Edited version of private advice

Authorisation Number: 1051762033597

Date of advice: 1 October 2020

Ruling

Subject: GST and the supply of rights and a lease

Question 1

Is the grant by you of rights and a lease to each of entity A and Entity B under each of the respective Agreements a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the grant by you of rights and leases to each of Entity A and Entity B under each of the respective Agreements is a taxable supply under section 9-5 of the GST Act.

Question 2

Where the answer in question 1 is yes, what is the consideration for the supply of the rights and lease under the Agreements payable by Entity A and Entity B?

Answer

The consideration for the supply of the rights and lease include the initial payments, the right payment as well as other payments in relation to obligations incurred by you.

Relevant facts and circumstances

You are a company. You are registered for goods and services tax (GST) in Australia.

You entered into Agreements with each of Entity A and Entity B (together the participants) to grant rights and a lease.

The Agreement identifies payments to be made by the participants including:

·         a payment in respect of the lease

·         a payment in respect of the rights, and

·         payments in respect of liabilities incurred by you.

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 9-15

Reasons for decision

Section 9-5 of the GST Act provides that you make a taxable supply on which GST is payable 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 the indirect tax zone, 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 grant by you to the Participants of rights and a lease under the respective Agreements do not fall within the GST-free or input taxed provisions (Division 38 and 40 respectively) of the GST Act.

As you are registered for GST and granting rights and leases in Australia to each of the Participants in the course of an enterprise that you carry on, the issue that arises under section 9-5 of the GST Act is whether the grant of rights and leases are supplies made by you for consideration (paragraph 9-5(a) of the GST Act).

Is there a supply?

With regards to whether there is an identifiable supply made by you under the Agreements, subsection 9-10(1) of the GST Act provides that a supply 'is any form of supply whatsoever'. Subsection 9-10(2) of the GST Act provides that a supply includes:

·         ...

·         a grant, assignment or surrender of real property

·         the creation, grant, transfer, assignment or surrender of any right, and

·         an entry into, or release from an obligation

-        to do anything

-        to refrain from an act, or

-        to tolerate an act or situation.

• or any combination of any 2 or more of the matters referred to in subsection 9-10(2) of the GST Act.

However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money (subsection 9-10(4) of the GST Act).

Section 195-1 of the GST Act defines real property for GST purposes to include:

·         any interest in or right over land; or

·         a personal right to call for or be granted any interest in or right over land; or

·         a licence to occupy land or any other contractual right exercisable over or in relation to land.

The Agreements provide for the grant of rights. The Agreements provide for the grant of the leases over the Area.

On that basis the Agreements give rise to a number of things which satisfy the statutory definition of a supply (being a grant of interests in and/or rights over the land (i.e. real property)).

Is there consideration?

The term 'consideration' is defined in subsection 9-15(1) of the GST Act so as to include:

·         any payment, or any act or forbearance, in connection with a supply of anything' (paragraph 9-15(1)(a) of the GST Act), and

·         any payment, or any act or forbearance, in response to or for the inducement of a supply of anything (paragraph 9-15(1)(b) of the GST Act).

The Agreements identify a number of payments required to be made by the Participants including payments in respect of obligations incurred by you.

The terms of the Agreements are such that the payments made by the Participants to you or to third parties are 'in connection with' those supplies contemplated under the Agreements made by you to the Participants.

However, in identifying the character of the connection, the word 'for' ensures that not every connection between supply and consideration meets the requirements for a taxable supply. That is, merely having any form of connection of any character between a supply and payment of consideration is insufficient to constitute a taxable supply.

Sufficient nexus

In determining whether a sufficient nexus exists between supply and consideration, regard needs to be had to the true character of the transaction and all of the surrounding circumstances of the arrangement, in particular any written documentation.

The Agreements provide for a payment in respect of the grant of the lease. As such there is a clear connection and a sufficient nexus between the supply of the lease and the payment to constitute consideration 'for' the supply of the lease.

The Agreements provide for the payment by the participants of the rights payment. There is a clear connection and a sufficient nexus between the supply of rights and the right payment for those payments to constitute consideration 'for' the supply of the rights.

The Agreements provide that the participants are required to reimburse you or to pay directly to third parties charges for which you have incurred a liability. These payments are attributable to the grant by you of the rights and lease and have a sufficient nexus to the supplies to form part of the consideration for the grant of those rights and lease.

Support for this view can be found in Goods and Services Tax Determination GSTD 2000/10 which explains that consideration for the supply of premises by a landlord includes amounts which are paid by the tenant under the terms of the lease to the landlord for amounts for which the landlord is liable. This includes payments directly to a third party where the payment is in satisfaction of the landlord's liability. Paragraph 6 of GSTD 2000/10 explains:

6. 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 premises. Examples are insurance, promotional levies, ad reimbursement of the landlord's costs of repair and maintenance. If the tenant is liable for an expense regardless of the terms of the lease, the payments of the expense will not form part of the consideration for the supply of the premises.

Having regard to the Agreements and the true character of the transaction it is reasonable to conclude that there is a sufficient nexus between the payments set out above made by the participants under the Agreements and the supplies of the rights and lease to constitute consideration 'for' those supplies satisfying paragraph 9-5(a) of the GST Act that you make a 'supply for consideration'. The consideration for the supplies in question include the other payments made by the participants for liabilities incurred by you.

As the supply of the rights and lease by you to each of the participants under the respective Agreements satisfy all the requirements of a taxable supply under section 9-5 of the GST Act the supplies are taxable supplies on which GST is payable.

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