Hard as it may be to believe, Goods and Services Tax (GST) has now been a feature of life for businesses and consumers in Jersey for over four years. Over this period, of course, the rate has increased from the initial 3% to the current 5%. Few would be prepared to bet on the rate staying at 5% indefinitely.
16 August 2012 is a red letter day as far as the impact of GST on commercial leases is concerned. Under the so-called 'grandfathering' provisions in the GST legislation, the 'supply' made by landlords under commercial leases which were entered into before 17 August 2007 (when the GST Law came into force) was stated to be zero-rated until the earlier of:
- the date when the lease was varied; and
- 16 August 2012
In other words, the grandfathering provisions were to last for a maximum of five years.
Landlords under affected leases, assuming they qualify for registration by virtue of having an annual turnover exceeding £300,000, will therefore with effect from 16 August 2012 be required to charge 5% GST to their tenants and account to the Taxes Office for this GST less any 'input' GST paid by the landlord.
The issue for landlords will be whether the amount of rental payable by their tenants is properly to be regarded as inclusive or exclusive of GST. Leases entered into since the advent of the GST legislation will typically contain express GST provisions. However, many leases which have up until now benefited from the grandfathering provisions, especially those entered into before GST was even conceived of, will not contain any such provisions.
It will therefore be a question of construing each such lease to see whether or not, on a proper construction, the rental can be said to be exclusive of GST. This may well be the case in leases which have widely-drawn 'outgoings' provisions. But it is impossible to generalise and the wording of each relevant lease will need to be specifically considered.
Clearly there will be some cases where landlords will need to seek to agree lease variations with their tenants in order to establish a proper basis for the recovery of GST. Even in cases where the existing wording, in the absence of express GST provisions, is considered satisfactory, landlords may well wish, if the opportunity presents itself, to vary their leases to include express GST provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.