Edited version of private advice

Authorisation Number: 1052231017602

Date of advice: 12 March 2024

Ruling

Subject: GST on commercial property leasing

Question

Are you required to charge GST on the rent received from a commercial property you own and lease to a third party?

Answer

Yes. You are making a taxable supply in relation to the leasing enterprise that you carry on in accordance with section 9-5.

This ruling applies for the following periods:

Financial year ending 30 June 20YY, to

Financial year ending 30 June 20YY.

The scheme commences on:

The date this private ruling is issued.

Relevant facts and circumstances

•        You have held an Australian Business Number (ABN) since XXXX.

•        You were registered for GST from XXX to XXX. You re-registered for GST from XXXX.

•        You are a sole trader.

•        You purchased a commercial property in XXXX as an investment.

•        The commercial property has been leased since purchase with the current tenant of the commercial property being a tenant since XXXX.

•        You re-registered for GST in anticipation of transitioning to a contractor and generating Personal Services Income (PSI).

•        You have not been charging GST to your tenant.

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 9-10

A New Tax system (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

Reasons for decision

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

a)    you make the supply for consideration; and

b)    the supply is made in the course or furtherance of an enterprise you are carrying on; and

c)    the supply is connected with the indirect tax zone; and

d)    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.

In this case you, receive consideration from a third party, the supply is in the course or furtherance of your leasing enterprise, the supply is connected with the indirect tax zone and you are registered for GST.

You provide in your private ruling application that:

•        the rental of the commercial premises was never contemplated as part of an enterprise and as such had not been included in your "ABN figures" for either income tax or GST;

•        your tenant is also registered for GST so the net outcome to the ATO would not have been any different if this income had been included in "ABN activity" and grossed up with the GST amount, as they would have been able to claim the same GST credits in their own business;

•        you feel that the requirement to charge GST in the rent generated from the property is not related to the PSI generated;

•        the property was owned and tenanted for a significant amount of time under the assumption that it was a passive investment, not an enterprise.

Section 9-20 provides that an enterprise is an activity, or series of activities done:

a)    in the form of a business; or

b)    in the form of an adventure or concern in the nature of trade; or

c)    on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property;

d)    .....

In your case, you have been leasing the commercial premises to third parties since XXXX and, although you have only been registered for GST since XXXX, you have been carrying on a leasing enterprise since you first leased the property.

A foundation of the GST system is that registered businesses charge GST on taxable supplies that they make, regardless of who they are making those supplies to. This includes business to business transactions.

Regardless of the other source of your income, in this case being through PSI, this does not prevent the income received from the commercial rent from being a taxable supply in the course of your leasing enterprise that you carry on. As a result, the income you received from the leasing enterprise forms part of your GST turnover calculation.

Conclusion

As all of the provisions of section 9-5 are satisfied, you are required to charge GST in relation to any taxable supplies that you make and remit the GST to the ATO in relation to these supplies.

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