ATO Interpretative Decision
ATO ID 2006/340
Goods and Services Tax
GST and whether a sublease of real property is a long-term leaseFOI status: may be released
Status of this decision: Decision Current
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
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:
- •
- holds the real property in perpetuity
- •
- is required to pay an annual fixed amount of lease rental, and
- •
- is entitled to use the real property for development and business purposes.
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:
- •
- holds the unit for a period of 99 years with an option for a further 99 years
- •
- is required to pay an annual rental of a nominal sum plus an amount of contribution towards the operating costs incurred by the sublessor (that is, the supplier), and
- •
- is only entitled to use the unit for residential purposes.
Reasons for Decision
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:
- (a)
- at the time of the lease, hire or licence, or the renewal or extension of the lease, hire or licence, it was reasonable to expect that it would continue for at least 50 years, and
- (b)
- unless the supplier is an Australian government agency - the terms of the lease, hire or licence, or the renewal or extension of the lease, hire or licence, as they apply to the recipient are substantially the same as those under which the supplier held the premises.
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:
- •
- the amount of rental payable and how it is worked out or is to be paid
- •
- the area of real property subject of the lease
- •
- the period of occupancy, and
- •
- conditions governing the use or occupancy of the property.
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.
Date of decision: 15 December 2006
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 195-1
Related Public Rulings (including Determinations)
Taxation Determination TD 2000/45
ATO ID 2006/113
ATO ID 2001/635
Keywords
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
ISSN: 1445-2782
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