Edited version of your private ruling

Authorisation Number: 1012592258234

Ruling

Subject: GST and promotional fund

Question 1

Is the Fund held and operated by you a separate entity for goods and services tax (GST) purposes?

Answer

No

Question 2

If a separate entity exists for the Fund, do you carry on an enterprise for GST purposes?

Answer

See reasons for decision.

Question 3

Are contributions made by users for to the Fund consideration for a taxable supply?

Answer

Yes

Relevant facts and circumstances

· You operate a leasing enterprise and are registered for goods and services tax (GST).

· Your property is tenanted by shops and some offices.

· Under the lease agreement, a Fund is established for a specific purpose of recovering costs associated with acquiring services that benefit both you and the tenants.

· You have provided a sample lease agreement and a.sample tax invoice to a tenant that includes the GST-inclusive contribution.

Section 12B of the WA Commercial Tenancy (Retail Shops) Agreements Act 1985 provides:

(1) This section applies if provision is made in a retail shop lease in respect of premises in a retail shopping centre for payments to be made by the tenant into a fund (other than a fund referred to in section 12A) or a reserve for marketing or promotion of the retail shopping centre or any similar purpose.

(2) The purpose of the fund or reserve is to be specified in the retail shop lease.

(3) The lease shall be taken to provide that -

(a) the landlord is to, as soon as practicable, pay amounts paid by the tenant for the credit of the fund or reserve into one or more appropriately designated interest bearing accounts held by the landlord with a bank in the State; and

(b) the landlord may only apply amounts standing to the credit of the fund or reserve and interest earned on the fund or reserve for

(i) the purpose mentioned in subsection (2); and

(ii) taxes and imposts payable on the fund or reserve; and

(iii) the cost of an audit referred to in paragraph (c)(iii) …

(c) the landlord is to -

(i) keep full and accurate accounts of all money received or held by the landlord in respect of the fund or reserve; and

(ii) keep the accounts in such manner that they can be conveniently and properly audited; and

(iii) at the end of each accounting year cause the accounts to be audited by an auditor who is a registered company auditor within the meaning of the Corporations Act 2001 of the Commonwealth; and

(iv) within 3 months after the end of each accounting year deliver a copy of that report to the tenant, and

(d) subject to subsection (5), the landlord is liable to pay into the fund or reserve any deficiency attributable to the failure by the landlord or any predecessor in title of the landlord to comply with paragraph (a) or (b); and

(e) if the retail shopping centre is destroyed, demolished or ceases to operate the landlord is to

(i) prepare a scheme of repayment detailing

(I) the amount standing to the credit of the fund or reserve (including any interest earned on the fund or reserve); and

(II) the proportion of that amount to which each former tenant is entitled; and

(III) the way in which the landlord proposes to distribute that amount;

and

(ii) submit the scheme of repayment to the Tribunal for approval under subsection (4).

(4) The Tribunal is to examine a scheme of repayment submitted under subsection (3)(e)(ii) and may approve the scheme or require such amendments to be made to the scheme as the Tribunal thinks fit and the landlord is to repay to each former tenant the amount set forth in the scheme of repayment or amended scheme of repayment, as the case requires.

Relevant legislative provisions

Section 9-10

Section 9-5

Section 184

Reasons for decision

Whether an entity exists between the landlord and the tenants?

You own commercial properties and grant fixed term leases of premises to tenants for commercial use.

For GST purposes, you carry on an enterprise of granting leases of commercial premises.

As the landlord, you decide to undertake service activities and incur related expenses. Rather than paying these expenses out of the rents it receives, you require your tenants to contribute towards the payment of these expenses. Each lease contains terms specifying this requirement. Such a requirement is same as the one of tenants paying their proportions of the expenses (including rates and taxes) incurred by you in operating the commercial property.

The lease are regulated by the WA Commercial Tenancy (Retail Shops) Agreements Act 1985 (Commercial Tenancy Act).

Section 12B of the Commercial Tenancy Act provides that '[the] section applies if provision is made in a retail shop lease in respect of premises in a retail shopping centre for payments to be made by the tenant into a fund …for marketing or promotion of the retail shopping centre or any similar purpose'.

Paragraph 12B(3)(e) of the Commercial Tenancy Act specifies that 'if the retail shopping centre is destroyed, demolished or ceases to operate the landlord is to prepare a scheme of repayment' of any surplus in the fund to the tenants on a proportional basis. Subsection 12B(4) of that Act provides the WA State Administrative Tribunal is to examine and approve the scheme subject to its requirements.

The lease includes the rules in paragraph 12B(3)(e) and subsection 12B(4) of the Commercial Tenancy Act in subclause 5.3(d). Therefore, the lease is regulated by those statutory rules in relation to the Fund.

In these circumstances, we consider that the service activities undertaken by UCIC in operating the Fund are done by it in its capacity as a landlord. That is, we consider that you do not act as a trustee of Fund in holding and operating it in accordance with section 12B of the Commercial Tenancy Act.

Therefore, we consider that the Funds is not a trust which is an entity for GST purposes. Rather, we consider that the holding and operation of each Fund is undertaken by you in carrying on an enterprise of leasing commercial premises. That is, your leasing enterprise includes the holding and operation of the Fund.

Question 2

Summary

The Fund is not a separate entity for GST purposes and therefore cannot carry on an enterprise in its own right.

Detailed reasoning

As discussed above, the Fund is not a separate entity for GST purposes. It is an internal a part of the business being leasing enterprise carried on by UCIC.

Question 3

Summary

The Contribution is the consideration for the supply of the premises. As the supply of the premises is a taxable supply, the Contribution to the Fund is consideration for a taxable supply.

Detailed reasoning

You grant fixed term leases of premises to commercial tenants for rents and other terms and conditions. Each tenant pays rents and discharges their obligations imposed under those other terms and conditions of the lease in return for using the leased premises.

A term of the lease requires the tenant to pay you the Fund Contribution for the purpose of the services you acquire for the tenants in the leased premises.

In these circumstances, for GST purposes, we consider that you do not undertake the services in addition to and separate from leasing the premises to a tenant.

That is, we consider that these activities are undertaken by you as services required by a tenant to use the leased premises. Therefore, we consider that the service you make to the tenant a single supply of real property which is a supply of commercial premises including, amongst other things, the services.

For GST purposes, in relation to the Fund Contribution, we consider that there exists a sufficient nexus between each payment and the commercial premises leased by you to the tenant. Further, we consider that there is no nexus between each payment and the services undertaken by you.

Therefore, the Fund Contribution constitutes part of the consideration received by you in making a supply of commercial premises.

In these circumstances, you make a taxable supply of those premises.

We consider that our conclusion is supported by Goods and Services Tax Determination GSTD 2000/10. This Determination provides the view of the Tax Office on payments made by a tenant under a commercial property lease. Although the focus of the discussion under the GSTD 200/10 is focuses on the outgoings payable by a tenant to the landlord, it also applies to other payments made by the tenant to the landlord for other purposes.

In this Determination, the Tax Office considers that a supply of premises under a commercial property lease with the services required by tenant (or imposed as a term of the lease) will be a single supply of real property for the purposes of the GST Act. Where a single supply is made, reimbursement or payment to the landlord is consideration for the supply of the premises.

Paragraph 6 of GSTD 2000/10 provides that:

Other obligations imposed under the lease for the tenant to reimburse the landlord or pay costs that the landlord is liable will also forms part of the consideration for the supply of the premises. Examples are insurance, promotion levies and reimbursement of the landlord's costs of repair and maintenance.