Edited version of your written advice

Authorisation Number: 1012829760590

Date of advice: 25 June 2015

Ruling

Subject: Supply of property care services

Question 1

For the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is the supply of property care services (PCS) by the Tenant to the Landlord pursuant to the lease (Lease) granted by the Landlord to the Tenant in respect of X residential units (Units) a taxable supply?

Answer 1

Yes.

The supply of PCS by the Tenant to the Landlord satisfies the requirements of section 9-5 of the GST Act and is neither GST-free nor input taxed. Consequently the supply of PCS is a taxable supply.

Question 2

For the purposes of subsection 7-1(2) of the GST Act is the Tenant entitled to claim input tax credits (ITCs) in respect of acquisitions used to supply the PCS to the Landlord?

Answer 2

Yes.

Acquisitions made by the Tenant and used by the Tenant to supply the PCS to the Landlord are creditable acquisitions within the meaning of section 11-5 of the GST Act. Paragraphs (b) to (d) of section 11-5 of the GST Act are satisfied. Paragraph 11-5(a) of the GST Act is also satisfied as an acquisition by the Tenant of goods and services which are used by the Tenant to supply the PCS is a cost component of that taxable supply and therefore made for a creditable purpose. Although the Tenant makes an input taxed supply when the Tenant sub-leases each Unit for residential purposes, an acquisition made by the Tenant in order to provide the PCS to the Landlord does not relate to that input taxed supply. Consequently the Tenant is entitled to claim ITCs in respect of acquisitions used to supply the PCS to the Landlord.

Question 3

For the purposes of subsection 7-1(2) of the GST Act is the Tenant entitled to claim ITCs in respect of the management fees paid to a managing agent engaged by the Tenant to manage the Premises and provide the PCS?

Answer 3

Yes, but only to the extent of creditable purpose.

As the management fees paid by the Tenant to the Managing Agent for managing the Premises and providing the PCS are consideration for an acquisition which is only partly for a creditable purpose within the meaning of section 11-15 of the GST Act, the Tenant is entitled to claim only a portion of ITCs.

Relevant facts and circumstances

Agreement:

The Agreement between the Landlord and the Tenant recites that:

• The Tenant is a body corporate sole established pursuant to State legislation and has powers and functions in relation to the provision of housing under that legislation;

• The Landlord is the owner of the Land;

• The Landlord will undertake the Development (the Schedule to the Agreement indicates that the Development involves constructing X residential Units on the Land) in accordance with the Agreement; and

• The Landlord has, subject to completion of the Development to Practical Completion, agreed to grant the Tenant a lease of each of the Units.

The Agreement states that the Landlord agrees to grant and the Tenant agrees to accept a lease of the Units for the Term (10 years) commencing on the Commencement Date (10 Business Days after the Tenant that a separate freehold title to each of the Units being the subject of the Lease has been issued by the Land Titles Office).

The Agreement makes the Landlord responsible for the design of the Improvements (the buildings to be constructed on the Land) and obliges the Landlord to undertake the Development at its own cost and complete the Development by the Date for Practical Completion.

The Agreement also deals with execution of the Lease in respect of each Unit. The Landlord agrees to execute each Lease, deliver the executed lease to the Tenant's solicitor after registration of the Units Plan (i.e. the plan of subdivision creating units that upon registration allows the issue of separate titles to the units) and provide a cheque for any registration fee.

The Agreement states that the Landlord and Tenant are bound by the Lease from the Commencement Date.

Lease:

An Annexure to the Agreement to Lease contains the terms of the Lease of each Unit by the Landlord to the Tenant. In addition to the terms in the Annexure, each Lease has a Front Sheet which specifies the Unit, the Commencement Date, the Expiry Date etc.

Each Lease states that the Landlord leases the Premises (defined as the Unit, including the Landlord's fixtures and fittings on the Premises) to the Tenant on the terms and conditions of the Lease and the Tenant accepts the Lease on that basis.

Each Lease also states that the Landlord appoints the Tenant to perform the PCS for the Term of the Lease and describes the five PCS:

• Property Management Services, i.e. ensuring each sub-tenant enters into a written tenancy agreement which is not inconsistent with the Tenant's obligations under the Lease and ensuring that appropriate due diligence is exercised in selecting sub-tenants;

• Repair and Maintenance Services, i.e. repair and maintain the Premises except where the need for repair or maintenance is the responsibility of the Body Corporate or within the Landlord's responsibilities;

• Emergency Repair Services, i.e. immediately upon becoming aware of it arrange any emergency works essential to preserve the Premises and/or protect human health, safety or security.

• Restoration Services, i.e. at the end of the Lease the Tenant will ensure that the internal Premises are professionally cleaned and the grounds and landscaping are in a neat and tidy condition; and

• Market Rent Review, i.e. the Tenant must manage the rent review process by arranging a market rent valuation by a market valuer before the First Rent Review Date and ensuring the Premises is physically inspected as part of the rent review process at least every three years.

The Lease states that the PCS are performed by the Tenant in return for the Service Fee (defined as an amount equivalent to 16% of the Rent (as adjusted upon review)) and that the Service Fee will be deducted by the Tenant from the monthly rent payments. The Service Fee percentage (i.e. 16%) is fixed for the Term and is inclusive of GST.

The Lease also states that the Lease does not create any relationship between the Landlord and Tenant other than the relationship of landlord and tenant or, in the case of the Property Care Services, recipient and service provider.

Ruling request:

It was stated in the ruling request that the Tenant has entered into each Lease in order to sublet the Units and that the Term of each Lease is 10 years with an option to renew for a further 5 years.

It was also stated that the Landlord and Tenant are both registered for GST

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999, subsection 7-1(2)

A New Tax System (Goods and Services Tax) Act 1999, section 9-5

A New Tax System (Goods and Services Tax) Act 1999, section 11-5