Edited version of your private ruling

Authorisation Number: 1012502103859

Ruling

Subject: GST and acquisition of lease of commercial property

Questions

1. Is the supply of the lease of the commercial property in Australia by the lessor to you a taxable supply for the purposes of paragraph 11-5(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Do you need to apply pay as you go (PAYG) withholding (also known as ABN withholding) to the rent you paid to the lessor as they do not have an Australian business number (ABN) registered under their own name?

Advice

1. Yes, based on the information received the supply of the lease of the commercial in Australia by the lessor to you is a taxable supply for the purposes of paragraph 11-5(b) of the GST Act. The lease payment will include GST and you can claim back the GST paid on the lease provided you hold a valid tax invoice at the time you make the claim.

2. No. Based on the information received, the lessor has an ABN from the Australian Taxation Office (ATO) under the self assessment. In this circumstance you do not need to apply ABN withholding to the rent you paid to the lessor as per Goods and Services Tax Determination GSTD 2000/9 because the real estate agent has provided their ABN and the ABN of the lessor in the tax invoice issued to you.

Relevant facts

You are registered for GST and lease a commercial property in Australia from Company XYZ (lessor) to carry on your business activity. You have provided us with a copy of your lease agreement.

You are aware that Company XYZ is the trustee for two family trusts and Company XYZ has used the ABN of the partnership of the two family trusts in the tax invoice issued to you. The lessor has notified you in writing that they are acting as the trustee for the partnership of the two family trusts which is registered for GST and they do not need an ABN for themselves when leasing the commercial property to you.

You consider you should not pay GST on the rent as the Australian Business Register shows that Company XYZ does not have an ABN and is not registered for GST. You are of the view that Company XYZ is supplying the lease to you in their own right as they are the one that sign the lease agreement.

You have applied ABN withholding to the lease payments made to Company XYZ recently as per ATO's fact sheet 'Statement by a supplier (reason for not quoting an ABN to an enterprise)' and as per advice received during a phone call you made to the ATO when you mentioned that the lessor does not have an ABN.

Originally you paid the rent directly to Company XYZ and now you pay the rent to a Real Estate agent. The tax invoices that the Real Estate agent issued to you have the ABN of the Real Estate agent and the ABN of the lessor.

We have received a copy of the trust deed for the two family trusts and the partnership agreement of the two family trusts which showed Company XYZ as trustee for the two family trusts.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5;

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5; and

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

Reasons for decisions

Question 1

Under section 11-20 of the GST Act an entity is entitled to the input tax credit for any creditable acquisition they make.

Under section 11-5 of the GST Act, an entity makes a creditable acquisition if:

(a) the entity acquires anything solely or partly for a creditable purpose; and

(b) the supply of the thing to the entity is a taxable supply; and

(c) the entity provides, or is liable to provide, consideration for the supply; and

(d) the entity is registered, or required to be registered.

The term creditable purpose is defined in subsection 11-15(1) of the GST Act, which provides that the entity acquires a thing for a creditable purpose to the extent that the entity acquires it in carrying on its enterprise.

However, under subsection 11-15(2) of the GST Act the entity does not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.

From the information received subsection 11-15(2) of the GST Act does not apply to you. We will now consider whether you satisfy all the requirements in section 11-5 of the GST Act.

Applying facts to section 11-5 of the GST Act

From the information received, you satisfy paragraphs (a), (c) and (d) of section 11-5 of the GST Act as you acquire the lease of the commercial property to carry on your business activity and you provide consideration for the lease. Further you are registered for GST.

What needs to be determined is whether the supply of the lease to you is a taxable supply under paragraph 11-5(b) of the GST Act.

Paragraph 11-5(b) of the GST Act

Under section 9-5 of the GST Act, a supply is taxable if:

(a) the entity makes the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia; and

(d) the entity is 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.

Is the supply of the lease to you a taxable supply?

From the information received, the lessor satisfies paragraphs 9-5(a) to 9-5(d) of the GST Act as:

(a) you have a lease contract with the lessor where you agree to pay consideration for the supply of the lease of the commercial property to you by the lessor; and

(b) paragraph 9-20 (1)(c) of the GST Act defines an enterprise as an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Accordingly, the lessor is carrying on an enterprise for GST purposes when leasing the commercial property to you and the supply of the lease is made in the course of the leasing enterprise the lessor is carrying on; and

(c) a supply of lease of commercial property is a supply of property for GST purposes. As the commercial property is located in Australia, the supply of the lease of the commercial property is connected with Australia; and

(d) under section 23-5 of the GST Act an entity must register for GST if they are carrying on a business and their current or projected annual turnover is $75,000 or more ($150,000 for non-profit organisations).

For GST purposes, it is the responsibility of the entity that is carrying on the business activity to determine whether they are required to be registered for GST. Once registered the entity will be liable for GST for any taxable supplies they made and therefore the registered entity is responsible to determine whether their supply is a taxable supply for GST purposes.

The lessor has advised you that they are acting as the Trustee for two family trusts and provided the Trust's ABN in their tax invoice to you. However, you consider that though the lessor is the trustee for the two family trusts the use of the trust's ABN in the tax invoice is not correct as the lessor itself does not have an ABN and is not registered for GST as per information received from the Australian Business Register.

In regard to trust and ABN registration, paragraphs 71 to 73 of Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1 provides assistance to entities in determining their entitlement to an ABN) state the following:

Trustee of a trust or superannuation fund

71. Trusts and superannuation funds are given statutory status as entities in themselves under subsection 184-1(1) of the GST Act. Some superannuation funds are trusts. At law, a trust is not a legal person. It is a collection of rights, duties and powers arising from the relationship to property held by the trustee for the benefit of the beneficiaries. The trust itself cannot be a party to legal proceedings nor have other obligations placed upon it. The trustee is the appropriate party. This is recognised in subsection 184-1(2) which provides that the trustee in that capacity is taken to be the trust entity. Consequently a trust entity is identified both by the trust relationship itself (the trust) and by reference to one of the necessary legal persons to that relationship (the trustee).

