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GST Boon for Landords of Long-term Leases

There has been a legal ruling in the Federal Court of Australia that may be of benefit to some landlords. The recent case of Westley Nominees Pty Limited and Paul Joel Spira V Coles Supermarkets Australia Pty Ltd and Commissioner of Taxation has clarified certain aspects of the application of the transitional GST legislation as it relates to long term leases.

Background

There has previously been some uncertainty regarding the transitional GST legislation and its application to long term leases entered into before the introduction of the GST (which made no provision for the recovery of GST from tenants). More specifically, there was a question over whether a rent review clause in a long term lease constituted a review opportunity under the transitional GST legislation, which would trigger a GST liability on behalf of the landlord. The tax office’s position on the issue has been indicated in the tax ruling GSTR 2000/16. Broadly, their position was that a review provides an opportunity for the supplier to conduct a “general review, renegotiation or alteration of the consideration”. Whether this general review was considered an opportunity to increase the tenant’s liability for an amount equivalent to GST was a factor of the wording and factual application of the review clause in each lease.

Outcome of decision

However, there has now been some judicial direction to this issue. In a unanimous decision, the Federal Court ruled that a rent review in circumstances where only the base rent is reviewable and other significant elements of rent (such as contributions to outgoings) are not reviewable does not trigger a GST liability. Accordingly, some landlords who had paid the GST under such circumstances may be entitled to a full refund from the Australian Taxation Office. If you suspect that this ruling may be of relevance to you, contact your professional adviser.
 
This is only a general guide - not a substitute for professional advice. Santo Correnti Homes does not guarantee the accuracy, reliability, or completeness of any information on this page, and will not be liable for any loss or damage suffered as a result of anyone's relying on this information. We recommend you obtain advice from your own financial, taxation or legal advisor before entering into financial transactions.