It is important for landlords and tenants under a commercial property lease to understand the collection of GST and whether GST is payable on rates and water charges (‘rates’) for commercial properties. Usually, the landlord does not pay GST on rates issued by council. However, if rates are passed on by the landlord to the tenant for payment, then GST is payable by the tenant. This is because the Australian Tax Office (ATO) considers:
- that the supply a landlord makes to the tenant under a commercial property lease is a single supply. What is supplied by the landlord are the premises with facilities so that the tenant can use the premises; and
- that the council does not make a supply direct to the tenant. The items supplied by council for which rates are paid are supplied to the landlord as owner of the commercial property and not the tenant.
The supply that council makes to the landlord will generally be exempt from GST. Although, where the commercial property lease allows the landlord to recover outgoings on rates, the payment made by the tenant is for the landlord’s supply of the premises. If this is a taxable supply (ie. the landlord is registered or required to be registered for GST) the payment by the tenant relating to the outgoings is part of the consideration for the landlord’s supply and is subject to GST.
The landlord should calculate its GST liability for the supply of the premises on the total consideration received from the tenant.
If you have any queries regarding Leases please contact our Commercial Property team at your Gold Coast Lawyers, McLaughlins Lawyers.
Author: Annette Wojtyna
Director: Ian Kennedy