5 of the GST Act that the supply must be made for consideration.

The entity is registered for GST and the transaction is a 'supply' that satisfies all of the requirements of section 9-5 of the GST Act. Furthermore, the supply is neither

GST-free under Division 38 of the GST Act, nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it surrenders the lease.

Date of decision: 16 August 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   section 9-10
   paragraph 9-10(2)(e)
   paragraph 9-10(2)(g)
   Division 38
   Division 40

Keywords
Goods & services tax
GST supplies & acquisitions
GST consideration
GST supply
Taxable supply

Business Line: GST

Date of publication: 26 October 2001

ISSN: 1445-2782

history

	Date:	Version:
	16 August 2001	Original statement
You are here	9 December 2005	Archived

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