Landlords are not paying GST on commercial leases
Following a recent Federal Court case, we are aware that some lessors have stopped remitting GST on commercial and retail lease rentals. As you may have heard rumours of this practice, this edition of Indirect Tax News primarily focuses on the issue.
The Federal Court case involved a sale of a residential apartment under lease. The supply was treated as a GST-free going concern by the parties which was not disputed by the ATO. The ATO did, however, assess the apartment purchaser, imposing a Div 135 increasing adjustment equivalent to 10% of the purchase price. The ATO’s argument was that the purchaser intended that the supplies made through its enterprise (being the leased apartment) will be input taxed residential rentals.
The Federal Court decided unanimously that the grant of the original lease by the apartment vendor wasthe supply by way of lease. It held that the purchaser made neither a supply of the grant of a lease nor a continuing supply of the leased apartment to the tenant. As such, it held that the purchaser itself did not make input taxed supplies through its enterprise hence a Div 135 adjustment did not apply.
Why have commercial lessors stopped paying GST?
The recent decision was in respect of a residential apartment. Other GST provisions may change the outcome purchasers for commercial and retail property under lease. However, the principles adopted by the Federal Court to reach its decision appear equally applicable to any property purchased under lease. The decision casts doubt that a purchaser of leased commercial or retail property under lease itself makes a taxable supply of the property by way of lease to the existing tenant.
The Commissioner has applied for special leave from the High Court to appeal the decision. There is no guarantee that the High Court will grant special leave to appeal. Even if it does, there is no guarantee that the Federal Court decision will be overturned or that the eventual decision will apply to commercial or retail properties. Thus, the state of play is that the decision is being treated by some purchasers of commercial or retail property under lease as support for the view that they are not required to pay GST and that view may prevail through the resolution of the current dispute in progress.
What should commercial and retail lessors do now?
Commercial & retail lessors should definitely continue to collect GST on rentals from tenants now and into the future. In respect of the question whether that GST should be remitted to the ATO, we invite you to contact Stephen Baxter at our firm. We will advise you which commercial and retail leases may be affected, what are the risks in not remitting the GST to the ATO, what is the support for the retention of the GST monies should the Commissioner not succeed in his appeal and what are the precedents for the waiving of any GIC and penalties should the commissioner ultimately be successful.
GST Refunds for Apartment Purchasers
The Federal Court decision may provide more direct and immediate benefit to residential property purchasers. In the past, many developers have sold new residential apartments under lease as GST-free going concerns. The property types in question have typically been serviced apartments, hotel apartments and retirement villages. The ATO has been actively imposing Div 135 increasing adjustments upon the purchasers of those properties.
Action Point: Purchasers of residential property under lease who have suffered a GST increasing adjustment can consider claiming a refund. Contact Stephen Baxter for advice to protect and claim possible GST refunds.
Refunds for further Fuel Tax Credits
Operators of vehicles with auxiliary equipment on board may have an opportunity for refunds of four years of unclaimed fuel tax credits. Examples include pumping trucks, tippers, elevating work platforms and others. There are now some streamlined processes for claiming the fuel used in the auxiliary equipment at the off-road rate which is currently 19.5 cents per litre higher than the road transport rate.
Action Point: We can assist operators of vehicles with auxiliary equipment on board to identify, quantify and claim any unclaimed fuel tax credits entitlements.
NSW Land Tax Changes for Fixed Trusts
In our June 2013 edition, we informed readers of the proposed land tax changes affecting fixed trusts. The proposed changes form part of a bill which will not pass through NSW Parliament before it rises for the 2013 year. The changes were to have applied for the 2014 land tax year, that is, in respect of trusts which owned land at 31 December 2013. If the bill passes in 2014, the NSW Government may or may not change the proposed operative date. Particularly in respect of unit trusts with more than one classes of units issued, the continued qualification for the land tax free threshold is not certain.
Action Point: To remove uncertainty, trustees of fixed trusts which currently enjoy the land tax free threshold ideally need to act before the end of November 2013, if they have more than one class of units issued. The same applies for trustees of unit trusts which currently cannot utilise the tax free threshold but would like to. We can provide a rapid opinion either as to whether the land tax free threshold is at risk or whether it may be achievable. Immediate action can then be taken to vary the trust deed before 31 December 2013.
This newsletter is issued as a helpful guide. It is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is taken.