Sub-let GST confusion

Question from Luke updated on 22nd January 2016:

Please advise: I am a commercial lease-holder who owns and operates my business in the building. A portion is subleased to a residential renter for an all-inclusive weekly rate (includes utilities, etc). The first payment is confusing me as to how GST should be dealt with in my accounting for this income. And how will I complete my GST return to reflect this at the end of this month? 

Our expert Mark Withers responded:

This situation is covered by section 14(1)(c)(b) of the GST act. The section specifies that a supply is an exempt supply when " The supply of property by way of lease that is to be used for the principal purpose of accommodation in a dwelling by any person other than a registered person in the furtherance of a taxable activity".

This means that even though you are not using the property residentially yourself, the fact that someone else is, then requires the landlord to apportion the lease cost relative to the taxable and exempt supply portions. IE: The landlord should not be charging you GST on the residential portion of the lease you are paying and you in turn should be charging no GST on the sublet cost.

The rent the tenant pays you would not be declared in your GST return. There may also be further consequences for the landlord as the new concurrent use of asset rules may then require him to make an adjustment for the fact that some of the property is not supplied for use in a GST taxable activity.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer