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Edited version of your written advice
Authorisation Number: 1012991104551
Date of advice: 31 March 2016
Ruling
Subject: GST and outgoings
Questions
1. Where the outgoings payable by the tenant are in respect of your acquisition, that is a taxable supply, do you on-charge the GST-inclusive price of your acquisition?
2. Is the outgoings payable by the tenant in respect of your acquisition that is not a taxable supply, subject to GST?
Answers
1. No. Where the outgoings payable by the tenant are in respect of your acquisition, that is a taxable supply, you on-charge the value of your acquisition rather than its GST-inclusive price.
2. Yes. The outgoings payable by the tenant in respect of your acquisition that is not a taxable supply are subject to GST.
Relevant facts and circumstances
You are registered for GST.
You own commercial premises which you lease to another entity (the tenant).
Your supply of the premises is a taxable supply.
Under the lease contract, the tenant must pay or reimburse you for all building outgoings which include rates, levies and the costs of maintaining and repairing the building.
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 decisions
A supply of premises under a commercial property lease together with the services required by the tenant to use the premises will be a single supply of real property for the purpose of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
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.
The landlord's acquisitions to which the outgoings relate can either be taxable or not taxable. This gives rise to the question of what amounts the landlord should on-charge to the tenant in each case.
Goods and Services Tax Determination GSTD 2000/10 provides guidance, by way of examples, on how outgoings are treated for GST purposes.
1. Outgoings in respect of your acquisition that is a taxable supply
When you make an acquisition in the course of supplying the premises and that acquisition is a taxable supply, you are entitled to an input tax credit. The amount you on-charge to the tenant is the value of your acquisition, rather than its GST-inclusive price. This is the amount on which GST payable by the tenant under the lease is calculated.
Example:
You acquire a taxable supply of repair services for $220 which includes $20 GST. You claim an input tax credit of $20. When you on-charge your acquisition to the tenant, you provide the tenant with a tax invoice for $220. This amount is made up of $200 outgoings (being the value of your acquisition) and $20 GST (as the outgoing forms part of the consideration for your taxable supply of the premises).
2. Outgoings in respect of your acquisition that is not a taxable supply
The payment of outgoings by the tenant is not a payment for a supply that has the same character as the supply made by a third party to the landlord. The payment is made by the tenant for the supply of the premises by the landlord and not for the particular supply made to the landlord to whom the outgoing relates. Therefore, if the landlord is making a taxable supply of the premises, it will not matter whether the outgoings, when incurred by the landlord, was a taxable supply to the landlord.
As your supply of the premises is a taxable supply, the outgoings payable by the tenant are subject to GST even if it relates to your acquisition that is not a taxable supply.
Example:
You pay the local authority $1,600 for council rates. The rates are not subject to GST; thus, you are not entitled to an input tax credit. When you on-charge the council rates to the tenant, you provided the tenant with a tax invoice for $1,760. This amount is made up of $1,600 (being the council rates) and $160 GST (as the outgoing forms part of the consideration for your taxable supply of the premises).