Edited version of private ruling

Authorisation Number: 3011623996155

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Ruling

Subject : GST and leasing property

Questions

Should you charge GST on the lease between you and Entity A for the property?

Advice/Answers

We confirm that the quarterly rent and annuity payment paid by Entity A for the lease of the property is consideration for a mixed supply that is partly taxable and partly input taxed. The supply of the commercial part (the administration building and laundry facilities) is a taxable supply and the supply of the residential part (the remainder of the property is an input taxed supply. GST is payable on the taxable part of the supply. You will need to apportion the consideration for the supply between the taxable and input taxed parts to work out the GST payable.

Relevant facts

You and Entity A entered into a lease relating to the property. The lease was renewed in on a particular date for a period.

Under the agreement Entity A pays quarterly rent to you for the rights to operate the property. Entity A has granted respective subleases to Entity B which enabled Entity B to make both taxable and input taxed supplies in relation to the property.

Under the lease, Entity A agreed to pay quarterly rent to you in the amount of exclusive of GST. Since a particular date you have issued tax invoices to Entity A for particular amounts including GST in each quarter.

On a particular date you, Entity A and Entity B entered into an Annuity Arrangement under which Entity A is required to make a quarterly annuity payment to you at the end of each quarter after a particular date. The annuity payment is calculated based on $XXX (exclusive of GST) per Resident/ Other occupant per week in the relevant quarter.

From and including a particular month, Entity A has made annuity payments to you, and the payments have included 10% GST.

Entity A raised the issue with you that they were making both taxable and input taxed supplies in relation to the property during each relevant quarter. As a result of this, the GST payable in respect of the rent and annuity payment should be recalculated as an apportionment of the mixed supplies between the taxable and input taxed supplies.

However, you understand that the lease between you and Entity A is considered to be a commercial property lease and therefore the rent you charge is subject to GST.

A map of the property and the resident information booklet is available on the property website.

The map of the property shows commercial parts on the grounds of the property.

The resident information booklet provides background and history of the property, plus details of the facilities and services offered

We subsequently advised you that the quarterly rent and annuity payment paid by Entity A is consideration for a mixed supply that is partly taxable and partly input taxed. The supply of the commercial part (the administration building and laundry facilities) is a taxable supply and the supply of the residential part (the remainder of the property) is an input taxed supply. GST is payable on the taxable part of the supply. You will need to apportion the consideration for the supply between the taxable and input taxed parts to work out the GST payable.

In response, you requested a further ruling on this matter.

You provided the following additional information:

There are 2 different stages of the development agreement.

The stage 1 buildings were constructed by you. Entity A acquired the lease of Stage 1 of the development of xx beds by agreeing to pay you an agreed amount, quarterly in advance.

Stage 2 was developed by Entity A pursuant to a Deed.

At Stage 2, Entity A provides accommodation to occupants. Entity A is required to pay a quarterly annuity payment to you. The annuity payment is calculated as per the agreed formula.

Relevant legislative provisions

Subsection 40-35(1) of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

You are liable for goods and services tax (GST) on any taxable supply that you make.

As set out in the previous ruling, a supply of premises by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed under subsection 40-35(1) the A New Tax System (Goods and Services Tax) Act 1999 if:

the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or…

In your case, the majority of the premises you lease to Entity A in both stage 1 and stage 2 meet the definition of residential premises and are not commercial residential premises as explained in the previous ruling. Accordingly they are input taxed.

The administration office and commercial laundries do not have the physical characteristics common to residential premises that provide accommodation. The supply of these areas is a taxable supply.

As the supply under the lease consists of taxable and input taxed parts, you are making a mixed supply.

GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for a mixed supply between the taxable and input taxed parts to work out the GST payable.

You can use any reasonable method to apportion the consideration for a mixed supply. The method you use must be supportable in the particular circumstances. We have already supplied advice in regard to this in the previous ruling.