Edited version of your private ruling

Authorisation Number: 1012581740992

Ruling

Subject: GST and lease of commercial property in Australia

Question

Is the lease of the commercial property made by the lessor to the lessee subject to goods and services tax (GST)?

Advice

From the information received the lessor was registered for GST from dd/mm/yyyy and leased the commercial property to the lessee since mm/yyyy.

When the lessor supplies the lease of the commercial property to the lessee from dd/mm/yyyy, the supply of the lease is subject to GST as the supply is a taxable supply under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act ).

When the lessor supplied the lease of the commercial property to the lessee before dd/mm/yyyy, the supply of the lease is not subject to GST as all the requirements in section 9-5 of the GST Act are not satisfied and therefore not a taxable supply.

Relevant facts

The lessor (you) under the self-assessment registered for GST and backdated your GST registration to dd/mm/yyyy.

You lease a commercial property located in Australia to an Australian entity (lessee) since mm/yyyy. You have provided us with a copy of the lease agreement you have with the lessee.

Your real estate agent collects the monthly rental income from the lessee on your behalf and issues a tax invoice to the lessee on receipt of payment. You have provided us with copies of tax invoices that were issued to the lessee before you registered for GST (that is before dd/mm/yyyy) and these tax invoices indicate that GST was paid on the leased amount.

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 23-5

Reasons for decision

Summary

From the information received you were registered for GST from dd/mm/yyyy and leased the commercial property to the lessee since mm/yyyy.

When you supply the lease of the commercial property to the lessee from dd/mm/yyyy, the supply of the lease is subject to GST as the supply is a taxable supply under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act ).

When you supplied the lease of the commercial property to the lessee before dd/mm/yyyy, the supply of the lease is not subject to GST as all the requirements in section 9-5 of the GST Act are not satisfied and therefore is not a taxable supply.

Detailed reasoning

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act if:

a) you make 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) you are registered or required to be registered.

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

For the lease of the commercial property to be a taxable supply all the requirements in section 9-5 of the GST Act must be met.

From the information received you satisfy all the requirements in section 9-5 of the GST Act when you supply the lease of the commercial property from dd/mm/yyyy as:

a) you make the supply for consideration;

b) the supply is made in the course of the leasing enterprise that you are carrying on;

c) the supply is connected with Australia as the property is located in Australia; and

d) you are registered for GST as at XX August 2013.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision under the GST Act that makes a supply of commercial property input taxed or GST-free.

Accordingly, your supply of the lease of the commercial property from dd/mm/yyyy is a taxable supply and you will be liable to pay GST on the supply.

However, in regard to your supply of the lease of the commercial property before dd/mm/yyyy the supply is not a taxable supply as you were not registered for GST and from the information received you were not required to be registered for GST. In this instance the supply of the lease of the commercial property is not subject to GST and no GST should be collected from the lessee.

Additional information

Adjustments

If GST or input tax credits are attributable to a tax period, but later events change the amount of GST or input tax credits for the supply or acquisition, a supplier or recipient may need to make adjustments to their net amount in the later tax period.

Adjustments can arise because of adjustment events. Under section 19-10 of the GST Act, an adjustment even occurs when:

· a supply or acquisition is cancelled;

· the consideration for a supply or acquisition is changed;

· a supply becomes taxable or stops being taxable; or

· an acquisition becomes creditable or stops being creditable.

Under subsection 29-75(2) of the GST Act, the supplier must issue an adjustment note within 28 days of:

· receiving a request by the recipient of the supply; or

· becoming aware of the adjustment (where the supplier issued, or was requested to issue a tax invoice).

A document is an adjustment note if it satisfies subsection 29-75(1) of the GST Act. In accordance with the legislative instrument, an adjustment note is a document with the following requirements:

· it is issued by the supplier of the taxable supply;

· it sets out the ABN of the entity that issues it;

· it is in the approved form;

· it meets the information requirements that the Commissioner has determined under paragraph 29-75(1)(c) for an adjustment note. This requires that an adjustment note contains the following information , or enough information to enable the following to be clearly ascertained:

§ that the document is intended as adjustment note and the effect of the adjustment;

§ the identity of the supplier or the supplier's agent;

§ the identity or ABN of the recipient, the recipient's agent, or another member of the recipient's GST group, if the adjustment note:

i. relates to a tax invoice showing the total price for the supply or supplies is at least $1,000 (or such higher amount as regulations made pursuant to subparagraph 29-70(1)(c)(ii) of the GST Act specify); or

ii. arises out of an adjustment event where a supply that was not taxable becomes taxable and the price of the supply is at least $1,000 (or such higher amount as regulations made pursuant to subparagraph 29-70(1)(c)(ii) of the GST Act specify).

§ the issue date of the adjustment note;

§ a brief explanation of the reason for the adjustment;

§ the amount of the adjustment to the GST payable;

§ the difference between the price of the supply before the adjustment event and the price of the supply after the adjustment event. If the supply is not a wholly taxable supply, the price of the supply is referable to that part of the supply that is affected by the adjustment event and that is, or becomes, taxable.

For more information on adjustment notes please refer to Goods and Services Tax Ruling GSTR 2013/2 available from the legal database of our website www.ato.gov.au

You advised that you mistakenly collected GST on the lease of the commercial property when you were not registered for GST and tax invoices were issued for these payments.

In this instance you need to refund the GST you collected while not registered to the lessee and issue an adjustment note to the lessee so that they can make an adjustment to their activity statements. An adjustment event has occurred as the lessee's acquisition for that period has ceased to be a creditable acquisition.

Information on 'how to make an adjustment in an activity statement' and 'correcting GST mistake' is available on our website at www.ato.gov.au

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).