Landlords of commercial tenants might not be aware of a little-known ATO ruling that makes them liable for GST on everyday property outgoings incurred by the tenants renting their premises.
These include typical charges such as council rates, water charges and property insurance, whether they are paid by the landlord on behalf of the tenant or whether the landlord passes them onto the tenant to pay directly.
The ATO ruling states that if the landlord is making a ‘taxable supply’ of the premises to the tenant – i.e. they are liable for income tax on the rent – then they may have to pay GST on these outgoings. This applies even if at the time they do not have to pay GST on some of these charges – for example, rates which typically do not incur GST when paid to the relevant local authority.
This is because the landlord itself may be liable for GST on those outgoings as part of the “supply” of the premises – including any invoices for these outgoings – to the tenant. In other words, a landlord could find itself in a position where it has remit 10% of the outgoings charge to the ATO, even if it hasn’t recovered this from the tenant.
The ATO therefore recommends that landlords should add a GST charge to any invoices for outgoings that are passed directly to the tenants, even if these outgoings are GST-free.
Given all this, it seems that there is nothing to stop landlords charging tenants GST for all outgoings, even those which seem to be GST-free. Landlords should consider all this when passing these charges onto their tenants – one approach might be to invoice tenants the outgoing costs plus GST, rather than just pass invoices onto the tenant to pay directly.
We can help owners and landlords avoid many of the problems associated with this issue. We regularly advise landlords on the legal implications of tax and GST issues and are fully across the relevant ATO rulings on this subject.
We can also provide tailored advice in relation to compliance with the Act and assistance in drafting notices required under the Act.