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Edited version of your written advice

Authorisation Number: 1051318412720

Date of advice: 12 December 2017

Ruling

Subject: GST and the supply of a lease

Question

Will you be liable for goods and services tax (GST) on an up-front payment received for a lease being granted pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You are a non-profit entity.

You own land (the Property) where you operate a club.

You are currently negotiating with Entity B (the Developer) to utilise part of the Property (not being utilised by the Club) to develop and operate a retirement village. It is expected to comprise Independent living units (ILU’s) and Care units (the Desired Development Yield). In addition there is expected to be communal facilities.

The arrangement will be governed by the following documents:

The arrangement being negotiated with Entity B includes:

You have provided a copy of the draft DMA which includes the following information:

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-5(1)

A New Tax System (Goods and Services Tax) Act 1999 Division 156

Reasons for decision

In this reasoning, please note:

Section 9-40 requires you to pay GST on any taxable supply you make.

Section 9-5 provides that you make a taxable supply if:

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

It is first necessary to determine what is supplied for the upfront payment, which is defined in the DMA as the Premium.

Paragraphs 68 to 73 of Goods and Services Tax Ruling GSTR 2000/35 Goods and services tax: Division 156 - supplies and acquisitions made on a progressive or periodic basis provides guidance on lease premiums.

A genuine lease premium is consideration for the grant of the lease, whilst Rent is a payment for the use of the property leased. A lease premium is consideration for a supply which is separate from the supply of the leased property under the lease.

The supply for which the lease premium is paid is not made for a period or on a progressive basis, therefore division 156 does not apply. The basic attribution rule in subsection 29-5(1) will apply to attribute the GST payable to the earlier of the tax period in which any of the lease premium is received, or an invoice is issued.

It is a question of fact whether an amount paid is rent or a lease premium. If the terms of the lease agreement show the payment is for the use of the property rather than for the grant of the lease, then the amount will be rent and not a lease premium.

In this case:

We consider that the upfront payment is a lease premium and not a payment for the use of the property leased.

In your case, you are registered for GST and will make a supply for consideration in in Australia in the course of your enterprise. In addition, there are no provisions whereby the supply would be GST-free or input taxed.

As such you will make a taxable supply and you will you be liable for GST on the up-front payment received.


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