15/02/2005 - 21:00

Change to GST lease provision

15/02/2005 - 21:00

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Goods and Services Tax will apply to any commercial leases currently GST exempt and a framework will be provided for landlords and tenants to negotiate the introduction of the tax into their leases following Federal legislation passed last week.

Change to GST lease provision

Goods and Services Tax will apply to any commercial leases currently GST exempt and a framework will be provided for landlords and tenants to negotiate the introduction of the tax into their leases following Federal legislation passed last week.

Leases entered into before the GST was introduced have been treated as GST exempt, however from July 1 all lessors will need to pay GST on leases.

It is estimated that up to 10 per cent of commercial leases fall within this category.

As a result of the application of GST, lessors will lose one-eleventh of their rent and outgoings as GST unless leases are amended.

The new legislation provides a framework for lessors to put the GST burden onto tenants through several means, according to Corrs Chambers Westgarth head of property Alan Churley.

“Lessors have a range of options available to ensure that they don’t lose one-eleventh of their outgoings on GST,” Mr Churley said.

“They can go to a tenant and have a GST clause put into the lease; they can negotiate with the tenant to pay more rent; or the tenant can voluntarily decide to pay the GST, which the tenant can claim back as long as they are not a bank, life insurance company or super fund.

“If these processes are unsuccessful, the issue is referred to an arbitrator and an assessor who will determine a final rental figure. If the tenant refuses this figure, the GST liability is lifted from the lessor and put onto the tenant.”

He suggested some tenants might elect to have the GST imposed directly, which can give rise to cash flow and lease duty savings.

Retail and shopping centre leases were most likely to be affected, but some office and industrial leases may also feel the effect of the GST, Mr Churley said.

Addressing the issue is considered time critical, with the legislative changes coming into effect from July 1, with landlords needing to start the offer process by early April to ensure completion.

“If the procedure takes its full course it will take a total of 11 weeks, so lessors need to begin negotiations soon,” Mr Churley said.

“We are absolutely advising people who this affects to get legal advice.

“The key is that, without an amendment, a lessor will lose one-eleventh of their rent and outgoings as GST and some tenants could make a windfall gain of up to one-eleventh of their rent and outgoings because they will be able to claim input tax credits for the GST paid by their landlord, even though their rent has not increased.”

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