72. The Act does not create two separate entities - the trust and trustee - but rather the relevant entity is the trust, with the trustee standing as that entity if legal personality is required. A consequence of this is that there will only ever be one ABN registration for the trust and only one ABN issued irrespective of the number of trustees for the trust.

73. As stated, rights and obligations cannot be placed directly upon a trust. therefore, the trustee is the legal person who may create rights and have obligations in relation to the trust property. The trustee is the legal person who is taken to be the trust entity and holds the ABN for the trust or superannuation fund. In addition the trustee is obliged to meet obligations under the ABN Act such as the obligation to provide information under section 15.

Goods and Services Tax Ruling GSTR 2013/1 sets out information requirements for a tax invoice under subsection 29-70(1) of the GST Act. Paragraph 23 of GSTR 2013/1 states:

23. In the case where the supplier or the recipient is a trust, the identity of the trust must be clearly ascertainable from the document. Information sufficient to identify the trust includes, but is not limited to, a registered business name under which the trust's enterprise is carried on. In some cases, the identity of the trust may be clearly ascertainable if the trustee's name is included on the tax invoice. The Australian business number (ABN) issued to the trust must also be clearly ascertainable from the document.

From the information received, Company XYZ is the trustee for the two family trusts. Further the lessor has notified you in writing that they are acting as the trustee for the partnership of the two family trusts which is registered for GST and they do not need an ABN for themselves when leasing the commercial property to you. The requirement of paragraph 9-5(d) is satisfied as under the self assessment, the lessor has registered for an ABN and GST.

As paragraphs 9-5(a) to 9-5(d) of the GST Act are satisfied, the supply of the lease of the commercial property by the lessor to you is a taxable supply to the extent that the supply is not input taxed or GST-free.

There is no provision under the GST Act that makes the supply of lease for a commercial property input taxed or GST-free. The supply of the lease of the commercial property by the lessor to you is therefore a taxable supply.

In this instance paragraph 11-5(b) of the GST Act is also satisfied and your acquisition of commercial lease from the lessor is a creditable acquisition.

It is noted that even if Company XYZ is making the supply in their own right (which has not been established), paragraph 9-5(d) is satisfied as the information received indicates that they will be required to be registered for GST. The supply of the lease to you will still be a taxable supply.

Summary

The supply of the lease of the commercial property located in Australia by the lessor to you is a taxable supply for the purposes of paragraph 11-5(b) of the GST Act. The lease payments will include GST and you can claim back the GST paid on the lease in your business activity statement provided you hold a valid tax invoice at the time you make the claim.

Question 2

Goods and Services Tax Determination GSTD 2000/9 (available at www.ato.gov.au) is about whether you need to get an ABN for PAYG purposes or register for GST where you let out a residence.

Paragraph 1 and 11 of GSTD 2000/9 state:

1. You are entitled to get an Australian Business Number (ABN) if you are carrying on an enterprise in Australia, if you make supplies connected with Australia in the course of carrying on an enterprise, or if you are a Corporation Law company whether or not you are carrying on an enterprise.

11. If you are carrying on an enterprise, you are entitled to an ABN, but there is no compulsion to get one. However, if you do not have an ABN, there may be Pay As You Go (PAYG) withholding implications.

In regard to the PAYG withholding requirements, paragraphs 12 and 13 of GSTD 2000/9 state the following:

The PAYG withholding requirements

12. An entity (the payer) must withhold an amount from a payment it makes to another entity if the payment is for a supply that the other entity has made in the course or furtherance of its enterprise, unless an exception applies. If you let out a rental property, this could mean that the tenant has to withhold an amount from the rent unless an exception applies. The relevant exceptions are:

(i) the landlord has given the tenant the landlord's ABN, either on a tax invoice or another document relevant to the supply;

(ii) where the supply has been made through an agent, the agent has given the tenant the agent's ABN;

(iii) the payment is made otherwise than in the course or furtherance of an enterprise carried on in Australia by the payer;

(iv) the supply is wholly input taxed. This will apply to the letting of many residential premises (see paragraphs 21 to 25).

13. Many property owners let out their property through agents who will be carrying on an enterprise and will be registered for GST. Where the agent quotes the agent's ABN to the tenant on a tax invoice or another document relating to the supply, the exception in (ii) will apply and there will be no need for the property owner to get an ABN for PAYG purposes. This will apply in relation to both residential and commercial premises.

Miscellaneous Taxation Ruling MT 2000/2 is about the requirement to get an ABN for PAYG purposes if you let out a residence and paragraph 4 of MT 2000/2 states:

4. If you let out commercial premises and the supply is a taxable supply for the Goods and Services Tax (GST), you will need to quote your ABN, or your agent will need to quote the agent's ABN, to your tenant to avoid the possibility of having an amount withheld from the rent or lease payments under the PAYG withholding laws.

In the circumstance where the lessor is the trustee of the partnership of the two family trusts, the lessor will use the ABN that was given to the trust when carrying on the leasing enterprise and issue a tax invoice under that ABN to the lessee.

From the information received, the tax invoices you have received either contain the ABN of the Real Estate and the lessor's ABN or the lessor's ABN only. In this instance exception (i) and (ii) for PAYG withholding requirements at paragraph 12 of GSTD 2000/9 and paragraph 4 of MT 2000/2 apply to your circumstance. This mean you cannot apply PAYG withholding to the lease payments you made to the lessor either directly or through the Real Estate where an ABN is available in the tax invoice.

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