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Crown Solicitor's Office

Leases: GST and payments between government related entities

Nancy Foster, CSO Solicitor

The Australian Taxation Office has recently published: GST and payments between government related entities – overview.

The overview is relevant to government agencies that engage in leasing and subleasing arrangements with other government agencies (including local government councils). The overview discusses when payments made between government related entities ("GREs") are subject to GST in a brief summary format with flow-charts and examples.

Amendments to the A New Tax System (Goods and Services Tax) Act 1999 which came into effect from 1 July 2012 provide that a payment will not be subject to GST if all of the following apply:

  • the payment is made by a GRE to another GRE for making a supply;
  • the payment is covered by an appropriation under an Australian law or is made under a specified intergovernmental health reform agreement;
  • the payment satisfies the non-commercial test.

The overview includes the following example regarding instalment costs under a sub-lease of office space:

"Department A is the lessee of a building in the city centre and sub-leases an unoccupied floor to Department B. The annual rent that Department B will pay to Department A is calculated to recover the anticipated lease costs incurred by Department A for that floor. The lease agreement allows for the payments to be made in instalments throughout the agreement using funds allocated to Department B under a Commonwealth appropriation Act for its general operating costs.

The payment from Department B to Department A is:

  • from one GRE (Department B) to another GRE (Department A) for Department A sub-leasing the office space

  • covered by an appropriation under an Australian law

  • calculated on the basis that the aggregate of the instalment payments do not exceed Department A's anticipated costs of making the supply.

    The payment from Department B to Department A will not be subject to GST because all of the requirements are satisfied.

    As the payment was calculated based on anticipated costs, it is not necessary to subsequently review the calculation once the actual costs of making the supply are known."

GST and payments between government related entities – overview is available from the Australian Tax Office website at: https://www.ato.gov.au/Business/GST/In-detail/Non-profit-and-government-organisations/Government-organisations/GST-and-payments-between-government-related-entities---overview/