Edited version of private ruling

Authorisation Number: 1011581738293

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Ruling

Subject: goods and services tax (GST)

Question 1

Do you make a taxable supply to a Sub-Lessee:

(a) when you execute a Deed of Variation of Sub-lease (Variation Deed)

(b) when you give the Sub-Lessee a notice, or

(c) when you execute the Surrender of Lease form and Lease form?

Answer

No.

Question 2

If the Sub-Lessee is registered for GST and uses leased to it in the course of carrying on an enterprise, do you make a creditable acquisition:

(a) when you execute the Variation Deed

(b) when you give the Sub-Lessee a notice, or

(c) when you execute the Surrender of Lease form and Lease form?

Answer

No.

Question 3

If there is a taxable supply in any of the circumstances set out Question 1, what is the consideration for that supply?

Answer

Not Applicable.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for GST and account for GST on an accruals basis.

You operate an enterprise under a Head Lease.

You, as the Sub-Lessor, have entered into Sub-Leases. A copy of a Sub-Lease was provided to the ATO.

The Sub-Lease provides that in consideration for the payment of the Lease Rental (previously determined by the ATO as being in the nature of a lease premium for the grant of the Sub-Lease) you will sub-lease to the Sub-Lessee subject to the terms and conditions contained in the Sub-Lease.

The Sub-Lease provides that, in addition to the Lease rental, the Sub-Lessee is also required to pay to you their proportion of the Statutory charges and Operating expenses incurred by you.

The Sub-Lease provides that any variation to any of the provisions of the Sub-Lease must be in writing and signed by all of the parties.

To enable flexibility you propose to vary the current Sub-Leases by entering into Variation Deeds with each of the Sub-Lessees. A copy of the proposed Variation Deed was provided to the ATO.

New clause of the Sub-Lease provides that if you consider it necessary to meet your obligations and it is approved by a resolution of your members, you can give a notice to a Sub-Lessee.

No further amounts of Lease Rental are required to be paid by the Sub-Lessee.

When you exercise the powers given to you, you and the Sub-Lessee will be required, to register a Surrender of Lease form and a Lease Form.

In an email, you confirmed that no money is proposed to be paid by either you or the Sub-Lessee when any of the following steps are taken:

§ when the Variation Deed is executed

§ when you give the Sub-Lessee a notice, or

§ when the Surrender of Lease form and Lease form are executed.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

You are not making a taxable supply when you execute the Variation Deed, the Surrender of Lease form and the Lease form because there is no consideration being received for these supplies.

You are also not making a taxable supply when you give the Sub-Lessee a notice because there is no supply being made for GST purposes.

Detailed reasoning

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

§ you make the supply for consideration

§ the supply is made in the course or furtherance of an enterprise that you carry on

§ the supply is connected with Australia, and

§ you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

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.

The word 'supply' is defined in section 9-10 of the GST Act as 'any form of supply whatsoever' and includes:

§ a creation, grant, transfer, assignment or surrender of any right, and

§ an entry into, or release from, an obligation to do anything.

In this case, you are proposing to enter into a Variation Deed with each of the Sub-Lessees. Even though this Variation Deed does not change the essential rights and obligations under the original terms and conditions of the Sub-Lease, there is still a supply for GST purposes. This is because when the Variation Deed is executed you will have entered into a legal obligation to do something.

In addition, when you execute the Surrender of Lease form and the Lease form there is a transfer of rights. Furthermore, in executing these forms you are also being released from your obligations and entering into an obligation. Accordingly, you are making a supply for GST purposes when you execute both the Surrender of Lease form and the Lease form.

However, there is no supply for GST purposes when you give a Sub-Lessee a notice. This is because, when the notice is given, there is nothing passing from you to the Sub-Lessee. Instead, there is just an expectation that at some point in the future there will be a change. As outlined in Goods and Services Tax Ruling GSTR 2006/9, the creation of expectations alone does not establish a supply. As there is no supply for GST purposes, you cannot make a taxable supply when you give the Sub-Lessee a notice.

In respect to the supplies made on the execution of the Variation Deed, the Surrender of Lease form and the Lease form, for paragraph 9-5(a) of the GST Act to be satisfied these supplies must be made for consideration.

For GST purposes, the term 'consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance, in connection with, in response to or for the inducement of the supply of anything.

New clause of the Sub-Lease provides that no further amounts of Lease Rental are required to be paid by the Sub-Lessee.

In addition, in an email, you have confirmed that no money is proposed to be paid by either you or the Sub-Lessee when the Variation Deed is executed or when the Surrender of Lease form and Lease form are executed.

