Australia: New ATO Interpretative Decision: GST & Prepaid Rent

Tax Update (Australia)
Last Updated: 27 May 2013
Article by Matthew Cridland

On 17 May 2013, the ATO issued a new Interpretative Decision, ATO ID 2013/30, entitled: "GST and the sale of commercial premises that are subject to a lease". This is an important decision that will have implications for all entities that buy or sell tenanted commercial premises. The key points and implications are summarised below.


The lease of commercial premises is a taxable supply and subject to GST, which is payable by the landlord. The decision sets out the Commissioner's view on whether a vendor of a commercial premises is liable for GST on prepaid rent in circumstances where a tenanted property is sold part way through the month to which the prepaid rent relates.

Note in this context "commercial premises" includes all premises other than residential premises (i.e. office, industrial, commercial, rural and other properties).

The Commissioner considers that the vendor is liable for GST on the prepaid rent. This is notwithstanding that the vendor may allow the purchaser a purchase price adjustment to reflect the days of the relevant month during which the purchaser will be the owner of the property.


Vendors will need to consider this issue for the sale of any tenanted commercial premises, including where the sale may be GST-free as the supply of a going concern or farm land.

Given that vendors should be liable for GST on the prepaid rent, a vendor will want to ensure that any rent adjustments are calculated on a GST exclusive basis (so that the vendor in effect retains all of the GST component of the prepaid rent, which will be remitted to the ATO). This is illustrated in a worked example further below.

Note that if the sale of a property is a taxable supply and subject to GST (i.e. not GST-free as a going concern or farm land), the vendor may only DLA Piper 2 be liable for GST on the reduced purchase price (i.e. after taking into account the settlement adjustment for prepaid rent).


As purchasers will not be liable for GST on any portion of the prepaid rent, a purchaser may not need to issue tax invoices to tenants for the portion of the month that the purchaser owns the tenanted property. Rather, a purchaser will generally only need to commence issuing tax invoices from the beginning of the next month.


We can assist clients by:

  • providing advice / sign-off as to which party will be liable for GST on prepaid rents in the context of a particular sale;
  • drafting appropriate clauses to ensure that any rental adjustments are calculated on a GST exclusive basis (if appropriate); and
  • ensuring that GST is calculated correctly on any settlement adjustments (where the sale of the property is a taxable supply and subject to GST).


The Property Council of Australia has lobbied the ATO for guidance on these issues. The decision is broadly consistent with the Property Council's submissions to the ATO and will likely be welcomed by most property groups (notwithstanding the limitations of the decision outlined below).


  • An Interpretative Decision is not a "public ruling". While it does provide guidance on the Commissioner's view, and provides vendors/purchasers with some protection in limited circumstances, it does not provide the same level of protection as a public ruling.
  • The decision refers to circumstances where a vendor has "received and retained" prepaid rent for a particular month (i.e. the money has come in from tenants). In our view, the same principles should also apply where a vendor has invoiced for prepaid rent (and remains entitled to receive that rent), albeit the monies may not be received until after the property has been sold. Typically a purchaser that receives rent that is due to the vendor does so on behalf of the vendor (and is generally obliged to on-pay the rent to the vendor). The Interpretative Decision may not offer any protection in these circumstances and vendors should consider whether they need GST advice / sign-off.
  • The decision only deals with circumstances where rent has been prepaid in advance for one month. It does not deal with circumstances where a lease premium or prepaid rent may have been paid upfront for the entire lease period. Such premiums /prepayments are common in the context of "development lease arrangements" and infrastructure projects which may involve leases for 99+ years, with either a premium or prepaid rent (for the life of the lease) being payable when the lease is granted. It is arguable that the same principles should apply. However, the Interpretative Decision itself won't apply and the parties should consider whether they may need a separate GST opinion / sign-off.


In the decision the ATO outlines a scenario in which an entity leases office premises for $110,000 (including GST of $10,000) per month. The rent was invoiced to the tenant on 1 April and the tenant paid the rent on the same date. The property is then sold on 16 April for $11 million.

The contract provides that the entity is entitled to retain the $110,000, but that the vendor will make an adjustment in favour of the purchaser to reflect the number of days (from 16 April to 30 April) during which the purchaser will be the owner of the property.

The ATO example suggests that the vendor allows an adjustment of $55,000 (being half of the prepaid rent and GST). However, in our view, the vendor should only allow an adjustment of $50,000 based on the GST exclusive prepaid rent. This is because, consistent with the Commissioner's view, the vendor will need to retain and remit $10,000 as GST (so the adjustment should be 50% of $100,000, not 50% of $110,000).

The sale of the property would likely be treated as the GST-free supply of a going concern. The ATO's decision does not indicate whether the $11 million purchase price includes or excludes GST, or the GST treatment applied to the sale. However, if the sale was instead treated as a taxable supply, the vendor may be entitled to first take into account the purchase price reduction (i.e. the settlement adjustment) relating to the prepaid rent before calculating its GST liability.

8. LINK TO ATO ID 2013/30

The decision is available on the ATO's website at the following address: 2FAID201330%2F00001&PiT=99991231235958&L ife=20130517000001-99991231235959

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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.