What are the GST implications of rent relief?

Given this environment, retailers that sell non-essential items, as well as cafes and restaurants, and many other different types of businesses, have been severely impacted. Many have already been forced to stand down their employees and shut down. As a result, some commercial landlords are looking at ways to soften the impact of COVID-19 on their tenants. Options being considered by some landlords include providing their tenants with rent-free periods.

A rent-free period (also known as a rent holiday) allows the tenant to continue occupying the leased premises for a certain period of time without paying any rent.

However, the grant of a rent holiday by the landlord impacts the way businesses account for GST if they use the non-cash basis of accounting for GST (i.e. if they account for GST on an accruals basis).

Attributing GST payable on taxable supplies

Broadly, an entity that accounts for GST on an accruals basis is required to attribute all the GST payable on a taxable supply that it makes to the earlier of the tax periods when:

• any of the consideration for the supply is received (payment does not need to be received in full); or
• an invoice is issued for the supply (any invoice, does not need to be a valid tax invoice).

However, where the landlord makes a supply for a period or on a progressive basis and for consideration that is to be provided on a progressive or periodic basis (as would be the case with respect to leasing out commercial premises), it is required to attribute the GST payable as if each progressive or periodic component of the supply made were a separate supply. By way of example, where an invoice is issued or payment is made on a monthly basis, the landlord would attribute GST on a monthly basis.

Attributing GST credits claimable on creditable acquisitions

An entity that accounts for GST on an accruals basis is usually required to attribute all of the input tax credits (also known as GST credits) for a creditable acquisition it makes to the earlier of the tax periods in which:

• it provides any consideration (does not need to pay in full); or
• an invoice is issued for the acquisition,

but only if a valid tax invoice is held at the time that the relevant Business Activity Statement (BAS) is lodged.

However, where an entity makes a creditable acquisition for a period or on a progressive basis and for consideration that is to be provided on a progressive or periodic basis (as would be the case with respect to leasing commercial premises), it attributes the GST credits as if each progressive or periodic component of the acquisition were a separate acquisition. Therefore, where an invoice is issued by the landlord or payment is made on a monthly basis, the tenant would attribute GST credits on a monthly basis.

Impact of rent holiday

The impact of a rent holiday on landlords and tenants that account for GST on an accruals basis is considered below.

Impact on landlord

A landlord would normally make a taxable supply of commercial premises by way of lease, as:

• the landlord would make the supply for monetary consideration;
• the supply would be made in the course or furtherance of an enterprise that the landlord carries on, being a commercial property leasing enterprise;
• the supply by the landlord is connected with Australia as the commercial premises are located in Australia; and
• the landlord is registered for GST.

However, where a rent holiday is granted, the landlord’s supply of the commercial premises to the tenant will not meet one of the key requirements for there to be a taxable supply – there will not be any consideration provided by the tenant in return for the supply of the commercial premises by way of lease as the tenant will not be paying rent during the rent holiday.

Given the supply of the premises will not constitute a taxable supply, the landlord will not issue a tax invoice (or any invoice, for that matter) to the tenant.

Further, as already mentioned above, the tenant will not pay any rent to the landlord. As no rent will be received by the landlord, no GST will need to be attributed to the tax periods which correspond with the rent-free period.

Impact on tenant

A tenant would usually make a creditable acquisition of commercial premises, where:

• the tenant makes the acquisition solely or partly for a creditable purpose;
• the supply of commercial premises is made as a taxable supply;
• the tenant provides, or is liable to provide, consideration for the supply; and
• the tenant is registered for GST.

As the supply of the commercial premises by the landlord during the rent holiday will not be a taxable supply and no rent will be paid by the tenant, the tenant will not make a creditable acquisition. Therefore, no GST credits are able to be attributed to the tax periods which correspond with the rent holiday period.