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Edited version of private ruling
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Ruling
Subject: GST and on-charging
Questions
Is Goods and Services Tax (GST) payable on the payment of a rate notice using the following methods of payment?
· Your tenant receives the rate notice direct from the issuing Authority and pays it direct to the issuing Authority.
· Your tenant receives the rate notice through your property manager and pays it direct to the issuing Authority.
· Your property manager receives a rate notice, forwards it to your tenant, who then pays the managing agent.
· You receive and pay the rate notice, then seek reimbursement from your tenant.
If yes to question 1, who is responsible for paying the GST?
Answers
Yes. GST is payable regardless of the payment method used. It does not matter who provides your tenant with the rate notice or whether your tenant pays the issuing Authority, your property manager or you.
You are responsible for the payment of the GST.
Relevant facts and circumstances
You are registered for GST.
You lease out commercial property.
You use a property manager to manage your commercial property.
Your lease agreement with your tenants provides that a tenant is responsible for the payment of any rates and taxes payable on the property.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) 1999 Division 81
A New Tax System (Goods and Services Tax) 1999 Subsection 81-5(2).
Summary
The payment of the rate notice by your tenant is part of the consideration you receive for your supply of the commercial property and hence, it is you that is liable to remit GST on this payment.
Detailed reasoning
Is GST payable on the payment of a rate notice using the following methods of payment?
Your tenant receives the rate notice direct from the issuing Authority and pays it direct to the issuing Authority.
Your tenant receives the rate notice through your property manager and pays it direct to the issuing Authority.
Your property manager receives a rate notice, forwards it to your tenant, who then pays the managing agent.
You receive and pay the rate notice, then seek reimbursement from your tenant.
The Australian Tax Office's (ATO) view on outgoings payable by a tenant under a commercial property (property) lease is provided by the public determination GSTD 2000/10 (a copy was enclosed).
Paragraphs 5 and 6 of GSTD 2000/10 provide that if a payment is for a service that would normally be expected to form part of the supply of the property and is merely incidental to the supply of the property, then that payment will be for the supply of the property. 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 property.
In your case, your lease agreement provides that your tenant is liable for the payment of all rates and taxes payable on the property. This means that the supply of services related to the property by third parties (such as a local council or state government) is incidental to your supply of the property. Therefore, the payment by your tenant of the rate notice forms part of the consideration for your supply of the property.
Paragraphs 8 and 9 of GSTD 2000/10 further state that 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 of the A New Tax System (Goods and Services Tax) 1999 Act (GST Act). However, if the tenant is required under the terms of the lease to reimburse the landlord's expenditure on an 'Australian tax, fee or charge' 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 of the GST Act does not apply to prevent the tenant's reimbursement of the rates, land tax or other charges from being subject to GST.
This is also the case where 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 and not payment for a supply that the entity levying the tax, fee or charge makes to the tenant. This is because the landlord is liable to pay the rates and taxes to the relevant authority. Therefore, Division 81 of the GST Act does not apply to the 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 a property.
Hence, in accordance with the view provided by these paragraphs in GSTD 2000/10, when your tenant pays the rate notice either to the issuing Authority, to your property manager or to you, the payment is treated as consideration for your supply of the property and not the payment of a tax, fee or charge, and is therefore subject to GST.
If yes to question 1, who is responsible for paying the GST?
As per the discussion for question 1, you would be responsible for the GST payable given that the payment of the rate notice forms part of the consideration for your supply of the property.
The amount of GST payable is equal to 1/11th of the total amount received from your tenant either through them paying the issuing Authority direct or by them paying either your property manager or yourself.
Paragraph 26 onwards of GSTD 2000/10 provides an example of the above discussion.
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