Australia: GST and the problem with leases

Last Updated: 7 March 2012
Article by Cameron Steele

Last week the Australian Taxation Office released two public determinations (GSTD 2012/1 and GSTR 2012/2) dealing with the GST consequences following the sale of leased premises.

One of the determinations addresses the GST consequences of a vendor selling tenanted residential premises, while the other determination deals with the sale of tenanted commercial properties. The determinations focus on the nature of the supply (or absence thereof) between the purchaser and a continuing tenant. In a commercial property scenario, this characterisation is important when determining whether the purchaser is obliged to account for GST on rent received after completion. However, it is the treatment of rent received by the purchaser of a tenanted residential property that may give rise to more obscure outcomes.

The purchaser of a newly tenanted residential complex (eg, a retirement village) may be charged GST on the land contract as the property is 'new residential premises'. The purchaser may wish to claim input tax credits for that acquisition on the basis that it is carrying on an enterprise. The issue discussed in determination GSTD 2012/1 affects the purchaser's entitlement to recoup GST on its acquisition costs in these circumstances.

Recent decisions of the Federal Court have cast doubt on whether purchasers of newly tenanted premises make any supplies to continuing tenants. This is because the lease has already been granted by the previous owner and the covenants of the lease run with the title. Arguably, this could mean that the purchaser of new residential premises is not denied input tax credits as it may not be making input taxed supplies to the continuing tenants.

The two new ATO determinations formalise the Commissioner's response to the Full Federal Court's decision in South Steyne Hotel Pty Ltd & Ors v Commissioner of Taxation 2009 ATC 20-145.

In the South Steyne Hotel case, each of the three members of the Full Court (Finn, Emmett and Edmonds JJ) held that the purchaser of leased land did not make any new supply to the existing tenant. Their honours found that the covenants of the initial lease remained but the benefits of the tenant's covenants and the burden of the landlord's covenants "ran" with the reversion.

The decision of the Full Court is at odds with the court's earlier decision in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd 2006 ATC 4363 where, in a joint judgment by Ryan, Heerey and Edmonds JJ, the court said at [22]:

"While the matter is not entirely free from doubt, we have concluded that when the appellants purchased the reversion they assumed the obligation of [the vendor] to honour the lease according to its terms and in that sense entered into an obligation to tolerate an act or situation and in consequence, made a 'supply' by virtue of s 9-10(2)(g). The fact that the obligation arises by operation of law does not, in our view, impede this conclusion; after all, the reference to 'obligation' in s 9-10(2)(g) must be a legal obligation, although not necessarily one sourced in contract."

This approach was not followed in South Steyne Hotel where the issue was reconsidered. In South Steyne Hotel, Emmett J (with whom Finn J agreed) said:

"The better view is that there was no further supply, merely by reason of the continuation of the leases after the sale of the reversion. Rather, the situation is provided for by Division 156." (at [32])

Similarly, Edmonds J states at [76] that there was no new supply by the purchaser to the tenant but merely a continuation of the original supply, namely the grant of the lease. Edmonds J explained that:

"The attribution provisions of Div 156, specifically s 156-5 and 156-22, the latter dealing with supplies or acquisitions by way of lease, prevent any unintended imbalance as between successive reversionary owners over the term of the lease."

Division 156 deals with supplies made on a progressive or periodic basis. Section 156-5 deals with the attribution of GST payable on a taxable supply made for a period or on a progressive basis and section 156-22 confirms that leases fall within the category of a progressive or periodic supply for the purposes of Division 156. The effect of these provisions is to treat each progressive or periodic component of a taxable supply as if it were a separate supply.

So, presumably, the Full Court in South Steyne Hotel thought that Division 156 operates to deem there to be a series of supplies, some of which would be made by the purchaser of the reversion.

Importantly, the provisions in Division 156 only deal with taxable supplies. There are no equivalent deeming provisions for input taxed supplies made on a progressive or periodic basis.

If the view is taken that there is only one supply (ie, the grant of the leasehold interest) then the purchaser of tenanted land does not make any supply to the existing tenant unless deemed to do so under Division 156. But Division 156 only applies to taxable supplies.

Therefore, it may be open to a purchaser of lease residential premises to argue that it does not make any input taxed supplies in relation to the continuation of the lease. As noted earlier, this could affect the entitlement to input tax credits on the acquisition of new residential premises. For example, the purchaser of a newly tenanted leasehold retirement village may argue that it makes no continuing input taxed supplies to existing residents and it may only make non-incidental supplies of things like meals, laundry, etc.

Despite the lack of any deeming provision in the GST law applying to input taxed supplies made on a progressive or periodic basis, GSTD 2012/1 states that, upon the sale of leased residential premises, there is a continuing supply by way of lease which remains an input taxed supply.

The Commissioner's view ensures that purchasers of leased residential premises are not entitled to an input tax credits because, according to GSTD 2012/1, the purchaser makes input taxed supplies under the continuing lease. GSTD 2012/1 asserts that this view is supported by indications in the two cases mentioned above that Division 156 (which only applies to taxable supplies) has a role in avoiding unintended situations in these circumstances.
No legislative amendments have been announced to support the Commissioner's views in determination GSTD 2012/1.

For more information, please contact:


Cameron Steele

P +61 2 9931 4738


This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.