Furthermore, there is no evidence of any act or forbearance or which is being used to induce you or the Sub-Lessee to execute these documents. That is, all of the other rights and/or obligations under the Sub-Lease have not changed.

As there is no consideration being received for your supplies, you are not making a taxable supply when you execute the Variation Deed, the Surrender of Lease form and the Lease form.

Question 2

Summary

You are not making a creditable acquisition when you execute the Variation Deed, the Surrender of Lease form and the Lease form for those Sub-Lessees that are registered for GST and use in the course of carrying on an enterprise because there is no consideration being paid for the acquisitions from the Sub-Lessees.

You are also not making a creditable acquisition when the Sub-Lessee receives a notice because there is no supply and thus, no acquisition being made for GST purposes.

Detailed reasoning

Under section 11-5 of the GST Act, you make a creditable acquisition if:

§ you acquire anything solely or partly for a creditable purpose

§ the supply of the thing to you is a taxable supply

§ you provide, or are liable to provide, consideration for the supply, and

§ you are registered or required to be registered for GST.

The term 'acquisition' is defined in section 11-10 of the GST Act as 'any form of acquisition whatsoever' and includes:

§ an acceptance of a grant, transfer, assignment or surrender of any right, and

§ an acquisition of a right to require another person to do anything.

In conceptual terms the definition of acquisition mirrors the definition of supply in section 9-10 of the GST Act. In this way, whenever there is a supply there will be an acquisition and vice versa.

Therefore, to determine whether you are making a creditable acquisition from your GST registered Sub-Lessees, there is a precondition that there is a supply being made to you by them.

In this case, when the Sub-Lessee executes the Variation Deed, the Sub-Lessee is making a supply of entering into a legal obligation to do something and as a result of this supply, you are acquiring from the Sub-Lessee a right requiring them to do something which is the acceptance of the terms of the Variation Deed.

In addition, when the Sub-Lessee executes the Surrender of Lease form, the Sub-Lessee is effectively surrendering its right and in doing this, the Sub-lessee is also releasing you from your obligations. When this occurs, you are acquiring or being granted by the Sub-Lessee a right.

Furthermore, when the Sub-Lessee executes the Lease form, there is the creation of a right and the entering into of obligations by the Sub-Lessee. Conversely, you are acquiring from the Sub-Lessee a right requiring them to do something which is the execution of the Lease form.

However, for similar reasons as those outlined in Question 1, there is no supply for GST purposes being made by the Sub-Lessees and thus, no acquisition by you when the Sub-Lease receives a notice. That is, the creation of expectations among the parties does not, in itself, necessarily establish a supply for GST purposes.

Therefore, based on the information provided, all of the Sub-Lessees (not just those that are registered for GST) are making supplies for GST purposes, which in turn are acquisitions to you, when they execute the Variation Deed, the Surrender of Lease form and the Lease form. However, it is only those Sub-Lessees that use in an enterprise which is registered for GST that may make an acquisition to you which is a creditable acquisition.

As stated above, to be a creditable acquisition, the acquisition must satisfy all of the requirements of section 11-5 of the GST Act. One of these requirements is that you provide, or are liable to provide, consideration for the supply being made to you (that is, the acquisition).

For GST purposes, the term 'consideration' is defined in subsection 9-15(1) of the GST Act to include any payment, act or forbearance, in connection with, in response to or for the inducement of the supply of anything.

The facts show that, there is nothing in the Variation Deed that specifies that you are to make any form of payment to the Sub-Lessee.

In addition, in an email, you have confirmed that no money is proposed to be paid by either you or the Sub-Lessee when the Variation Deed is executed or when the Surrender of Lease form and Lease form are executed.

Furthermore, there is no evidence of any act or forbearance or which is being used to induce you or the Sub-Lessee to execute these documents. That is, all of the other rights and/or obligations under the Sub-Lease have not changed.

Therefore, as you have not provided any consideration, nor are you liable to provide any consideration, for the supplies made to you by the Sub-Lessees, paragraph 11-5(c) of the GST Act is not satisfied.

In addition, as there is no supply being made for consideration there cannot be a taxable supply even if the Sub-Lessee is registered for GST. As such, paragraph 11-5(b) of the GST Act is also not satisfied.

Therefore, you are not making a creditable acquisition when you and the GST registered Sub-Lessees execute the Variation Deed, the Surrender of Lease form and the Lease form.

Question 3

As there is no taxable supply being made in any of the circumstances set out Question 1, this question has not been addressed.

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