Edited version of private advice

Authorisation Number: 1051940438429

Date of advice: 22 February 2022

Ruling

Subject: GST and fees

Question

Can the Commissioner confirm that the fee is consideration for a separate taxable supply under the agreement made by the trustee to the company?

Answer

No

The scheme commences on:

The date of issue of this private ruling

Relevant facts and circumstances

A trust entered into an agreement to make housing available to enable a company to provide affordable accommodation to people in need.

The parties entered into the following arrangements:

•         The trust and the company entered into an agreement under which the parties agreed that:

            (i)        The trust will lease suitable dwellings to the company, pursuant to head lease agreements that meet the availability requirements so as to enable the company to maintain its list of rentals;

           (ii)        In consideration for the trust making available dwellings that meet the availability requirements during a relevant period, the company agrees to pay a fee to the trust on a monthly advance basis. The trust receives an aggregated amount of the fee for a relevant month, in respect of the total number of available rentals during that month;

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 A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

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 that you carry on; and

(c) the supply is connected with Australia; and

(d) you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Subsection 9-15(1) provides that the consideration for a supply includes any payment 'in connection with', 'in response to' or 'for the inducement of' a supply of anything. In determining whether a payment is consideration under section 9-15 and whether there is a 'supply for consideration' the Commissioner takes the view that:

•         the test is whether there is a sufficient nexus between the supply and the payment made; this test is objective;

•         regard needs to be had to the true character of the transaction; and

•         an arrangement between parties will be characterised not merely by the description that the parties give to the arrangement, but by looking at all of the transactions entered into and the circumstances in which the transactions are made.

Head leases

The head leases set out the supply of individual properties including an agreed rent amount. Consequently, this rent will be consideration for the input taxed supply of the accommodation within the meaning of section 9-15 of the GST Act.

This is because the lease provides a clear nexus between the supply of the individual rental property and the lease payment.

Services agreement

As expressed in the terms of the services agreement, the payments of the fee are consideration for making available the dwellings that meet the requirements, thereby maintaining a list of available dwellings during the relevant period.

However, the fee is not payable in respect of a particular dwelling at any time for the period that the company is not required to pay rent under the head lease. Under each head lease, the company (as the renter) is not required to pay rent to the rental provider in respect of a dwelling while the dwelling is vacant, until such time as the dwelling ceases to be vacant.

These clauses are important, as instead of being paid the fee to enable the company to meet the requirements by supplying a pool of dwellings, the nexus of the payment is more clearly related to the subleasing of the property to a tenant.

Therefore, as the fee is only payable when it is directly linked to the sublease of each dwelling, the nature of the fee is that of additional consideration or a top-up payment to the rental amount payable for the supply of each dwelling.

Conclusion

The fee is not consideration for a separate taxable supply under the service agreement. The fee forms part of the total consideration for the supply of each leased residential property.